Question : Case Study 6:
DEF Ltd. is a startup in the fashion industry that wants to raise funds for launching its new line of products.
Question :
DEF Ltd. is planning to issue shares to the public to raise capital. Which market activity is associated with this process?
Option 1: Treasury bill trading
Option 2: Secondary market trading
Option 3: IPO (Initial Public Offering)
Option 4: Commercial paper issuance
Correct Answer: IPO (Initial Public Offering)
Solution : The correct answer is (c) IPO (Initial Public Offering)
When DEF Ltd. plans to issue shares to the public to raise capital, this process is associated with an Initial Public Offering (IPO). An IPO is the initial sale of a company's shares to the public, making it available for purchase on a stock exchange for the first time. DEF Ltd. would go through this process to raise the necessary capital for launching its new line of products. In an IPO, the company offers a portion of its ownership to the public, allowing investors to buy shares and become partial owners of the company. The funds raised from the IPO are used to finance the company's growth, product development, expansion, or other business objectives.
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