The financial market may be classified into primary and secondary markets on the basis of the economic function. The financial market for new securities is called primary market. The financial market transfers the funds from savers to investors through the primary market. Hence, the transactions of the securities issued for the first time take place in this market.
The main function of primary market is to make the financial capital available to make new investments in building, equipments, stock of necessary goods,.The investments bankers perform the role of an expert in issuing new securities. These bankers make available advice to the business firms regarding the nature of securities, maturity, interest rate and underwrite the issue of securities. The commercial banks are not directly involved in this market. Usually, the business firms make private placement of securities to the buyers without underwriting is called private placement of securities.
On the other hand, the existing and pri-developed securities are bought and sold in the secondary market.Its main function is to provide liquidity to the purchasers of securities. This market remains as a centre to convert stocks, bonds, and other securities into cash immediately. Since the secondary market provides liquidity to the securities, the investors are encouraged to buy securities in the primary market.
The transactions are more in secondary market than in primary market. But these markets involve in mutually closely related way. For example, if the interest increases or the price of securities increase in secondary market, the interest and price of primary market also increase because of the investment transfer from one market to another according to price and return. As of instance, financial institutions become active in both markets.
The main function of primary market is to make the financial capital available to make new investments in building, equipments, stock of necessary goods,.The investments bankers perform the role of an expert in issuing new securities. These bankers make available advice to the business firms regarding the nature of securities, maturity, interest rate and underwrite the issue of securities. The commercial banks are not directly involved in this market. Usually, the business firms make private placement of securities to the buyers without underwriting is called private placement of securities.
On the other hand, the existing and pri-developed securities are bought and sold in the secondary market.Its main function is to provide liquidity to the purchasers of securities. This market remains as a centre to convert stocks, bonds, and other securities into cash immediately. Since the secondary market provides liquidity to the securities, the investors are encouraged to buy securities in the primary market.
The transactions are more in secondary market than in primary market. But these markets involve in mutually closely related way. For example, if the interest increases or the price of securities increase in secondary market, the interest and price of primary market also increase because of the investment transfer from one market to another according to price and return. As of instance, financial institutions become active in both markets.
No comments:
Post a Comment