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KembaraXtra-Islamic Finance-Islamic Capital Market -Objectives of the Stock Market
– Stock markets serve two primary functional purposes: raising capital for companies and creating profit opportunities for investors.
• Providing Capital to Companies
– Stock markets enable companies to raise funds by issuing shares to the public.
– When a company sells shares, it receives capital that can be used for business expansion, investment, and growth.
– Example:
– A company issues shares worth $1 million at $10 per share.
– This results in $10 million of capital raised for the company.
– The share issuance process is usually managed by an investment bank.
– The investment bank charges a standard fee, which is deducted from the total capital raised.
– Stock markets provide an alternative to bank borrowing.
– Companies can raise funds without taking loans and without the burden of interest payments.
– Issuing shares reduces financial pressure compared to debt financing.
• Providing Profit Opportunities to Investors
– Stock markets allow investors to participate in the profits of publicly listed companies.
– Investors benefit from stock ownership in two main ways:
• Dividend Income
– Some companies distribute profits to shareholders in the form of dividends.
– Dividends provide regular income per share owned.
– The total dividend earned depends on the number of shares held.
• Capital Gains
– Investors can earn profits by selling shares at a higher price than the purchase price.
– Example:
– An investor buys a share at $10 per share.
– The investor sells the share later at $15 per share.
– This results in a 50% profit on the original investment.
– Capital gains motivate investors to participate actively in stock markets.
• Overall Importance
– By linking companies needing funds with investors seeking returns, stock markets play a crucial role in economic development.
– They support business growth, investment activity, and wealth creation in the economy.
– Stock markets serve two primary functional purposes: raising capital for companies and creating profit opportunities for investors.
• Providing Capital to Companies
– Stock markets enable companies to raise funds by issuing shares to the public.
– When a company sells shares, it receives capital that can be used for business expansion, investment, and growth.
– Example:
– A company issues shares worth $1 million at $10 per share.
– This results in $10 million of capital raised for the company.
– The share issuance process is usually managed by an investment bank.
– The investment bank charges a standard fee, which is deducted from the total capital raised.
– Stock markets provide an alternative to bank borrowing.
– Companies can raise funds without taking loans and without the burden of interest payments.
– Issuing shares reduces financial pressure compared to debt financing.
• Providing Profit Opportunities to Investors
– Stock markets allow investors to participate in the profits of publicly listed companies.
– Investors benefit from stock ownership in two main ways:
• Dividend Income
– Some companies distribute profits to shareholders in the form of dividends.
– Dividends provide regular income per share owned.
– The total dividend earned depends on the number of shares held.
• Capital Gains
– Investors can earn profits by selling shares at a higher price than the purchase price.
– Example:
– An investor buys a share at $10 per share.
– The investor sells the share later at $15 per share.
– This results in a 50% profit on the original investment.
– Capital gains motivate investors to participate actively in stock markets.
• Overall Importance
– By linking companies needing funds with investors seeking returns, stock markets play a crucial role in economic development.
– They support business growth, investment activity, and wealth creation in the economy.
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