Question

Q-3      Is an initial public offering an example of a primary or secondary market transaction? Explain.

           

P-4      Indicate whether the following instruments are examples of money market or capital market securities.

a. U.S. Treasury bills

b. Long-term corporate bonds

c. Common stocks

d. Preferred stocks

e. Dealer commercial paper

P-5      What would happen to the U.S. standard of living if people lost faith in the safety of the financial institutions? Explain.

Answer 1

Q3) IPO is a primary market transaction as the company introduces its shares in the stock market for the first time in the market through IPO. So it is primary market transaction. When the shares are bought and sold among the individual investors then it is called secondary market transaction.

P4) a) U.S. treasury bills: Money Market

b) Long term corporate bonds: Capital Market

c) Common stocks: Capital Market

d) Preferred stocks: Capital Market

e) Dealer commercial paper: Money Market

P5) If people of U.S lost their faith in safety of financial institutions then they would not be willing to invest their money in financial instruments. In such a situation, the companies will find it difficult to raise money so the whole economic system will slow down. Thus, the standard of living will fall.