IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan Stanley then resells the issue to the U.S. public through its mutual funds. This transaction is an example of a(n)
A)primary market transaction.
B)asset transformation by Morgan Stanley.
C)money market transaction.
D)foreign exchange transaction.
E)forward transaction.

Question

Quizplus · Accepted Answer

This transaction involves the creation and sale of new (primary) stock by IBM to Morgan Stanley, which is then resold to the U.S. public through mutual funds. This is a primary market transaction. Asset transformation (choice B) typically involves the creation of new securities through the bundling of existing assets, while money market transactions (choice C) involve the short-term borrowing and lending of funds. Foreign exchange transactions (choice D) involve buying and selling currencies, and forward transactions (choice E) involve agreements to buy or sell assets at a future date. None of these descriptions fit the scenario presented in the question.

IBM Creates and Sells Additional Stock to the Investment Banker