Nigerian Stock Exchange – SS3 Financial Accounting Lesson Note (First Term)

A stock exchange is a form of exchange that provides services for stock brokers and traders to trade stocks, bonds, and other securities. It also provides facilities for the issue and redemption of securities and other financial instruments and capital events including the payment of income and dividends.

Behavioural objectives

By the end of the lesson, students should be able to:

• define a stock exchange;
• describe the Nigerian Stock Exchange;
• name and explain the two classes of stock exchange;
• outline the roles of the stock exchange.

What is the Nigerian Stock Exchange?

The Nigerian Stock Exchange is an organised market that uses electronic networks to buy and sell stocks. Trading on the Nigerian Stock Exchange increases the speed of operation and reduces the cost of transactions. There is also less emphasis on a physical place.

What are the classes of stock exchange?

• Primary market
• Secondary market

Primary market

This is where the initial offering of stocks and bonds exchange hands.

Secondary market

This is where second-hand stocks are traded.

What are the roles of the stock exchange?

• Raising capital for business
• Mobilising savings for investments
• Facilitating company growth
• Profit sharing
• Corporate governance
• Creating investment opportunities for small investors
• An avenue for the government to borrow funds to finance projects
• Barometer of the economy

Evaluation

1. Define stock exchange.
2. Mention and explain two classes of stock exchange.
3. Outline five roles of the stock exchange.