Question

Distinguish between the following:

Primary market and Secondary market

Distinguish between Primary Market and Secondary Market.

State any three points of difference between ‘Primary Market’ and ‘Secondary Market’.

Answer 1

	Points	Primary Market	Secondary Market
1.	Meaning	A security market in which new issues of securities, i.e. new shares and debentures are arranged and organised is called primary market	A security market in which existing securities are purchased and sold repeatedly is called a secondary market.
2.	Mode of Investment	Direct investment in the securities. Securities are acquired directly from the company.	Indirect investment, as the securities are acquired from other stakeholders.
3.	parties in action	The parties dealing in this market are companies and investors.	The parties dealing in this market are only investors.
4.	Intermediary	The underwriters are the intermediaries.	The security brokers are the intermediaries.
5.	Value of Security	The price of security in the primary market is fixed, as it is decided by the company.	The price of a security is fluctuating, depending on the demand and supply conditions in the market.
6.	Other name	Primary market is also called the new issue market.	Secondary market is also called the stock market.

Answer 2

S. No	Basis of Distinction	Primary Market	Secondary Market
1.	Nature of Securities traded	New securities are issued by new and existing companies.	Existing securities are only purchased and sold.
2.	Involvement of the company	A company sells securities to investors directly or through an intermediary.	Investors exchange ownership of securities. The company is not involved at all.
3.	Capital formation	There is a flow of funds from savers to investors. It directly promotes capital formation.	The liquidity of securities is enhanced. It indirectly promotes capital formation.
4.	Buying and selling	Only the buying of securities takes place.	Both buying and selling of securities take place.
5.	Price determination	The company determines the price of securities to be issued.	Demand and supply of securities determine the price.
6.	Location	There is no fixed, geographical location of the market.	The market is located at specified places.