Which of the following is a role of the secondary market? A. Offer securities for sale...

Which of the following is a role of the secondary market?

A. Offer securities for sale for the first time

B. Trade long term securities only

C. Establishing security prices

D. Give information for securities on sale in the primary market

Solutions

Expert Solution

Ans: Option B. Trade long term securities only:

Secondary capital market facilitates the trade for long term debt and equity instruments. The role of the secondary market is to create a connect between buyers and traders for liquidity of long term instruments. The prices are determined by demand and supply of the securities considering futuristic views.

Let’s check why below options are not correct:

A. Offer securities for sale for the first time: Offering securities for sale at first time is characteristic and role of primary market

C. Establishing security prices: Though this option looks close to correct option but it narrow downs the role of secondary market. Secondary market does help in determining the price of securities but this is not the prime motive. The role of secondary market is broader; trading long term funds, giving platform to buyer and seller.

D. Give information for securities on sale in the primary market: Information is for any security on sale in primary market is issued through prospectus and Security Exchange Board or regulator of particular capital market.

jeff jeffy answered 1 year ago

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