Which of the following statements is/are TRUE? (One or more than one options may be correct. Answers including the wrong options will be marked as wrong.)

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BlackTom AI · Accepted Answer

Question restatement: The prompt asks which of the following statements is/are TRUE, with the note that more than one option may be correct. The provided answer selections are two options, labeled a and d, but no list of answer options is supplied for reference.

Option a: "Primary securities are securities issued by corporations and backed by the real assets of those corporations."
- Evaluation: In financial markets, the term primary securities typically refers to securities that are issued in the primary market by issuers (such as corporations) to raise capital. These are newly issued securities; they may include stocks or bonds. The part of the statement that says they are "backed by the real assets of those corporations" introduces an asset-backed notion. While some specific instruments (like secured bonds or asset-backed securities) are backed by particular assets, generic primary securities (e.g., common stock) are not necessarily backed by the corporation’s real assets as collateral. Stocks represent equity claims rather than collateralized assets, and even debt securities may be unsecured or secured by specific assets depending on the issue. Therefore, as a broad generalization, the claim that primary securities are "backed by the real assets of those corporations" is not universally true and could be misleading.
- Potential misconception: Equating all primary securities with asset-backed backing overlooks the distinction between unsecured equity/debt and asset-backed financing. It also conflates the process of issuing securities in the primary market with collateral arrangements that are not inherent to all primary issues.

Option d: "Secondary securities are securities issued by FIs and backed by primary securities invested by the FIs."
- Evaluation: The terminology here is unusual. In finance, a few concepts exist that involve financial institutions (FIs) and underlying assets, such as securitization where securities (often called "securities" or "asset-backed securities") are issued that are backed by a pool of assets. However, those instrument types are typically described as being backed by a pool of assets (e.g., mortgages, loans), not necessarily "primary securities invested by the FIs." The phrase "secondary securities" is not a standard, widely recognized category in the same way as primary vs secondary markets; instead, we talk about primary and secondary markets for securities, or about asset-backed securities issued in securitization structures. Without a precise, conventional definition, the statement risks being inaccurate or at least ambiguous. The claim that secondary securities are issued by FIs and backed by primary securities invested by the FIs does not align cleanly with common classifications and could reflect a misinterpretation of securitization or funding structures.
- Potential misconception: It conflates the issuer type (FIs) with a structural backing by primary securities, which is not a standard or universally true description of secondary securities. In many contexts, secondary-market instruments are traded between investors and are not necessarily issued by FIs nor backed by a separate pool of primary securities, but rather represent existing securities being transferred or reissued in a secondary market.

Summary of analysis across options:
- Both statements include concepts (primary vs secondary, asset backing, issuer type) that are either ambiguously defined or not universally true across standard financial theory. Option a’s emphasis on asset backing for all primary securities is not accurate for generic primary issuances (e.g., ordinary equity), and option d’s framing of "+secondary securities" as being issued by FIs and backed by primary securities marketed/internal to FIs does not match standard market practice or terminology.
- If there were additional answer options or definitions provided, those could change the assessment, but with the statements as given, both options contain claims that are not consistently aligned with conventional financial definitions.

Note: If you have access to the course material’s specific definitions for "primary securities" and "secondary securities" in this context, applying those definitions would help determine which statements are considered true within that framework. Absent those definitions, the reasoning above reflects typical interpretations and highlights why each option is likely problematic.

FINS3630-Bank Financial Management - T2 2025

Which of the following statements is/are TRUE? (One or more than one options may be correct. Answers including the wrong options will be marked as wrong.)

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