Final answer:
Investment dealers act as principals in the secondary markets by buying and selling securities directly from their own inventory.
Step-by-step explanation:
Investment dealers act as principals in the secondary markets by buying and selling securities directly from their own inventory. When acting as principals, investment dealers take on the risk of holding securities in their own accounts and managing their own inventory. They make a profit by selling the securities at a higher price than they bought them for, and they may also earn income through commissions and fees.