NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to the Indian Financial Markets
Which statement about the primary market and the secondary market in India is correct?
An IPO is a primary market transaction because new securities are created and sold, and the issuer receives the proceeds. Trading on exchanges is secondary market activity, where investors exchange existing securities and the company gets no money.
- AProceeds of trades on the stock exchange go to the issuing company
- BAn IPO is a primary market transaction in which the issuer receives the fundsCorrect
- CThe secondary market is where companies raise fresh capital directly
- DA rights issue is a secondary market transaction
Explanation
In the primary market securities are issued afresh and the issuer receives the money, as in an IPO or rights issue. In the secondary market investors trade existing securities among themselves, so the issuer receives nothing from those trades.
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