Which of the following contributes MOST to the marketability of a security?

Question

BlackTom AI · Accepted Answer

Restating the question: Which of the following contributes MOST to the marketability of a security?

Option presented: "D. A large, active secondary market"

Analysis of the option:
- The core idea here is marketability, which refers to how easily a security can be bought or sold without causing a drastic change in its price. A large, active secondary market directly enhances marketability by increasing liquidity: more buyers and sellers, tighter bid-ask spreads, and easier execution at fair prices.
- Why this strengthens marketability: when a security has a broad pool of participants and frequent trading, it is easier to enter or exit positions, and prices tend to reflect information more efficiently. Marketability is largely about the ease of converting to cash, which an active secondary market supports through higher trading volume and lower transaction costs.
- Potential nuances to consider: if there were other options, they might refer to things like strong primary market activity, credit quality, or issuer transparency. However, none of those factors alone surpass the impact of a robust secondary market on liquidity and ease of trading. A security could have excellent fundamentals, but without an active market to trade in, marketability remains limited.
- On possible misconceptions: some students might think that factors like high yield or long-term stability alone guarantee marketability, but without a liquid market, investors may still face difficulty selling quickly or at a fair price.
- Since the provided options list only this one choice, there is no alternative option to compare against. In a real exam scenario, you would weigh all listed factors, but here the emphasis on secondary-market activity is the most direct and powerful contributor to marketability, as it governs liquidity and tradability directly.

Conclusion (inference from reasoning): Given the focus on marketability as liquidity and ease of trade, a large, active secondary market best facilitates these attributes by increasing liquidity, reducing costs, and enabling timely transactions.

33:390:430:90 TREASURY MANAGEMENT Quiz - Chapter 6 - Capital Markets

Which of the following contributes MOST to the marketability of a security?

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