Chartered Alternative Investment Analyst Association (CAIA) Practice Exam

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Prepare for the Chartered Alternative Investment Analyst Association (CAIA) Exam with structured quizzes, flashcards, and detailed explanations. Study efficiently and boost your confidence for the test!

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What does the primary market primarily involve?

Buying and selling existing securities
Initial Public Offerings (IPOs)
Over-the-Counter (OTC) transactions
Trading between institutional investors

The correct answer is: Initial Public Offerings (IPOs)

The primary market is fundamentally concerned with the creation and sale of new securities, which occurs primarily through Initial Public Offerings (IPOs). An IPO represents the process by which a private company offers its shares to the public for the first time, allowing it to raise capital directly from investors. This capital can then be used for various business purposes, including expansion, paying down debt, or funding research and development initiatives. Understanding the primary market is essential because it establishes the initial pricing and allocation of new issues, providing companies with access to capital while offering investors fresh opportunities to invest in promising businesses. After an IPO, the securities typically transition to the secondary market, where they can be bought and sold among investors. This distinction highlights the different roles that each market plays in the overall financial ecosystem. The other options relate to secondary market activities, where existing securities are traded rather than new issues being offered to investors.