What distinguishes a primary market from a secondary market?

The distinguishing feature of the primary market is that it deals with the issuance of new securities. When a company or government entity wants to raise capital, it does so by creating new financial instruments such as stocks or bonds, which are initially offered to the public or investors in this marketplace. This process is crucial because it allows issuers to raise funds directly from investors for development, expansion, or various projects.

In contrast, the secondary market operates after these securities have already been issued and is concerned with trading existing securities among investors without the involvement of the issuing entities. This market enables liquidity, allowing investors to buy and sell securities, thus determining their market value based on supply and demand.

This understanding underscores why the primary market's function of issuing new securities is essential for capital markets, while the secondary market's role is equally vital for providing a platform for price discovery and trading liquidity. The other answer choices misrepresent the characteristics of these markets, highlighting aspects that are either irrelevant or factually incorrect regarding their definitions and operations.