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Question

Difficulty: MediumCapital Market: Institutions and Instruments

A telecommunications company in Nigeria decides to float new shares to the general public to raise funds for expanding its fiber-optic network. Which segment of the capital market handles this initial offering of securities?

  1. Primary marketAnswer
  2. B
    Secondary market
  3. C
    Money market
  4. D
    Discount house market

Answer

The initial sale of newly issued securities to raise long-term capital takes place in the primary market.
The primary market is the division of the capital market that deals directly with the issuance of brand-new securities. When a corporation offers new shares to the public to raise fresh long-term capital, the transaction takes place in the primary market.

Step-by-Step Solution

1
Identify the type of market based on the duration of capital and nature of issuance
Shares represent long-term ownership capital, which belongs to the capital market rather than the money market.
Floating shares is a long-term capital raising mechanism.
2
Distinguish between primary and secondary market functions
The primary market is where new issues of stocks or bonds are sold to the public directly from the issuing corporation.
Since the company is offering new shares for the first time, it operates in the primary market.

Key Concept

Primary vs Secondary Capital Market Operations
Estimated Time:1m 0s
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Topics

Capital Market: Institutions and Instruments

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