What distinguishes primary markets from secondary markets?

The correct choice highlights that primary markets are where new securities are created and offered to investors for the first time, such as during initial public offerings (IPOs). This phase involves companies issuing stocks or bonds to raise capital directly from investors. In contrast, secondary markets are venues where these existing securities are traded among investors after the initial issuance, allowing for price discovery and liquidity.

The distinction is fundamental in understanding how capital markets function: primary markets serve as a mechanism for raising funds for issuers, while secondary markets provide a platform for investors to buy and sell these securities, contributing to market efficiency and investment flexibility.

The other options present inaccuracies or misconceptions. For instance, the assertion that primary markets deal exclusively with commodities while secondary markets deal with securities does not reflect the essential roles that both markets play in the context of financial instruments. Option three incorrectly limits the primary market to government bonds, ignoring that corporations also use this channel to issue stocks and bonds. Lastly, the idea of ownership distinctions misunderstands how ownership works in both markets. Both market types facilitate ownership transfers, but they do so in fundamentally different contexts.