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Primaty market contributs to capital market …

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Primaty market contributs to capital market directly where secondary market does so indirectly.Explain

Posted by Sanjana Sood 8 years, 9 months ago

CBSE > Class 12 > Business Studies

1 answers

Naveen Sharma 8 years, 9 months ago

Ans. Primary market is a new issue market where the securities are sold for the first time. That is, it involves direct involvement between the investors and the entrepreneurs. Also, as the funds flow from the savers to the investors, so we can say that the primary market facilitates capital formation directly.

On the other hand, secondary market is a market where existing securities are traded (bought and sold). In the secondary market, there is a mere exchange of ownership between the investors (as existing securities are resold by one investor to another) and company is not involved at all. This implies that the secondary market provides liquidity to the securities sold in the primary market (as they can be resold only in the secondary market).

Thus, it is said that by providing liquidity to the instruments, secondary market indirectly promotes capital formation.

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