In contrast to public markets, private markets are characterized by individually negotiated transactions that take place without the aid of a centralized market. Therefore, private markets will generally have:

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Question restatement: In contrast to public markets, private markets are characterized by individually negotiated transactions that take place without the aid of a centralized market. Therefore, private markets will generally have:

Option A: 'high transaction costs and high liquidity.' This pairing is unlikely because private markets lack a centralized venue, which tends to raise costs due to bespoke negotiations and due diligence; at the same time, liquidity is typically lower because fewer buyers and sellers participate at any given time, making quick trades harder. The combination of high costs with high liquidity is discordant with the nature of privately negotiated deals.

Option B: 'high transaction costs and low liquidity.' This option aligns with common observations about private markets: transactions are bespoke and require extensive due diligence, negotiations, and potentially longer time to execute, all contributing to higher costs. The absence of a centralized market also reduces liquidity since there are fewer observable quotes and fewer counterparties readily available, making sales or exits more difficult. This pairing is widely recognized as a characteristic of private markets.

Option C: 'low transaction costs and high liquidity.' Low costs and high liquidity would imply efficient, standardized trading akin to public markets or well-regulated exchange platforms. Private markets, by contrast, do not benefit from standardization, standard contracts, or broad market participation, so this option describes a scenario typical of public markets, not private ones.

Option D: 'low transaction costs and low liquidity.' Low costs could be plausible if there were standardization and deep market participation, but private markets typically incur higher due to bespoke processes. Low liquidity, while possible in some niches, is still generally paired with higher costs; the combination of both low costs and low liquidity does not accurately reflect the conventional private-market setting described in the question.

In summary, the reasoning underpinning the private-market characteristics points to higher costs driven by bespoke arrangements and reduced liquidity due to a smaller pool of buyers and sellers. The remaining options either imply standardized, widely traded markets or mischaracterize the trade-off between costs and liquidity in private negotiations, making them inconsistent with the described context.

R E 250 A Final Exam

In contrast to public markets, private markets are characterized by individually negotiated transactions that take place without the aid of a centralized market. Therefore, private markets will generally have:

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