Based on following case study, answer the question.

Financial Market are classified on the basis of the maturity of financial Instruments traded in them. Instruments with a maturity of less than one year are traded in money market while instruments with longer maturity are traded in Capital market. Instruments with a maturity of short term/ period upto one year are close substitutes for money. While long term funds market, direct savings of the community into their most productive use leading to growth and development of the economy.

Identify the market that is also known as the new issues market.

Primary Market

The correct answer is option (3)- Primary Market.

Primary Market is also known as the new issues 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. A company can raise capital through the primary market in the form of equity shares, preference shares, debentures, loans and deposits. Funds raised may be for setting up new projects, expansion, diversification, modernisation of existing projects, mergers and takeovers etc. Only buying of securities takes place in the primary market, securities cannot be sold there.

OTHER OPTIONS

• 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. It also contributes to economic growth by channelising funds towards the most productive investments through the process of disinvestment and reinvestment.

• The money market is a market for short term funds which deals in monetary assets whose period of maturity is upto one year. These assets are close substitutes for money. It is a market where low risk, unsecured and short term debt instruments that are highly liquid are issued and actively traded everyday. It has no physical location, but is an activity conducted over the telephone and through the internet. It enables the raising of short-term funds for meeting the temporary shortages of cash and obligations and the temporary deployment of excess funds for earning returns.

• The term capital market refers to facilities and institutional arrangements through which long-term funds, both debt and equity are raised and invested. It consists of a series of channels through which savings of the community are made available for industrial and commercial enterprises and for the public in general. It directs these savings into their most productive use leading to growth and development of the economy. The Capital Market can be divided into two parts: a. Primary Market b. Secondary Market.