Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

Which one of the following terms describes the market for newly issued securities?

1. Secondary market

2. Equity market

3. Primary market

4. Fixed-income market

The correct answer is: Primary market

The primary market is where newly issued securities are created and sold to investors for the first time. This market is crucial for companies and governments looking to raise capital. When a corporation decides to go public through an initial public offering (IPO), the shares are sold in the primary market, allowing the business to generate funds for expansion, pay off debt, or invest in new projects. In the primary market, issuers work directly with underwriters, who help determine the offer price, sell the securities, and ensure they are successfully introduced to investors. In contrast, the secondary market refers to the trading of existing securities, where investors buy and sell amongst themselves, with the issuing entity not directly involved. The equity market is a part of both the primary and secondary markets that focuses on the trading of stocks, while the fixed-income market deals specifically with bonds and other debt securities. Thus, while these other options pertain to different aspects of the overall securities market, the primary market specifically refers to the initial sale of new securities to investors.