FRM Part I · FRM Exam Part I · Corporate Bonds
Which statement best describes how corporate bond trading typically differs from equity trading?
Corporate bonds trade mainly over the counter through dealers, and many individual issues trade infrequently. This contrasts with equities, which trade largely on exchanges with continuous order books. Issuers have many differing bonds, which fragments liquidity and makes dealer inventory and negotiation important.
- ACorporate bonds trade mainly on centralized exchanges with continuous public order books
- BCorporate bonds trade mainly over the counter through dealers, and many issues trade infrequentlyCorrect
- CCorporate bonds trade in uniform issues so every bond of an issuer is highly liquid
- DCorporate bond prices are set once daily by the issuer
Explanation
Most corporate bond trading is dealer-based over the counter, and a large share of individual issues trade rarely because issuers have many bonds with differing terms. The exchange-based, order-book description fits equities, not most bonds.
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