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Cause And Effect Of Stock Exchange Essay

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A Stock Exchange is an indispensable piece of any country. It is the indicator through which the economy of a nation is perceived by numerous individuals, financial institutions, investors, etc. despite the fact that there are other financial devices to judge the actual wellbeing of the economy. The Stock Exchange in any economy acts as an intermediate between the investors (capital lenders) and the companies (capital borrowers). In India, NIFTY and BSE are the most prominent stock exchanges. Out of the total free float market capitalization of the stocks listed on NSE, CNX Nifty Index is the representative of almost 66.17% stocks. Likewise, 75% of the trading of stocks takes place on BSE. Everyday millions of transactions are held worldwide. There are many economic reflectors of the country out of which, Stock market is one …show more content…

The effect of one leads to the cause of another. This could be explained as when the rate of inflation increase in a country, it results in the increase in prices of goods which further makes the goods of that country less competitive in contrast to other countries. As a result of which the demand of exports of that country falls due to which, the demand for the country’s currency also declines. And finally it ends up with depreciating the value of Currency. On the contrary, if a country’s currency depreciates then it leaves an impact on the imports of the country, making it more expensive. Hence, the demand for the exports increases which results in Demand-Pull Inflation which arises due to the condition where the demand of goods is more than its supply and increase in demand leads to increase in price of good because supply is the limiting factor. This is how inflation and exchange rate affect each other. Both Exchange Rate and Inflation play a crucial role in every economy, that’s why it is necessary to study the impact of both on the stock

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