ACCA Advanced Financial Management (AFM) Practice Exam

What type of offering can be characterized as primary and secondary?

1. Initial public offerings

2. Debt securities offerings

3. Private placements

4. Regulatory offerings

The correct answer is: Initial public offerings

An offering characterized as both primary and secondary is an initial public offering (IPO). In this context, a primary offering involves the company issuing new shares to raise capital, which directly increases the funds available to the company for growth, development, or paying down debt. This process is essential for companies looking to expand or invest in new opportunities. At the same time, an IPO can also include a secondary offering, which occurs when existing shareholders (such as early investors, founders, or employees) sell their shares to the public. This sale does not raise new capital for the company, but it provides liquidity to existing shareholders. The combination of both primary and secondary offerings in an IPO allows companies to optimize their capital structure while providing an exit strategy for early investors and shareholders. While debt securities offerings involve the issuance of bonds or other forms of debt, they do not generally incorporate both primary and secondary characteristics in the same way as an IPO. Private placements and regulatory offerings likewise focus on specific structures that lack the dual nature of primary and secondary share transactions seen in typical IPO scenarios. Therefore, initial public offerings uniquely fit the description of being both primary and secondary.