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Question

Difficulty: EasyTypes of Markets and Trading Venues

An investor buys newly issued shares of common stock directly from an issuer during an Initial Public Offering (IPO), with the proceeds of the transaction going directly to the issuing firm. In which of the following markets does this transaction take place?

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

Answer

Primary market
The primary market is the venue where corporations and governments create and sell new securities to raise capital. In an initial public offering (IPO), the issuing company receives the proceeds from the sale.

Step-by-Step Solution

1
Analyze the flow of capital and the origin of the securities.
The securities being sold are newly created shares from an IPO, and the cash proceeds flow to the issuing corporation.
By definition, any market transaction where an issuer creates and sells new securities to raise capital occurs in the primary market.

Key Concept

Primary vs. Secondary Markets
Estimated Time:45s
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Topics

Types of Markets and Trading Venues

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