Question：A stock market's main role is as both a 'primary market' and a 'secondary market'. Which of the following is the main aspect of stock markets' role as secondary markets?
A. They permit takeovers by means of share exchange.
B. They allow investors to sell their investments.
C. Owners of a company coming to the market for the first time can realise some of the value of their shares on flotation.
D. They enable organisations to raise new capital.
The correct answer is:They allow investors to sell their investments.
Allowing investors to sell their investments is the main function of the capital markets acting as secondary markets, a function which promotes the marketability of shares.
To realise some of the value of one's shares on flotation is an important function of a stock market. However, it is not the main secondary market function.
While takeovers are an important function of a stock market, it is not the main secondary market function.
It is as a primary market that stock markets allow organisations to raise new finance through capital issues. It is much easier for a company to make an offer on the market than it would be to contact potential investors individually.
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