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

Which term describes the exchange market like the NYSE?

1. Second market

2. First market

3. Over-the-counter market

4. Private market

The correct answer is: First market

The first market refers specifically to the trading of securities that take place on exchanges like the New York Stock Exchange (NYSE). In the first market, stocks and securities are bought and sold directly between owners and investors on established exchanges where transactions are facilitated in a regulated environment. This provides transparency and ensures a certain level of liquidity because the securities listed have a set market price due to the ongoing trading activity. In contrast to the first market, other markets involve different trading methods and mechanisms. The second market typically involves trading of securities that are not listed on exchanges, often referred to as secondary trading. The over-the-counter market is where stocks not listed on formal exchanges are traded directly between brokers and dealers, usually offering less transparency and regulatory oversight compared to the first market. Lastly, a private market involves trading securities that are not available to the general public, often comprising limited partnerships or private equity investments. Thus, the term that best describes the exchange market like the NYSE is the first market.