Certified Residential Appraiser Practice Exam

What does the capital market refer to?

1. The trade of physical property

2. The interaction of buyers and sellers trading financial instruments

3. An exclusive market for government bonds

4. A marketplace solely for real estate

The correct answer is: The interaction of buyers and sellers trading financial instruments

The capital market encompasses the interaction of buyers and sellers who engage in trading financial instruments, which include stocks, bonds, and other securities. This market plays a crucial role in the economy by providing a platform for raising capital, where businesses and governments can access funds needed for growth and operations. In a well-functioning capital market, investors are able to buy and sell these financial assets, facilitating liquidity and price discovery. The other options do not accurately capture the broader scope of the capital market. The trade of physical property pertains more to the real estate market, which is separate from capital markets focused on financial instruments. An exclusive market for government bonds would be a narrower segment of the capital market, rather than defining it as a whole. A marketplace solely for real estate again focuses on a specific type of asset rather than the diverse range of financial instruments found in capital markets.