Chartered Alternative Investment Analyst Association (CAIA) Practice Exam

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Prepare for the Chartered Alternative Investment Analyst Association (CAIA) Exam with structured quizzes, flashcards, and detailed explanations. Study efficiently and boost your confidence for the test!

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Which of the following markets involves the trading of newly issued stocks?

Secondary market
Third market
Primary market
Fourth market

The correct answer is: Primary market

The market that involves the trading of newly issued stocks is the primary market. In this market, companies offer their shares to the public for the first time through an Initial Public Offering (IPO). This process allows companies to raise capital needed for growth, expansion, or other operational needs. Investors in the primary market are purchasing these newly created shares directly from the issuing company, facilitating the transfer of capital from investors to companies. In contrast, the secondary market involves trading existing shares that have already been issued and are being bought and sold among investors. The third market refers to the trading of exchange-listed securities in the over-the-counter (OTC) market, while the fourth market generally pertains to direct trading between institutional investors, bypassing traditional exchanges. Understanding the distinct characteristics of these markets is essential when analyzing how the flow of capital and investments operate within the financial system.