What is the difference between primary and secondary markets?

The distinction between primary and secondary markets is fundamental in finance. The correct choice highlights that the primary markets are specifically concerned with the issuance of new securities, meaning this is where companies, governments, or other entities offer new stocks or bonds to raise capital for the first time. This process often involves an initial public offering (IPO) when a company becomes publicly traded.

In contrast, the secondary markets are where these previously issued securities are bought and sold among investors. This market introduces liquidity, as securities can be traded after their initial sale, allowing investors to exchange their holdings. The key point is that transactions in the secondary market do not provide capital to the issuing entity; instead, they facilitate the trading of existing securities among investors.

Other options suggest limitations or mischaracterizations of the markets. For example, asserting that primary markets pertain only to government securities or that they happen only before a company goes public doesn't capture the entirety of how these markets function. Furthermore, the idea that primary markets involve only stocks overlooks the broad range of securities that can be issued, including bonds and other financial instruments. Thus, the correct answer provides the most accurate and comprehensive understanding of the distinction between these two essential financial markets.