A corporation acquires new funds only when its securities are sold in the:

Question

BlackTom AI · Accepted Answer

A corporation raises new capital only when it issues securities in the primary market; investment banks typically underwrite and distribute those new issues.

1. Relevant knowledge points and concepts
- Primary market: where an issuer (corporation) sells newly issued securities and receives proceeds. Examples: IPOs, follow-on offerings, private placements.
- Secondary market: trading of previously issued securities among investors; issuer does not receive proceeds.
- Investment banks: underwrite, advise, and distribute new issues (firm-commitment or best-efforts underwriting, syndicates).
- Brokers vs. dealers: brokers execute trades on behalf of clients; dealers trade for their own accounts. Neither typically provides the underwriting function that channels funds to the issuer in the primary market.

2. Step-by-step reasoning
- Step 1: Identify when the corporation receives funds — only when it directly sells securities.
- Step 2: Determine which market involves direct sales by the issuer — that is the primary market.
- Step 3: Identify which participants handle issuance — investment banks underwrite and sell the new securities to investors or to the market on behalf of the issuer.
- Step 4: Exclude secondary market transactions — these are investor-to-investor trades (brokers/dealers facilitate) and do not provide proceeds to the issuer.

3. Intermediate steps / details
- In an IPO, the investment bank purchases (or agrees to sell) the shares from the corporation and then sells them to the public; the corporation receives proceeds equal to shares sold × offering price (minus underwriting fees).
- Secondary trades on exchanges or over-the-counter simply transfer ownership; no new funds flow to the issuer.

4. Why the correct answer is correct
- Option c specifies the primary market and investment bank — this matches the mechanism by which a corporation acquires new funds.

5. Why other options are incorrect
- a: A stock exchange broker typically executes trades for clients on the secondary market, not underwrite new issues.  
- b: Secondary market by a bank: secondary-market trades do not give funds to the issuer; a commercial bank in the secondary market doesn’t change that.  
- d: Secondary market by a dealer: dealers facilitate investor trades in existing securities; issuer receives no proceeds.

6. Conclusion
Because only primary-market issuances channel new capital to the issuer and investment banks underwrite and distribute those issuances, the correct answer is c. primary market by an investment bank.

A corporation acquires new funds only when its securities are sold in the:Single choice

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