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Distinguish between the primary market and …

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Distinguish between the primary market and money market
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Sia ? 2 years, 8 months ago

The Money Market

The money market is a good place for individuals, banks, other companies, and governments to park cash for a short period of time, usually one year or less. It exists so that businesses and governments that need cash to operate can get it quickly at a reasonable cost, and so that businesses that have more cash than they need can put it to use.

Primary Market

The primary market refers to the market where securities are created, while the secondary market is one in which they are traded among investors. Various types of issues made by the corporation are a Public issue, Offer for Sale, Right Issue, Bonus Issue, Issue of IDR, etc. The company that brings the IPO is known as the issuer, and the process is regarded as a public issue. The process includes many investment banks and underwriters through which the shares, debentures and bonds can directly be sold to the investors.

For example, company XYZ Inc. hires four underwriting firms to determine the financial details of its IPO. The underwriters detail that the issue price of the stock will be $20. Investors can then buy the IPO at this price directly from the issuing company. This is the first opportunity that investors have to contribute capital to a company through the purchase of its stock. A company’s equity capital is comprised of the funds generated by the sale of stock on the primary market.

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