What are primary and secondary markets? What is the difference between a primary market and a secondary market?
(200 words min each)
1. What are primary and secondary markets? What is the difference between a primary market and a secondary market?
Primary Markets are the financial markets in which new issues of a security such as a bond or a stock are sold to initial buyers by the company or government agency borrowing the funds.
Secondary Markets are a financial market in which securities that have been previously issued can be resold.
The biggest difference between the two markets are that primary markets investors buy its securities but secondary markets investors trade its securities among itself and the company that its being traded for does not participate in the transaction. When companies publicly sell new stocks and bonds for the first time it will do so in the primary markets. When investors purchase securities on the primary market the company selling the securities will have already hired an underwriter or firm to review the goods that are being offered and create guidelines surrounding the price and many other specific details of the securities to be issued. The volume of securities sold also varies from day to day, as demand for the security fluctuates. The price paid by the investor is no longer directly associated to the initial price of the security as set when first established and the company that issued the security is not a party to any sale between two investors. This means that the company can engage in a stock buyback in the secondary market. Companies issuing securities via the primary capital market hire investment bankers to obtain commitments from large institutional investors to purchase the securities when first offered.
2. If you are an investor, why do you want to invest in the security market? Why do you want to invest in the stock market? (200 words)
3. Why do we need to study financial institutions? (200 words)
4. Review the information found on page 27 of the textbook, Table 2.1. What are the key roles of depository institutions, contractual savings institutions, and investment intermediaries? Explain each of them in detail. (200 words)
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