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CSEET · Economic and Business Environment · Indian Financial Markets

Which of the following best distinguishes the primary market from the secondary market in the context of corporate bonds?

In the primary market, an issuer sells newly created bonds to investors and receives the proceeds. In the secondary market, already issued bonds are traded among investors, providing liquidity and price discovery, while the issuer receives no fresh funds from these trades.

  1. APrimary market involves trading of existing bonds between investors; secondary market involves fresh issuance
  2. BPrimary market involves fresh issue of bonds by the issuer to investors; secondary market involves trading of already issued bonds among investorsCorrect
  3. CPrimary market is only for government securities; secondary market is only for corporate bonds
  4. DPrimary market is run by the RBI; secondary market is run by the Ministry of Finance

Explanation

In the primary market the issuer receives funds from investors through fresh issue. In the secondary market, previously issued bonds are traded among investors and the issuer receives nothing. The first option reverses these roles.

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