The basic distinction between a primary and a secondary market is
A) proceeds from sales in the primary market go to the current owner of a security; proceeds in secondary market go to the original owner.
B) primary markets involve direct dealings within regional exchanges.
C) only new securities are sold in the primary market; only outstanding securities are bought and sold in the secondary market.
D) primary markets deal exclusively in bonds; secondary markets deal primarily in common stock.
E) None of the above.

Question

Quizplus · Accepted Answer

The best choice is C. The primary market involves the issuance of new securities by a company, which raises funds directly from investors. The proceeds from the sale of securities in the primary market go to the issuer of the security, not to the previous owner. In contrast, the secondary market involves the buying and selling of already issued securities among investors, and the proceeds from the sale go to the seller, not to the issuer. While there may be some regional exchanges in the primary market, this is not a defining feature. The primary market can include both bonds and stocks, and the same is true for the secondary market. Therefore, options A, B, D, and E are not accurate.

The Basic Distinction Between a Primary and a Secondary Market