Funds raised in the primary market may be used for many purposes. Which of the following is NOT one of them?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Meeting temporary shortages of cash and obligations
Option (1) Setting up new projects — A purpose of primary market funds. Companies raise long-term capital through new issues to set up new projects.
Option (2) Diversification and modernisation of existing projects — A purpose of primary market funds. New capital may also pay to diversify or modernise existing projects.
Option (3) Meeting temporary shortages of cash and obligations — Not a purpose of primary market funds. A temporary shortage of cash is a short-term need. It is met in the money market, which deals in funds for up to one year.
Option (4) Mergers and takeovers — A purpose of primary market funds. A company may use new capital to merge with or take over another firm.
NCERT (Pre-rationalised Edition): “MONEY MARKET 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. …” “PRIMARY MARKET … 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. …” |