Question

Securities not listed on one of the exchanges trade in the over-the-counter market. In this exchange, dealers "make a market" by:_______
A) buying stocks for inventory when investors want to sell.
B) selling stocks from inventory when investors want to buy.
C) doing both of the above.
D) doing neither of the above.

Answer 1

Answer:

(C) doing both of the above

Explanation:

When dealers "make a market", they do so by providing liquidity in a market that may lack such. Liquidity measures the ease with which participants can buy and sell in a market. Thus, by making a market, a dealer buys stocks for inventory when investors want to sell, and sells stocks from inventory when investors want to buy.