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

Question

BlackTom AI · Accepted Answer

Capital markets are where long-term finance is raised (equity and long-term debt), while secondary markets are where existing (previously issued) securities are bought and sold among investors (e.g., stock exchanges). A transaction that is both a capital market transaction and a secondary market transaction must therefore involve a long-term security (equity or long-term bond) and be a trade between investors after initial issuance.

Step-by-step reasoning:
1. Identify the security type and market timing for each option.
   - a) Commercial paper (CP) is a short-term money market instrument (maturity typically < 1 year). Even if it is being resold, CP belongs to the money market, not the capital market. Thus a) is not a capital market transaction.
   - b) Ordinary shares of CBA are equity instruments (capital market). Jack sold them on the ASX, which is an exchange where previously issued shares trade between investors. That is a secondary market trade. So b) satisfies both criteria.
   - c) CSL issuing 100,000 bonds is a primary market capital market transaction (new long-term debt issued by the firm). It is capital market activity but not a secondary-market trade because the bonds are being issued, not resold.
   - d) CGU purchasing a $500m treasury note as a registered bidder during issuance is participation in the primary market (government issuing new securities). Even though treasury notes can be short or intermediate term, this is a primary issuance, not a secondary-market trade.

2. Conclusion: Only option b combines a capital market instrument (equity) with a secondary market trade (sale on the ASX between investors).

Therefore the correct answer is: Jack, an investor, sold his 1000 ordinary shares of CBA on the ASX. This matches the provided answer.

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

Similar Questions

IBM is a listed firm and its previously issued stocks are traded on NYSE. A sale by IBM of new stock to the public would be a(n)

Question at position 1 Which best describes the main purpose of capital markets?To manage the supply of cash in the economyTo set government interest ratesTo move money from savers to borrowers for long-term investmentTo guarantee profit to all investors

Property markets are where valuations are determined. Valuations require as inputs: (1) cash flows, (2) a required rate of return. In which markets are those inputs determined?

Dissatisfied capital market stakeholders may: