Market Makers MCQs September 11, 2025 by u930973931_answers 50 Score: 0 Attempted: 0/50 Subscribe 1. Who are market makers in the stock market? (A) Regulators (B) Brokers who provide liquidity by quoting buy and sell prices (C) Retail investors (D) Depositories 2. Market makers help in maintaining: (A) Illiquidity (B) Price manipulation (C) Liquidity in the market (D) Monopoly 3. The difference between the bid price and ask price quoted by market makers is called: (A) Brokerage (B) Spread (C) Commission (D) Premium 4. Market makers earn profit primarily from: (A) Salary (B) Spread between buy and sell prices (C) Investor deposits (D) Dividend income 5. Which of the following is NOT a function of market makers? (A) Providing liquidity (B) Stabilizing prices (C) Issuing new shares (D) Narrowing spreads 6. Market makers are usually: (A) Large brokerage firms or banks (B) Individual retail investors (C) Company promoters only (D) Credit rating agencies 7. Which type of market relies heavily on market makers? (A) Over-the-counter (OTC) markets (B) Auction markets (C) Futures markets only (D) Money markets 8. Market makers ensure: (A) Continuous trading (B) High volatility (C) Investor losses (D) None of the above 9. In India, market makers are also known as: (A) Authorized participants (B) Jobbers (C) Sub-brokers (D) Mutual funds 10. Which of the following is a risk faced by market makers? (A) Inventory risk (B) Spread risk (C) Volatility risk (D) All of the above 11. The bid price is: (A) Price market maker sells at (B) Price market maker buys at (C) Price of IPO (D) Price of dividends 12. The ask price is: (A) Price market maker sells at (B) Price market maker buys at (C) Investorās profit (D) Exchange fees 13. Market makers are crucial in: (A) IPO allocation (B) Secondary market trading (C) Dividend distribution (D) Company law compliance 14. Who appoints market makers? (A) Regulators (B) Stock exchanges (C) Investors (D) Depositories 15. Which of the following helps reduce volatility in thinly traded securities? (A) SEBI (B) Market makers (C) Depositories (D) Investors 16. Market makers contribute to: (A) Efficient price discovery (B) Widening spreads (C) Eliminating liquidity (D) Market closure 17. Which financial market heavily depends on market makers? (A) Forex market (B) IPO market (C) Insurance market (D) Pension market 18. Market makers hold an inventory of: (A) Commodities only (B) Securities for trading purposes (C) Depositorās savings (D) Government accounts 19. Which of the following is NOT a benefit of market makers? (A) Improved liquidity (B) Narrow spreads (C) Increased transaction costs (D) Faster trading 20. Market makers are often criticized for: (A) Price manipulation (B) Conflicts of interest (C) Insider advantage (D) All of the above 21. Which type of stocks require market makers the most? (A) Blue-chip stocks (B) Illiquid or small-cap stocks (C) Large-cap stocks only (D) Dividend-paying stocks 22. The main role of market makers in ETFs is to: (A) Create and redeem ETF units (B) Manage dividends (C) Provide mutual fund advice (D) Act as SEBI regulators 23. In the NASDAQ, market makers are known as: (A) Dealers (B) Brokers (C) Issuers (D) Investors 24. Market makers are regulated by: (A) SEBI in India (B) SEC in USA (C) Stock exchanges (D) All of the above 25. Which is a key challenge for market makers? (A) Sudden price movements (B) Inventory holding costs (C) Competition (D) All of the above 26. Which spread indicates higher liquidity provided by market makers? (A) Wide spread (B) Narrow spread (C) No spread (D) None of the above 27. Market makers in commodities are also called: (A) Dealers (B) Hedgers (C) Jobbers (D) Brokers 28. Which is true for a market maker? (A) They always buy and sell securities (B) They can only buy (C) They can only sell (D) They act as auditors 29. Which of the following improves investor confidence? (A) Presence of market makers (B) Absence of regulation (C) Wider spreads (D) Limited liquidity 30. In India, market making in SME exchanges is: (A) Mandatory (B) Optional (C) Not allowed (D) Banned by SEBI 31. Market makers prevent: (A) Market manipulation (B) Wide price fluctuations in illiquid stocks (C) Insider trading (D) High dividends 32. The risk of holding securities by market makers is called: (A) Credit risk (B) Inventory risk (C) Dividend risk (D) Default risk 33. Market makers earn profits during: (A) Spread transactions (B) Dividend payouts (C) IPO allotments (D) SEBI penalties 34. Which of the following improves because of market makers? (A) Liquidity (B) Efficiency (C) Price discovery (D) All of the above 35. Which stock market segment benefits most from market makers? (A) SME platform (B) Blue-chip companies (C) Large-cap markets (D) Government bonds 36. Which of the following can appoint multiple market makers? (A) Stock exchanges (B) RBI (C) Ministry of Finance (D) Depositories 37. The compensation to market makers is sometimes provided by: (A) Companies issuing shares (B) Stock exchanges (C) Mutual funds (D) SEBI 38. Market makers help reduce: (A) Trading delays (B) Bid-ask spread (C) Investor uncertainty (D) All of the above 39. A market with no market makers is usually: (A) Highly liquid (B) Illiquid and volatile (C) Stable (D) Efficient 40. Which of the following is a disadvantage of market makers? (A) Conflict of interest (B) Risk of manipulation (C) Possible front running (D) All of the above 41. In derivatives markets, market makers provide: (A) Quotes for options and futures (B) IPO allocation (C) Depository services (D) Auditing services 42. Which of the following is true about bid-ask spreads of market makers? (A) Wider spreads increase profit but reduce liquidity (B) Narrow spreads reduce profit but increase liquidity (C) Both (A) and (B) (D) None of the above 43. The role of market makers is more important in: (A) Liquid markets (B) Illiquid markets (C) Government bond markets (D) Mutual funds 44. Who benefits directly from the presence of market makers? (A) Investors (B) Exchanges (C) Companies (D) All of the above 45. Market makers are sometimes accused of: (A) Price manipulation (B) Creating artificial demand (C) Front running trades (D) All of the above 46. The concept of market makers originated in: (A) London Stock Exchange with jobbers (B) Indian Stock Market (C) New York Stock Exchange (D) Singapore Exchange 47. In modern electronic trading systems, market makers are also called: (A) Liquidity providers (B) Brokers (C) Sub-brokers (D) Underwriters 48. Market makers in ETFs ensure: (A) Tracking error is minimized (B) Units are created/redeemed (C) Liquidity in ETF trading (D) All of the above 49. In times of market stress, market makers may: (A) Withdraw quotes (B) Widen spreads (C) Reduce liquidity (D) All of the above 50. Which of the following best describes the role of market makers? (A) Provide continuous two-way quotes (B) Improve liquidity (C) Assist in fair price discovery (D) All of the above