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Which of the following statements is correct?
A) secondary markets in financial instruments are irrelevant to the companies that issued those
instruments in the primary market
secondary markets are directly involved in channelling funds from investors to borrowers
C) secondary markets do encourage both savings and investment
Feedback: Funds areprimary andnot secondary markets lead to greater investment by the issuers thefinancial assets
raised but new securities are issued in the primary market. However, of existence of
s econdary markets in which investors can sell those securities again if their needs change does encourage
them to invest through primary markets so C is the answer. See page 16.
Secondary market transactions in shares:
A) involve additional shares being issued by companies
B) allow companies to borrow more heavily
Feedback: A secondary market transaction is one where securities are bought and sold after their original
C) only involve transfers of ownership between existing shareholders
issuance in the primary market. The proceeds of a secondary market transaction go to the investor who sells
the securities, not D) involve changes in security. Thus, A and B shares is inaccurate through inclusion of the word
to the issuer of the the ownership of existing are . C
‘only’ (there is also a transfer of funds) and because the buyer need not be an ‘existing shareholder’. D is . See
The flow of funds in the primary market may be direct or indirect. Which of the following is correct?
A) direct finance is provided by financial institutions such as banks
B) direct finance is provided by brokers and dealers
C) indirect finance is provided by brokers and dealers
D) brokers by financial intermediaries such provision flows indirectly
Feedback: Finance providedacting as agents often facilitate the as banksof direct finance from savers to borrowers
s o A and C are both . Direct finance is provided by savers not by brokers and dealers, but brokers are often
involved in these transactions as agent...
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This note was uploaded on 03/26/2012 for the course FIN 1612 at University of New South Wales.