The secondary market allows investors to buy or sell bonds and equities after they were issued in the primary market

Question

BlackTom AI · Accepted Answer

The question statement is about the role of the secondary market in securities trading.
Option presented: 'allows investors to buy or sell bonds and equities after they were issued in the primary market'.
First, consider what the secondary market is: it is the arena where existing, already-issued securities are traded among investors, not where new issues are sold by the issuer. This means that the primary purpose of the secondary market is liquidity and price discovery for instruments like bonds and stocks.
Why this statement is accurate: in the secondary market, participants can execute trades after the initial issuance in the primary market, enabling ongoing buying and selling of both bonds and equities. This aligns with the fundamental definition of the secondary market as the venue for trading pre-existing securities.
Why this statement is sound in terms of breadth: it correctly includes bonds alongside equities, recognizing that both asset classes have active secondary markets where terms of trade are determined by supply and demand, yield considerations, and market sentiment.
If we were to contrast with alternative phrasings, it would be inaccurate to imply that the secondary market is where new securities are issued by the issuer; that function sits in the primary market. It would also be inaccurate to claim that only equities or only bonds trade in the secondary market, since both categories have established secondary markets though with different characteristics (e.g., bond liquidity can vary by maturity and credit quality).
In sum, the statement captures a core truth about the secondary market: it enables ongoing buy/sell activity for bonds and equities after their initial issuance in the primary market.

COMM_V 298 201-207 2024W2 Class 1 & 2: Practice Quiz

The secondary market allows investors to buy or sell bonds and equities after they were issued in the primary market

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