Final answer:
Secondary markets are important because they determine the prevailing market price of securities and enable price stability and continuity. Transactions in the secondary market impact supply and demand for securities, influencing their prices.
Step-by-step explanation:
Secondary markets are important because they play a crucial role in determining the prevailing market price of securities. This is because transactions in the secondary market involve the buying and selling of securities among investors, which impacts the supply and demand for these securities and ultimately determines their price. Therefore, option (d) 'the prevailing market price of securities is determined in the secondary market' is the correct answer.
For example, if there is high demand for a certain stock in the secondary market, its price is likely to increase. On the other hand, if there is low demand, the price may decrease. These price fluctuations provide valuable information about the value of the securities and reflect investors' expectations and perceptions about the company's performance.
Additionally, option (b) 'it has an impact on price stability' and option (e) 'it has an impact on price continuity' are also valid reasons for the importance of secondary markets. By allowing continuous buying and selling of securities, secondary markets contribute to price stability and ensure a fair and efficient market where investors can easily enter or exit their positions.