Question

The type of capital market in which a security can be sold several times is _________.
1. Primary market
2. Secondary market
3. Tertiary market
4. All of the above

Answer 1

Correct Answer - Option 2 : Secondary market

The correct answer is Secondary market.

• Capital Market
  • Capital Market is an institutional arrangement for borrowing medium and long-term funds and which provides facilities for marketing and trading of securities.
  • So it constitutes all long-term borrowings from banks and financial institutions, borrowings from foreign markets, and raising of capital by issue various securities such as shares, debentures, bonds, etc.
  • The securities market has two different segments namely-
    • Primary markets
    • Secondary markets
  • The primary market consists of arrangements for procurement of long-term funds by companies by the fresh issue of shares and debentures. 
  • The secondary market or stock exchange provides a ready market for existing long-term securities.
    • The stock exchange is the secondary market, which provides a place for regular sale and purchase of different types of securities like shares, debentures, bonds & government securities.
    • It is an organized market where all transactions are regulated by the rules and laws of the concerned stock exchanges.
    • Hence, Option 2 is correct.

• Secondary Markets or Stock Exchanges :
  • The functions of stock exchanges are to provide a ready and continuous market for securities, information about prices and sales, safety to dealings and investment, helps mobilization of savings and capital formation.
  • It acts as a barometer of economic and business conditions and helps in better allocation of funds.
  • Stock exchanges provide many benefits to companies, investors, and society as a whole.
  • But they also suffer from limitations like exclusive speculation and fluctuation in prices due to rumours and unpredictable events.
  • There are 21 stock exchanges in India presently, including BSE, NSE, and OTCEI. Stock Exchanges are regulated by the Securities Contracts (Regulation) Act and by SEBI.
    • SEBI has initiated several reforms in the primary and secondary markets to regulate the stock market.