Which of the following statements about the primary and secondary markets are NOT true?
(A) The primary market is also known as the stock exchange.
(B) The secondary market is also known as the new issues market.
(C) In the primary market, securities are issued for the first time.
(D) Offer through prospectus, offer for sale, private placement and rights issue are methods of floating new issues in the secondary market.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B) and (D) Only
(A) The primary market is also known as the stock exchange. — False. Stock exchange is another name for the secondary market. The primary market is the new issues market.
(B) The secondary market is also known as the new issues market. — False. The names are swapped. The secondary market is the stock market or stock exchange.
(C) In the primary market, securities are issued for the first time. — True. The primary market deals with new securities issued for the first time.
(D) Offer through prospectus, offer for sale, private placement and rights issue are methods of floating new issues in the secondary market. — False. These are methods of floating new issues in the primary market. The secondary market trades only existing securities.
NCERT (Pre-rationalised Edition): “Primary Market The primary market is also known as the new issues market. It deals with new securities being issued for the first time. The essential function of a primary market is to facilitate the transfer of investible funds from savers to entrepreneurs seeking to establish new enterprises or to expand existing ones through the issue of securities for the first time. The investors in this market are banks, financial institutions, insurance companies, mutual funds and individuals.” “Methods of Floatation There are various methods of floating new issues in the primary market :” “1. Offer through Prospectus: Offer through prospectus is the most popular method of raising funds by public companies in the primary market. …” “2. Offer for Sale: Under this method securities are not issued directly to the public but are offered for sale through intermediaries like issuing houses or stock brokers. …” “3. Private Placement: Private placement is the allotment of securities by a company to institutional investors and some selected individuals. …” “4. Rights Issue: This is a privilege given to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company. …” “Secondary Market The secondary market is also known as the stock market or stock exchange. It is a market for the purchase and sale of existing securities. It helps existing investors to disinvest and fresh investors to enter the market. It also provides liquidity and marketability to existing securities. …” |