What is the primary difference between primary markets and secondary markets?

What is the primary difference between primary markets and secondary markets?

• A. Primary markets trade existing securities among investors.
• B. Primary markets involve new issue of securities to raise capital.
• C. Primary markets are for government securities only.
• D. Primary markets set monetary policy.

Answer: (B)

The main idea is where new securities are issued versus where they are just traded after issuance. The primary market is where a company or government sells new securities to raise capital, with the proceeds going to the issuer. In contrast, the secondary market is where those securities are traded among investors after they’ve already been issued, and the issuer doesn’t receive any funds from these trades. That’s why the correct statement says it involves new issues to raise capital. The other descriptions don’t fit: trading existing securities among investors happens in the secondary market, not the primary; primary markets aren’t restricted to government securities—any issuer can raise capital there; and monetary policy is set by the central bank, not by market activity.

The main idea is where new securities are issued versus where they are just traded after issuance. The primary market is where a company or government sells new securities to raise capital, with the proceeds going to the issuer. In contrast, the secondary market is where those securities are traded among investors after they’ve already been issued, and the issuer doesn’t receive any funds from these trades. That’s why the correct statement says it involves new issues to raise capital.

The other descriptions don’t fit: trading existing securities among investors happens in the secondary market, not the primary; primary markets aren’t restricted to government securities—any issuer can raise capital there; and monetary policy is set by the central bank, not by market activity.