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“ Stock market contributes to better allocation of capital and intensities capital formation.” Do you agree? Explain.

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Yes, I agree with the statement. Stock market contributes to better allocation of capital and intensifies capital formation. The shares of profit making companies are quoted at higher prices and are actively traded so such companies can easily raise fresh capital from stock market. The general public hesitates to invest in securities of loss making companies. So stock exchange facilitates allocation of investor’s fund to profitable channels. Stock exchange intensifies the process of capital formation through creating the habit of saving, investing and risk taking among the investing class by converting their savings into profitable, safe investments.

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