In the context of markets, which statement is true about primary market purposes?

• A. To raise capital for issuers via new securities
• B. To trade existing securities among investors
• C. To settle derivatives contracts
• D. To regulate market liquidity

Answer: (A)

The idea being tested is that the primary market exists to raise new capital for issuers by selling new securities. When a company or government issues fresh stock or bonds, the funds paid by investors go directly to the issuer, providing the capital needed for growth, projects, or debt repayment. Underwriters help set the price and distribute these new securities, which is distinct from trading securities that are already out there. In contrast, the secondary market involves buying and selling existing securities among investors, with no proceeds going to the issuer. Derivatives contracts and their settlement belong to a different area of markets, and regulating market liquidity relates to overall market function rather than the act of issuing new securities.