The Basic Distinction Between a Primary and a Secondary Market

question 31

Multiple Choice

The basic distinction between a primary and a secondary market is that

• A) proceeds from sales in the primary market go to the current owner of a security; proceeds in secondary market go to the original owner.
• B) primary markets involve direct dealings within regional exchanges.
• C) only new securities are sold in the primary market; only outstanding securities are bought and sold in the secondary market.
• D) primary markets deal exclusively in bonds; secondary markets deal primarily in common stock.
• E) primary markets deal exclusively in common stocks; secondary markets deal primarily in bonds.

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Definitions:

Cash Account

A financial account that records cash transactions including receipts and payments.

Credit

A financial record that raises a liability or equity account, or reduces an asset or expenditure account.

Debit

A debit is an accounting entry that results in either an increase in assets or expenses or a decrease in liabilities or equity on a company's balance sheet.

Owner's Equity

The residual interest in the assets of the entity after deducting liabilities, representing the owner's claim on the business assets.