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

What role do market makers play in the second market?

1. They facilitate trades by displaying bid and ask prices

2. They offer futures trading options

3. They serve as brokers for small investors

4. They underwrite new stocks

The correct answer is: They facilitate trades by displaying bid and ask prices

Market makers play a crucial role in the functioning of the second market, also known as the secondary market. They facilitate trades by displaying bid and ask prices, which are essential for enabling the buying and selling of securities among investors. Market makers provide liquidity to the market by ensuring that there is always a buyer or a seller available for a particular security. They do this by placing buy and sell orders at specified prices, effectively creating a marketplace where transactions can occur without significant delays. Their involvement helps to narrow the bid-ask spread, making it more efficient for investors to execute trades. In contrast, the other options refer to different functions within the broader financial system. Offering futures trading options pertains to another market segment primarily focused on derivatives rather than the equities traded in the secondary market. Serving as brokers for small investors involves executing trades on behalf of clients but does not encompass the market making function. Underwriting new stocks is part of the primary market process, where new securities are issued and sold for the first time, not the role of market makers in facilitating existing security trades. Thus, the primary function of market makers is accurately captured by their role in displaying bid and ask prices, which is fundamental for maintaining an orderly and liquid marketplace.