ACCA Financial Management (F9) Certification Practice Exam

What is the primary purpose of primary markets?

1. To trade short-term financial instruments

2. To issue and sell new securities

3. To facilitate borrowing between companies

4. To exchange foreign currencies

The correct answer is: To issue and sell new securities

The primary purpose of primary markets is to issue and sell new securities. In these markets, companies and governments can raise capital by offering new stocks and bonds to investors. This initial issuance provides a way for issuers to obtain the funds they need for various purposes, such as expanding operations, financing projects, or paying off debt. Investors who purchase securities in the primary market have the opportunity to buy directly from the issuer, often at a fixed price before the securities are available for trading in the secondary market. In contrast, the other options pertain to activities that are categorized differently. Trading short-term financial instruments typically occurs in money markets, which focus on high liquidity and low-risk investments. Borrowing between companies generally happens through private loans or credit arrangements, not specifically through the public structure provided by primary markets. Finally, the exchange of foreign currencies is a function of the forex market, which deals with currency trading rather than the issuance of new financial securities.