Describe the functions of a stock exchange.

The functions of a stock exchange include:

1. Facilitating the buying and selling of securities: A stock exchange provides a platform where investors can trade stocks, bonds, and other financial instruments. It acts as a marketplace where buyers and sellers can come together to execute transactions.

2. Providing liquidity: Stock exchanges enhance market liquidity by creating a centralized marketplace where investors can easily buy or sell securities. This liquidity allows investors to convert their investments into cash quickly and efficiently.

3. Price discovery: Stock exchanges play a crucial role in determining the prices of securities. Through the continuous buying and selling activities, the exchange helps in establishing fair and transparent prices based on supply and demand dynamics.

4. Ensuring fair and transparent trading: Stock exchanges enforce rules and regulations to ensure fair and transparent trading practices. They establish listing requirements for companies, monitor trading activities, and enforce compliance with disclosure and reporting standards.

5. Offering a platform for capital raising: Companies can raise capital by issuing stocks or bonds through an initial public offering (IPO) on a stock exchange. This allows businesses to access funds from a wide range of investors and facilitates economic growth.

6. Providing market information: Stock exchanges provide real-time market data, including stock prices, trading volumes, and other relevant information. This information is crucial for investors, analysts, and researchers to make informed investment decisions.

7. Offering risk management tools: Stock exchanges provide various risk management tools, such as options and futures contracts, which allow investors to hedge against price fluctuations or speculate on future market movements.

Overall, stock exchanges play a vital role in the functioning of financial markets by facilitating trading, providing liquidity, ensuring fair practices, and contributing to capital formation and price discovery.