Which of the following statements about the primary market is correct?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → The investors in the primary market include banks, insurance companies, mutual funds and individuals.
Option (1) The primary market deals in existing securities that are bought and sold among investors. — Incorrect. Buying and selling of existing securities among investors happens in the secondary market. The primary market deals with new securities issued for the first time.
Option (2) The investors in the primary market include banks, insurance companies, mutual funds and individuals. — Correct. The primary market, also called the new issues market, sells new securities to investors. Its investors are banks, financial institutions, insurance companies, mutual funds and individuals.
Option (3) The primary market helps existing investors to disinvest their holdings of securities. — Incorrect. Helping existing investors to disinvest, that is, to sell the securities they already hold, is a role of the secondary market.
Option (4) The primary market is located at specified places, like the trading floor of an exchange. — Incorrect. The secondary market is located at specified places. The primary market has no fixed geographical location.
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. …” |