Question : Statement 1: A primary dealer assists in the distribution of government securities.
Statement 2: Primary dealers are primarily involved in the secondary market trading of securities.
Option 1: Statement 1 is true, and statement 2 is true.
Option 2: Statement 1 is true, but statement 2 is false.
Option 3: Statement 1 is false, and statement 2 is true.
Option 4: Statement 1 is false, and statement 2 is false.
Correct Answer:
Statement 1 is true, but statement 2 is false.
Solution : The correct answer is (b) Statement 1 is true, but statement 2 is false.
Statement 1 is true. A primary dealer is a financial institution authorized by the central bank or government to deal directly with them in the buying and selling of government securities, including the initial issuance (primary market) and subsequent trading (secondary market).
Statement 2 is false. While primary dealers do participate in the secondary market, their primary role is in the primary market where they assist in the initial issuance and distribution of government securities. They act as intermediaries between the government and investors during the initial sale of these securities.
