Canadian Securities Course (CSC) Level 1 Practice Exam

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What is the purpose of primary markets?

Trading securities
Issuing new securities
Reselling existing securities
Providing loans

The correct answer is: Issuing new securities

The purpose of primary markets is indeed issuing new securities. This is the platform where companies and governments can raise funds by issuing new stock or bonds to investors. When securities are issued in the primary market, the proceeds go directly to the issuer, which they can use for various activities such as expanding their business, paying off debts, or funding projects. In this market, the initial sale of the securities occurs, which differentiates it from secondary markets where previously issued securities are traded among investors. In primary markets, entities like investment banks often help facilitate the process by underwriting and advising on the terms of the securities offered. This is crucial for the functioning of the financial system as it allows for the efficient allocation of capital.