Which of the following is an example of both a capital market and a secondary market transaction?

Question

BlackTom AI · Accepted Answer

Equity securities (common and preferred stock) are part of the capital market, and a secondary market is any venue where previously issued securities are bought and sold between investors. Therefore transactions that are stock trades on an exchange are both capital‑market activity (because they involve long‑term securities) and secondary‑market activity (because the shares are existing, not newly issued).

Relevant concepts:
- Capital market: markets for long‑term finance (equities and long‑term debt).
- Secondary market: trading of already‑issued securities among investors (e.g., exchanges like Nasdaq).
- Primary market: issuance of new securities (IPOs, new bond issues).
- Money market: short‑term debt instruments (commercial paper, CDs, NCDs), not part of the capital market.

Step‑by‑step reasoning:
1. Identify the instrument in each option and whether it is long‑term (capital market) or short‑term (money market), and whether the trade is primary (new issue) or secondary (existing securities).
2. Option a: Mutual fund buys shares in an IPO — equity (capital market) but this is a primary market transaction (newly issued shares), so it is capital market but not secondary.
3. Option b: Purchase of commercial paper — commercial paper is a short‑term instrument (money market), not a capital market instrument; also typically a secondary purchase could occur but the instrument itself is money market, so it fails the “capital market” criterion.
4. Option c: Issuing a 90‑day negotiable certificate of deposit — short‑term instrument (money market) and an issuance (primary), so not a capital‑market secondary trade.
5. Option d: ARK Invest purchases Tesla shares on Nasdaq — Tesla shares are equity (capital market) and an exchange purchase is trading of existing shares (secondary market). This satisfies both conditions.

Why the correct answer is correct:
Buying shares of a public company on an exchange is a secondary market trade involving a capital‑market instrument (stock). That matches both requirements.

Why other options are incorrect:
- a is primary (IPO), not secondary.
- b and c involve short‑term money‑market instruments, not capital‑market securities.

Conclusion: The correct answer is d. ARK Invest increased its holdings of high‑tech companies by purchasing more Tesla shares on the Nasdaq Stock Exchange. This matches the provided answer.

Which of the following is an example of both a capital market and a secondary market transaction?Single choice

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