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Question

Difficulty: EasyTypes of Markets and Trading Venues

A growth-stage manufacturing company sells newly created shares of common stock directly to investors to fund the construction of a new production facility. In which market venue does this initial capital-raising transaction occur?

  1. Primary marketAnswer
  2. B
    Secondary market
  3. C
    Third market
  4. D
    Fourth market

Answer

The transaction occurs in the primary market.
The primary market is the financial venue where issuing corporations and governments sell newly created securities to raise capital. Because the company is issuing new shares and receiving the sales proceeds directly to build a facility, this transaction occurs in the primary market.

Step-by-Step Solution

1
Determine the source of the securities and the destination of the trade proceeds
The shares are newly created by the issuing corporation, and the money raised goes to the company to finance business expansion.
Transactions in which an issuer creates and sells new securities to raise capital take place exclusively in the primary market.

Key Concept

Primary vs. Secondary Market Characteristics
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Topics

Types of Markets and Trading Venues

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