Question : Case Study 74
UVW Ltd. is a conglomerate that has recently traded its shares on a stock exchange. The company's management is considering the functions of a stock exchange.
Question :
What is the function of a stock exchange that ensures transparency in trading and prevents fraudulent activities?
Option 1: Allocation of resources
Option 2: Providing loans to companies
Option 3: Regulation of credit rating agencies
Option 4: Regulation of insider trading
Correct Answer: Regulation of insider trading
Solution : The correct answer is (d) Regulation of insider trading
The function of a stock exchange that ensures transparency in trading and prevents fraudulent activities is the regulation of insider trading. Insider trading involves the illegal practice of trading stocks or other securities based on non-public, material, and confidential information about the company. Stock exchanges enforce rules and regulations to prohibit insider trading, which helps maintain fairness and transparency in the market by ensuring that all investors have equal access to information and opportunities. These regulations aim to prevent individuals or entities from taking advantage of privileged information to gain unfair profits in the market.
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