Certified Financial Management Specialist Practice Exam

In what type of market do dealers act as intermediaries to facilitate transactions?

1. Bid-ask markets

2. OTC markets

3. Dealer markets

4. Exchange markets

The correct answer is: Dealer markets

Dealers act as intermediaries in dealer markets, which is the correct answer. In these markets, dealers purchase and hold securities in their inventory, and they sell these securities to investors. This model allows for more liquidity since dealers are readily available to buy and sell, making it easier for investors to execute trades without needing to find a direct counterparty. The dealer’s role is crucial as they help facilitate transactions by providing a continuous market, even when there may not be a matching buyer or seller immediately available. In contrast, bid-ask markets refer more to the pricing mechanism rather than a specific type of market structure. OTC (over-the-counter) markets also involve dealers but are often more informal and do not necessarily provide the same level of structure and liquidity as structured dealer markets. Exchange markets involve a centralized platform where securities are traded, which typically does not employ dealers in the same manner as dealer markets do, as trading occurs directly between buyers and sellers through an exchange.