Question

In the 'Primary Market' prices of securities are determined by:

• A. Management of the company
• B. Demand and supply of the security
• C. Employees of the company
• D. Only demand for the security

Hint:

Remember: Primary Market = Fixed by Management. Secondary Market = Fixed by Demand and Supply.

Answer 1

The Correct Option is A

Step 1: Understand the Primary Market.
The Primary Market, also called the New Issue Market, is where securities (shares, debentures) are sold for the very first time by a company directly to investors to raise fresh capital.
Step 2: Understand the Secondary Market.
The Secondary Market (Stock Exchange) is where already-issued securities are bought and sold among investors. Prices here are driven by the forces of demand and supply.
Step 3: Consider Option (A): Management of the company.
When a company issues new securities for the first time in the primary market, there is no existing market price. The company's management (often with help from investment bankers and underwriters) decides and fixes the price at which shares will be offered to the public.
Step 4: Consider Option (B): Demand and supply of the security.
Demand and supply forces determine prices only in the secondary market where existing securities are continuously traded. In the primary market, shares have not yet been traded, so there is no market demand or supply to set a price.
Step 5: Eliminate Options (C) and (D).
Employees have no role in price determination. Price based on demand alone is not how either market works. Both are incorrect.
Step 6: Confirm the answer.
In the Primary Market, the company's management sets the issue price of securities.
\[ \boxed{ \text{(A) Management of the company} } \]