A financial market in which previously issued securities can be resold is called a ________ market.

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Question overview: A financial market in which previously issued securities can be resold is called a ________ market.

Since the provided answer indicates 'A. secondary', we’ll explore the concept behind this term and why it fits.

- Understanding the market types: In financial markets, new securities are sold in primary markets, where issuers raise capital directly from investors. After issuance, those securities are traded among investors in the secondary market. The key idea is that ownership changes hands without the issuer being involved in each trade.

- Why 'secondary market' is the correct label: The defining feature of a secondary market is the resale of existing securities. This includes stock exchanges and over-the-counter markets where investors buy and sell shares or bonds that have already been issued. The primary market, by contrast, deals with initial offerings like initial public offerings (IPOs) or bond issuances.

- What would be incorrect if there were other common options: If one were to consider terms like 'primary market' or 'merchant market' hypothetically, they would be inconsistent with the description given. The primary market concerns new issues, not resales. A term like 'tertiary market' is nonstandard in this context and does not capture the resale mechanism of existing securities. The use of 'secondary' specifically identifies the activity of trading existing securities rather than issuing new ones.

- Practical implications: Investors participate in the secondary market to provide liquidity, discover prices through supply and demand, and allow holders of securities to exit positions. This is a fundamental concept in market functioning and helps explain how markets support ongoing capital formation by enabling price discovery and liquidity for previously issued securities.

- Summary alignment: The statement aligns with established financial market taxonomy by naming the market where ownership transfers of existing securities occur, separate from the initial issuance process handled in the primary market.

A financial market in which previously issued securities can be resold is called a ________ market.

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