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Questions and Answers
Which market refers to a market where already issued securities and financial instruments are traded?
Which market refers to a market where already issued securities and financial instruments are traded?
- Secondary market (correct)
- Exchange
- Primary market
- OTC market
What is the main difference between an exchange and the OTC market?
What is the main difference between an exchange and the OTC market?
- OTC market and exchange are both decentralized and unorganized.
- OTC market is decentralized and unorganized, while the exchange is a formal stock exchange with defined rules. (correct)
- OTC market is a formal stock exchange with defined rules, while the exchange is a decentralized and unorganized.
- OTC market is a formal stock exchange with defined rules, while the exchange is decentralized and unorganized.
What does OTC stand for?
What does OTC stand for?
- Over the Telephone Counter
- Over the Trade Counter
- Over the Table Counter
- Over the Counter (correct)
What is the role of an exchange in trading securities?
What is the role of an exchange in trading securities?
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Which market is under the supervision of the exchange?
Which market is under the supervision of the exchange?
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Study Notes
Financial Markets Overview
- The secondary market involves trading already issued securities and financial instruments.
- Investors buy and sell securities that have previously been distributed in the primary market.
Exchange vs. OTC Market
- The main difference between an exchange and the over-the-counter (OTC) market lies in regulation and structure.
- Exchanges are formal, regulated venues where transactions are executed, while OTC markets are decentralized and less regulated.
- Exchanges usually provide more liquidity and transparency compared to OTC markets.
Terminology
- OTC stands for "Over-The-Counter," referring to the trading of financial instruments directly between parties without a centralized exchange.
Role of an Exchange
- Exchanges facilitate the trading of securities by providing a platform for buyers and sellers to connect.
- They help ensure fair pricing, enhance liquidity, and provide regulatory oversight, enhancing investor confidence.
Market Regulation
- The exchange supervises the activities within its trading platform, ensuring compliance with related regulations.
- Securities traded on exchanges are subject to stricter rules compared to those traded in the OTC market.
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