Which market activity involves the issuance of new securities to raise capital?

Which market activity involves the issuance of new securities to raise capital?

• A. Primary market
• B. Secondary market
• C. Forex trading
• D. Derivatives clearing

Answer: (A)

Issuing new securities to raise capital happens in the primary market. This is the stage where a company or government sells new stocks or bonds to investors for the first time, with the proceeds going to the issuer. Underwriters and underwritten offerings are common in this process, along with regulatory filings and disclosures that accompany a new issue. Once these securities are issued, they can later be traded in the secondary market, where investors buy and sell existing securities among themselves and no new funds go to the issuer. The other activities—trading existing securities, currency exchange, or clearing and settling derivative contracts—do not involve issuing new securities to raise capital.

Issuing new securities to raise capital happens in the primary market. This is the stage where a company or government sells new stocks or bonds to investors for the first time, with the proceeds going to the issuer. Underwriters and underwritten offerings are common in this process, along with regulatory filings and disclosures that accompany a new issue. Once these securities are issued, they can later be traded in the secondary market, where investors buy and sell existing securities among themselves and no new funds go to the issuer. The other activities—trading existing securities, currency exchange, or clearing and settling derivative contracts—do not involve issuing new securities to raise capital.