SIE Knowledge of Capital Markets Question 31: Answer and Explanation

Question: 31

Which of the following stand ready to continuously buy at a "bid" price or sell at a "sell" price?

• A. Market maker
• B. Dealer
• C. Trader
• D. Custodian

Correct Answer: A

Explanation:

A: Choice A is correct because a market maker provides a ready market for a security by continuously offering to "make a market" in the security by offering to purchase the security at a "bid" price or sell at a "sell" price. The difference in the two prices provide compensation to the market maker. Choice B is incorrect because dealers purchase investments for their own purposes. Choice C is incorrect because traders are dealers who buy and sell investments for their own purposes, intending to make short-term profits. Choice D is incorrect because a custodian maintains possession of assets for the benefit of the beneficiary named in the document that describes the agreement.