Future Business Leaders of America (FBLA) Securities and Investments Practice Test

What is the primary purpose of a corporation issuing securities in the primary market?

1. To facilitate trading between investors

2. To raise capital for the issuer

3. To provide a platform for speculation

4. To guarantee returns on investments

The correct answer is: To raise capital for the issuer

The primary purpose of a corporation issuing securities in the primary market is to raise capital for the issuer. When a corporation creates and offers securities, such as stocks or bonds, it is seeking to gather funds that can be used for various business activities, including expansion, research and development, paying off debts, or investing in new projects. This process allows the company to secure investment from public or institutional investors who, in return, receive ownership stakes or debt instruments that can yield returns. In contrast, facilitating trading between investors pertains to the secondary market where transactions happen after the initial sale, with no additional capital being raised for the issuing company. Providing a platform for speculation does not reflect the core purpose of issuing securities, as speculation often involves risk-taking rather than fundamental capital-raising activities. Lastly, guaranteeing returns on investments is not a responsibility of corporations when issuing securities, as investment returns can vary and are influenced by multiple market factors and business performance, making it impossible for the issuer to provide such guarantees.