Which statement describes a primary market transaction?

Which statement describes a primary market transaction?

• A. Primary market issues new securities; proceeds go to the issuer.
• B. Secondary market issues new securities; proceeds go to the issuer.
• C. Primary market trades existing securities between investors.
• D. Secondary market is where investors trade existing securities.

Answer: (A)

In a primary market transaction, the issuer sells new securities to investors to raise capital, so the proceeds go directly to the issuer. This is how IPOs and other offerings work—the company is issuing fresh shares or debt and uses the funds for growth, debt repayment, or other needs. The other statements describe the secondary market, where investors trade existing securities among themselves and the issuer does not receive any proceeds. So, while the secondary market does involve trading, it’s not issuing new securities or bringing in new funds for the issuer.

In a primary market transaction, the issuer sells new securities to investors to raise capital, so the proceeds go directly to the issuer. This is how IPOs and other offerings work—the company is issuing fresh shares or debt and uses the funds for growth, debt repayment, or other needs.

The other statements describe the secondary market, where investors trade existing securities among themselves and the issuer does not receive any proceeds. So, while the secondary market does involve trading, it’s not issuing new securities or bringing in new funds for the issuer.