Financial management revision question and answer

CPA-Financial-Management-Section-3 Revision kit

Briefly describe the benefits of the Central Depository System (CDS) to the following stakeholders.
(i) Government;
(ii) Capital Markets Authority and Nairobi Stock Exchange;
(iii) Investors.
ANSWER
The benefits of central depository system (CDS) to the:

(i) Government:
– There will be greater mobilization of savings in the economy
– It is a convenient way for FOI
– It reduces the cost of capital since transaction costs are significantly reduced.

(ii) Capital Market Authority and NSE
– Increased share turnover
– Increased stock market liquidity
– Improved transparency of stock market
– Better service delivery

(iii) Investors
– Reduced share transfer costs
– Faster and more efficient settlement of deals
– Investments become more liquid
– Reduced share certificate is required (dematerialisation)

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