1.2.1 Types Of Markets Flashcards
Tom wishes to buy shares of a company through an organized exchange where stocks are listed and traded. Which type of market is Tom using?
A. OTC market
B. Secondary market
C. Private market
D. Primary market
B. Secondary market
Explanation: The secondary market involves the buying and selling of previously issued securities among investors, typically on an organized exchange.
A trading venue where buy and sell orders are matched electronically without a physical trading floor is known as:
A. An electronic communications network (ECN)
B. A primary market
C. An OTC market
D. A direct market
A. An electronic communications network (ECN)
Explanation: ECNs electronically match buyers and sellers to execute securities transactions without requiring a physical trading floor.
In which type of market do transactions typically occur between very large institutional investors, often involving large quantities of shares that are not disclosed to the public until after the transaction is completed?
A. Retail market
B. Dark pool
C. Secondary market
D. Primary market
B. Dark pool
Explanation: Dark pools are private financial forums or exchanges for trading securities where large trades by institutional investors are made away from the public eye.
Which market is characterized by face-to-face trading on a physical trading floor?
A. Electronic market
B. OTC market
C. Exchange market
D. Dark pool
C. Exchange market
**Explanation: **Traditional exchange markets often feature physical locations where traders can meet and conduct transactions in person.
An investor sells shares of a company to another investor on the New York Stock Exchange. This transaction is a part of which market?
A. Primary market
B. Secondary market
C. OTC market
D. Private placement market
B. Secondary market
Explanation: Transactions between investors buying and selling existing shares on an exchange such as the NYSE occur in the secondary market.
Which market type involves direct trade between investors over electronic systems, without the involvement of an organized exchange?
A. Direct market
B. OTC market
C. Exchange market
D. Auction market
B. OTC market
**Explanation: **The OTC market allows investors to trade directly with each other over electronic systems, without the need for an organized exchange.
A company wishes to sell its shares to a select group of investors rather than through a public offering. This type of issuance occurs in what market?
A. Secondary market
B. Primary market
C. Private market
D. Public market
C. Private market
Explanation: Private markets involve transactions of securities directly between the issuer and a select group of private investors, typically without a public offering.
Which type of market typically involves bidding processes where the highest bidder purchases the asset?
A. Direct market
B. OTC market
C. Auction market
D. Dark pool
C. Auction market
**Explanation: **Auction markets involve a bidding process where buyers submit their highest price to purchase the securities, commonly seen in stock exchanges like the NYSE.
An investor wishes to purchase municipal bonds and prefers to conduct transactions through brokers or dealers rather than an exchange. Which market is this investor using?
A. Primary market
B. Secondary market
C. OTC market
D. Auction market
C. OTC market
Explanation: Municipal bonds are often traded over-the-counter (OTC), where transactions occur directly between parties via dealers or brokers instead of on a centralized exchange.
A startup is raising capital by selling shares directly to angel investors before going public. These transactions are part of which market?
A. Private placement market
B. Primary market
C. Secondary market
D. Public market
A. Private placement market
**Explanation: **The private placement market involves selling securities to a relatively small number of select investors as part of a non-public offering.
Which market facilitates the issuance of new securities when a company decides to go public?
A. Initial Public Offering (IPO) market
B. Secondary market
C. OTC market
D. Auction market
A. Initial Public Offering (IPO) market
Explanation: The IPO market is a segment of the primary market where new securities are issued to the public for the first time.
If an investor trades stocks on NASDAQ, what type of market structure are they participating in?
A. Electronic communications network (ECN)
B. Auction market
C. Over-the-counter (OTC) market
D. Both A and B
D. Both A and B
Explanation: NASDAQ operates as both an electronic communications network (ECN) and an auction market, facilitating the electronic matching of buy and sell orders.
A group of investors trades high volumes of stocks anonymously in a venue that minimizes market impact. Which type of trading venue are they using?
A. Dark pool
B. Primary market
C. Auction market
D. OTC market
A. Dark pool
Explanation: Dark pools are private exchanges or forums for trading securities that allow investors to conduct trades anonymously, often in large volumes, with minimal market impact.
Which of the following markets is best described as a place where securities are traded between investors without the involvement of the issuing company after the initial sale?
A. Primary market
B. Secondary market
C. Auction market
D. OTC market
B. Secondary market
Explanation: The secondary market involves trading of securities among investors without the issuing company’s direct involvement after the securities’ initial issuance.
A technology firm wants to issue shares through a method that allows the market to set the price based on supply and demand. What type of offering does this describe?
A. Fixed-price offering
B. Dutch auction
C. Private placement
D. Direct listing
B. Dutch auction
Explanation: A Dutch auction is a type of offering where the price of the offering is determined based on bids from investors, allowing the market to set the price based on supply and demand.
