Future Business Leaders of America (FBLA) Securities and Investments Practice Test

What is the second market also referred to as?

1. Negotiated market

2. Exchange market

3. Primary market

4. Future market

The correct answer is: Negotiated market

The second market, also known as the "over-the-counter" (OTC) market, is referred to as a negotiated market. This is where securities that are not listed on a formal exchange are traded directly between parties. In a negotiated market, prices are determined through direct negotiation rather than being set on an exchange floor or through a centralized trading system. This allows for greater flexibility and can often accommodate trades of less liquid or less standardized securities. On the other hand, the exchange market refers to the formal exchanges where securities are traded, such as the New York Stock Exchange (NYSE) or NASDAQ, which operate under stricter regulations and standardized processes. The primary market is where securities are created and sold for the first time, typically through initial public offerings (IPOs). The future market focuses on the trading of futures contracts, which are agreements to buy or sell an asset at a predetermined future date and price. Each of these other terms describes different types of markets with distinct functions and characteristics, clarifying why the negotiated market is the proper term for the second market.