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Question

Difficulty: MediumTypes of Markets and Trading Venues

A corporate issuer sells a new block of common stock to the public through an investment banking syndicate, with the proceeds of the sale flowing directly to the issuing corporation to finance business expansion. Which of the following market classifications best describes this transaction?

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

Answer

Primary market
The transaction occurs in the primary market because newly created securities are sold to investors with the proceeds going directly to the issuing corporation for capital expansion.

Step-by-Step Solution

1
Identify the issuer of the securities and the destination of trade proceeds.
Newly created securities are being issued by the corporation, and the sale proceeds go directly to the issuer to fund expansion.
Determining who receives the funds distinguishes primary market transactions from secondary market trading.
2
Map the transaction characteristics to the corresponding market structure classification.
Transactions involving the issuance of new securities where the issuing firm receives the capital occur exclusively in the primary market.
The secondary, third, and fourth markets strictly involve trading existing securities between investors.

Key Concept

Primary Market vs. Secondary Market Transactions
Estimated Time:1m 0s
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Topics

Types of Markets and Trading Venues

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