Question : Case Study 85
GHI Corporation is a startup planning to trade its shares on a stock exchange. The company's management is reviewing the roles of stock exchanges.
Question :
What is the function of a stock exchange that ensures transparency in trading and prevents fraudulent activities?
Option 1: Regulation of insider trading
Option 2: Providing loans to companies
Option 3: Allocation of resources
Option 4: Regulating credit rating agencies
Correct Answer:
Regulation of insider trading
Solution : The correct answer is (a) 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 trading in a company's stocks or other securities based on non-public, material information about that company. Stock exchanges enforce rules and regulations to prohibit insider trading, helping 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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