Financial transactions occur in a variety of markets. The following statements d

Question

Financial transactions occur in a variety of markets. The following statements describe common financial transactions. Indicate in which of the financial markets the transaction will be conducted. A farmer agrees to sell 10, 000 bushels of wheat at a price of $4.80 per bushel to be delivered six months from now. The transaction, which is used to hedge the farmer's risk, is completed via a contract traded in the Chicago Board of Trade. This is an example of a derivative market transaction. Jorge's broker has offered him the opportunity to purchase 5, 000 shares in the initial public offering of the Seattle Seafood Company. If he completes the purchase, it would be an example of market transaction. A commercial bank has agreed to loan the Yorkshire Pudding, Inc. $11 million for ninety days for the purchase of inventory. This is an example of a capital market transaction.

Explanation / Answer

The market is generally classified into two : 1. Primary Market

2. Secondary Market

Buying shares from the issuer of the shares itself falls under Primary Market transaction.

Whereas buying shares from a person other than the issuer of the shares is called Secondary Market transaction.

In an Initial Public Offering, as the shares are offered by the issuer itself, it falls under the Primary Market Transaction.

In every market there are further two types of markets namely, Equity and debt markets.

Equity means the shares,etc and debt means debentures,bonds,etc

Hence, the given transaction is a Equity transaction in Primary market.

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