Read the following passage and answer the question.

AAMA Solar Limited is searching options to raise ₹2,000 crores from the primary market for diversification and modernisation of existing projects. It hired the services of a renowned financial consultancy firm, Laxmi Pvt. Ltd. for suggesting options for the same. Laxmi Pvt. Ltd. suggested a list of options to the board of directors. It was decided that for the immediate requirement of ₹150 crores, the company will give a privilege to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company ₹500 crores would be raised by allotment of securities to a consortium of financial institutions, instead of investing subscription from the public by making a direct appeal to investors to raise capital. It was further decided to raise capital to the tune of ₹650 crores through an issuing house. All these options were accepted by the Board of Directors. The Board further decided to raise ₹700 crores through the online system of the stock exchange by entering into an agreement with the exchange.

In which type or market, trading of only existing shares is done?

Secondary market

The correct answer is option 3- Secondary market.

In Secondary market, trading of only existing shares is done.

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. Securities are traded, cleared and settled within the regulatory framework prescribed by SEBI.

OTHER OPTIONS

• Primary market- In the primary market, new securities are issued for the first time, and this is where companies raise capital by selling these securities directly to investors.

• Money market- Money Market is a market for short-term funds. It deals in monetary assets whose period of maturity is less than one year. The instruments of money market includes treasury bills, commercial paper, call money, Certificate of deposit, commercial bills, participation certificates and money market mutual funds.

• Call money market- Call money is short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions. Commercial banks have to maintain a minimum cash balance known as cash reserve ratio. The Reserve Bank of India changes the cash reserve ratio from time to time which in turn affects the amount of funds available to be given as loans by commercial banks. Call money is a method by which banks borrow from each other to be able to maintain the cash reserve ratio. The interest rate paid on call money loans is known as the call rate.