Question

(TRUE or FALSE?) In primary markets, dealers make markets for securities and do not bear any risk, and they make a market for a security by buying and selling from an inventory of securities they do not own.

Answer 1

The statement is FALSE because dealers in primary markets bear the risk of underwriting new issues and do not trade securities from an inventory they do not own. Instead, they facilitate the issuance of securities from issuers to investors.

Step-by-step explanation:

The statement is FALSE. In primary markets, dealers bear the risk associated with underwriting and selling new issues of securities, such as stocks or bonds, directly to investors. The statement describes characteristics more closely aligned with secondary markets, where securities are traded among investors after the initial issuance, providing liquidity and a mechanism for price discovery. In the primary market, dealers do not make a market for securities by buying and selling from an inventory of securities they do not own; instead, they facilitate the issuance of new securities from the issuer to the investor.