Answer the questions on the basis of following passage:-
Adhunik Ltd is a consumer goods manufacturing unit running the business for the last 11 years. The C.E.O Mr. Aman wants to raise capital with an objective to modernise the existing plant. For this he has made a plan to offer equity and preference shares in the primary market. He uses a combination of methods. He got the prospectus printed, so as to make a direct appeal to investors. Also he has invited offers from some brokers to buy shares at an enbloc value. Since Mr. Aman has a great circle of friends who are institutional investors, he can soon gather capital. Another method, that he wants to use is the online system of stock exchange.
In the above case Mr Aman is using all methods of floatation which are used in primary market because......
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → It deals in new securities issued for the first time
Option (1) It deals in new securities issued for the first time — Correct. The primary market is also called the new issues market, because it deals with new securities issued for the first time. Mr Aman wants to raise fresh capital by new shares, so this fits. Here money goes from savers straight to the company.
Option (2) It is more transparent — Incorrect. Transparency is not what defines the primary market. It is not the reason for using these methods.
Option (3) No permissions are required from SEBI — Incorrect. This is wrong. A public issue must follow the Companies Act and the SEBI guidelines.
Option (4) Existing shares can be easily traded here — Incorrect. Buying and selling of existing shares happens in the secondary market (stock exchange), not in the primary market.
Note: Although the chapter ‘Financial Markets’ was dropped from the NCERT textbooks during rationalisation, it has stayed in the NTA syllabus every year since 2022, except for 2025, and it is part of the syllabus again from 2026. This question is therefore based on the pre-rationalised NCERT, an extract from which is given below. The chapter left the book but never left the exam, so keep the old book close. 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. …” “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. …” |