What is the primary market?

• A. The market where new stocks and bonds are first made available for public purchase, typically via an IPO.
• B. The market where previously issued securities are traded among investors.
• C. The market for foreign exchange trading.
• D. The market for derivatives only.

Answer: (A)

The primary market is where new securities are issued and sold to investors for the first time, allowing the issuer to raise fresh capital. A classic example is an initial public offering, where a company offers its stock to the public and underwriters help determine the price and allocate shares. In this market, the transaction is between the issuer (and its underwriters) and the buyers, and the proceeds go to the issuer, not to existing shareholders. After the securities are issued, they typically move into the secondary market, where trading occurs among investors. The other descriptions refer to markets where securities that have already existed are traded (secondary market), where currencies are exchanged (foreign exchange), or where instruments like options and futures are traded (derivatives).