Which statement distinguishes primary markets from secondary markets?

• A. Primary markets issue new securities to raise capital; secondary markets trade existing securities among investors.
• B. Primary markets trade existing securities; secondary markets issue new securities.
• C. Both involve new issues only.
• D. Secondary markets do not involve UBS.

Answer: (A)

Primary markets are where new securities are created and sold to raise capital, with the issuer receiving the funds. Secondary markets are where those existing securities are bought and sold among investors after the initial issuance, and the issuer does not receive new money from these trades. The statement you’re looking at correctly distinguishes the two: primary markets issue new securities to raise capital, while secondary markets trade existing securities among investors.

The other descriptions don’t fit: swapping roles would misstate where securities come from, saying both markets involve only new issues is false because secondary markets deal with already issued securities, and claiming secondary markets do not involve UBS ignores UBS’s role as a broker-dealer facilitating trades in the secondary market.