ACCA Financial Management (F9) Certification Practice Exam

What is the primary market for trading equities called?

1. Over-the-Counter Market

2. Capital Market

3. Stock Exchange

4. Forex Market

The correct answer is: Stock Exchange

The primary market for trading equities is referred to as the stock exchange. This is where newly issued shares of stock are first sold to investors through initial public offerings (IPOs). The stock exchange facilitates the process by providing a regulated and organized environment where buyers and sellers can conduct transactions. The significance of the stock exchange lies in its role in capital formation for companies, allowing them to raise funds by issuing shares to the public, which can then be traded among investors. It ensures transparency and fairness in trading, which contributes to investor confidence. The stock exchange also provides liquidity, meaning that investors can easily buy and sell shares, making it an essential component of financial markets. In contrast, other options such as the over-the-counter market refer to a decentralized market where trading occurs directly between two parties, and typically involves less regulation. The capital market encompasses both primary and secondary markets where long-term securities are traded, but it does not specifically refer to the market for initial equity offerings. The forex market specifically deals with currency trading and does not involve equity transactions. Therefore, the stock exchange is the most accurate term for the primary market in the context of trading equities.