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Questions
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’.
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Solution 1
| Sr. No. | 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. |
Solution 2
| Sr. 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. |
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