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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Introduction to the Securities Market

Which of the following best describes the role of the secondary market for securities?

The secondary market gives investors liquidity by letting them buy and sell securities that have already been issued, and it supports price discovery. Raising fresh capital from investors through new issues takes place in the primary market, not the secondary market.

  1. AIt provides liquidity to investors by allowing them to trade previously issued securitiesCorrect
  2. BIt lets companies raise fresh capital directly from investors through new issues
  3. CIt issues money market instruments for the government's borrowing needs
  4. DIt fixes the face value of securities at the time of issue

Explanation

The secondary market provides liquidity and price discovery for securities already issued. Raising fresh capital directly from investors happens in the primary market, so that option is wrong. Government borrowing and face value fixing are issue-related matters, not the function of the secondary market.

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