Economics Essay on the Australian Sharemarket and How it Works

Essay by champlooHigh School, 10th gradeA+, July 2006

download word file, 6 pages 5.0

Downloaded 25 times

The Share Market

The share market in Australia has two main functions. Firstly, it provides a link so that listed companies can receive equity funds to expand their operations and so that the people with the funds can invest and receive return in capital gains and dividends income. Secondly, it provide a market place where buyers and sellers can come together for the trading of shares and other securities at the current market price which has been determined by the forces of supply and demand. The share market also is included in the internal regulation of security exchanges through the ASX (Australian Stock Exchange).

The role of the share market can be considered from 3 main perspectives: the shareholders/individuals, the companies, and the economy as an entirety. When individuals purchase shares they receive part ownership of the company and a share of any company profits through dividends. Shareholders can also earn income through the trade of shares in the secondary market with the aim of earning capital gains.

Therefore, individuals are able to create income for themselves through capital gains and dividends in the share market.

Although most of the trade on the share market is as a secondary market, with shareholders trading in equity interests the share market also includes a primary market where companies initially sell their shares. When a company decides to list itself on the stock exchange it offers its shares to the public by floating the firm. The reason for this float is so that the company can gain access to funds that they can then use to expand their company and operations. When a shareholder buys shares directly from the primary market, this is where the investment in the company occurs. Hence, it is beneficial for the company to float itself, as...