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John Moffat.
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HamzaYusuf
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In Chapter 15 para 2 states that Market value of a share is effectively determined by the shareholders – it is the price that shareholders are prepared to pay for a share on the stock exchange.
BUT in your previous lectures you stated that it is the DEALER on the stock exchange that set the price for a share after taking supply & demand level into account.
I didn’t understand that… Please explain.
John Moffat
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The dealer certainly is the person who fixes the prices, but the price he/or she fixes is whatever investors are prepared to pay coupled with the price at which holders are prepared to sell.
Think about a trader selling potatoes on the market. If nobody is buying then they reduce the price to whatever people are prepared to pay in order for them to be able to sell all their potatoes. If there is enormous demand then they increase their prices to whatever people are prepared to pay. So it is the customers who determine what price the trader ends up charging.
It is the same with dealers on the stock exchange. Although it is them who publish the prices from day to day (just as the trader in potatoes does), the price they publish depends on the supply and demand from the investors using them.
HamzaYusuf
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