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

Which of the following describes the secondary market?

1. A market for new stock issuances

2. A type of mutual fund trading platform

3. A negotiated market including NASDAQ and non-NASDAQ securities trading

4. A venue for direct sales of securities from issuer to investors

The correct answer is: A negotiated market including NASDAQ and non-NASDAQ securities trading

The secondary market serves as a platform where investors can buy and sell securities that have already been issued, as opposed to purchasing newly issued stocks or securities. This market facilitates the trading of securities among investors without the involvement of the original issuers, enabling liquidity in the financial markets. Classified as a negotiated market, the secondary market includes prominent exchanges such as NASDAQ, where securities are traded electronically, as well as other venues that handle the trading of non-NASDAQ securities. This characteristic of trading existing securities provides investors with an opportunity to manage their portfolios, respond to changing market conditions, and establish a fair market price based on supply and demand dynamics. In contrast, other options describe different aspects of the financial markets. For instance, a market for new stock issuances pertains to the primary market, while a mutual fund trading platform does not directly relate to the secondary market. Additionally, a venue for direct sales from issuers to investors describes a primary market function, where securities are sold for the first time. Understanding these distinctions helps clarify the role of the secondary market in providing a space for the trading of securities after they have been initially offered.