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LOS i: Describe the primary and secondary markets and explain how secondary markets support primary markets.

A)	A market that features low transactions costs is said to have operational efficiency.

B)	Initial public offerings (IPOs) are sold in the secondary market.

C)	In a continuous market, a security can trade any time the market is open.

Which of the following statements regarding secondary markets is least accurate? Secondary markets are important because they provide:

A)	investors with liquidity.

B)	firms with greater access to external capital.

C)	regulators with information about market participants.

Secondary markets are important because they provide liquidity and continuous information to investors. The liquidity of the secondary markets adds value to both the investor and firm because more investors are willing to buy issues in the primary market, when they know these issues will later become liquid in the secondary market. Therefore, the secondary market makes it easier for firms to raise external capital.

A)	the direct trading of securities between institutional investors.

B)	the sale of new securities to investors.

C)	primarily preferred stocks.

A primary market is a market for new issues of securities.

Which of the following is least likely a service provided by an underwriter in the primary market?

The underwriter provides the following services to the issuer:

Origination, which involves the design, planning, and registration of the issue.
Risk bearing, which means the underwriter guarantees the price by purchasing the securities.
Distribution, which is the sale of the issue.

Which of the following statements regarding primary and secondary markets is least accurate?

A)	Prevailing market prices are determined by primary market transactions and are used in pricing new issues.

B)	Secondary market transactions occur between two investors and do not involve the firm that originally issued the security.

C)	New issues of government securities can be sold on the primary market.

Prevailing market prices are determined by the transactions that take place on the secondary market. This information is used to determine the price of new issues sold on primary markets.

Which of the following statements about primary and secondary markets is least accurate?

A)	The proceeds from a sale in the secondary market go to the issuer.

B)	A primary market is a market in which new securities are sold.

C)	The primary market benefits from the liquidity provided by the secondary market.

Proceeds in a primary market go to the issuing firm. Proceeds from a sale in the secondary market go to the current owner who is selling the securities.

Which of the following is a difference between primary and secondary capital markets?

A)	Primary capital markets relate to the sale of new issues of bonds, preferred, and common stock, while secondary capital markets are where securities trade after their initial offering.

B)	Primary markets are where stocks trade while secondary markets are where bonds trade.

C)	Secondary capital markets relate to the sale of new issues of bonds, preferred, and common stock, while primary capital markets are where securities trade after their initial offering.

Bonds and stocks are traded on both the primary and secondary markets.