Introduction of Primary and secondary market

UNIT 2 :
Introduction to Primary and
Secondary Markets
BY
Dr. Y. Dhoke

Course Outcome for this Unit
 The student will be able to understand
and differentiate the functions of
primary and secondary markets.

Agenda
 Capital Market
 Primary Market
 Features of Primary market
 Secondary Market
 Features of Secondary Market
 Conclusion

CAPITAL MARKET
 The market where investment instruments like
bonds, equities and mortgages are traded is
known as the capital market.
 The primal role of this market is to make
investment from investors who have surplus
funds to the ones who are running a deficit.

 The capital market offers both long term and
overnight funds.
 The different types of financial instruments
that are traded in the capital markets are:
> equity instruments
> credit market instruments,
> insurance instruments,
> foreign exchange instruments,
> hybrid instruments and
> derivative instruments.

Importance of Capital Markets
 Help firms and governments raise cash by selling
securities
 Allow investors with excess funds to invest and earn a
return
 Channel funds from savers to borrowers
 Allocate resources optimally (i.e., provide funds to those
who can make the best use of them)
 Help allocate cash to where it is most productive
 Help lower the cost of exchange
 Secondary markets, where investors trade existing
securities, assures investors that they can quickly sell
their securities if the need arises

Types of capital market
There are two types of capital market:
 Primary market,
 Secondary market

Primary Market
 It is that market in which shares,
debentures and other securities are sold for
the first time for collecting long-term
capital.
 This market is concerned with new issues.
Therefore, the primary market is also called
NEW ISSUE MARKET.

 In this market, the flow of funds is from savers
to borrowers (industries), hence, it helps directly
in the capital formation of the country.
 The money collected from this market is
generally used by the companies to modernize
the plant, machinery and buildings, for
extending business, and for setting up new
business unit.

Features of Primary Market
 It Is Related With New Issues
 It Has No Particular Place
 It Has Various Methods Of Float Capital: Following
are the methods of raising capital in the primary
market:
i) Public Issue
ii) Offer For Sale
iii) Private Placement
iv) Right Issue
v) Electronic-Initial Public Offer
 It comes before Secondary Market

 Initial public offering (IPO) The first sale of a
company’s stock to the general public.
 Investment bankers Financial specialists who handle
the sales of most corporate and municipal securities.
 Underwriting Process of purchasing an issue from a
firm or government and then reselling the issue to
investors.

Factors to be considered by Investors
 Promoters Credibility
 Project Details
 Product
 Financial data
 Risk factors
 Auditors report

Secondary Market
 The secondary market is that
market in which the buying and
selling of the previously issued
securities is done.
 The transactions of the secondary
market are generally done through
the medium of stock exchange.
 The chief purpose of the secondary
market is to create liquidity in
securities.

 If an individual has bought some
security and he now wants to sell it, he
can do so through the medium of stock
exchange to sell or purchase through
the medium of stock exchange requires
the services of the broker presently,
their are 24 stock exchange in India.
.

Features of Secondary Market
 It Creates Liquidity
 It Comes After Primary Market
 It Has A Particular Place
 It Encourage New Investments
 Aids in financing the industry
 Ensures safe & fair Dealing( MEDIA
BROADCASTING)

Functions of Secondary Markets
 Provides regular information about the value of
security.
 Helps to observe prices of bonds and their interest
rates.
 Offers to investors liquidity for their assets.
 Secondary markets bring together many interested
parties.
 It keeps the cost of transactions low.

Famous Secondary Markets worldwide
 New York Stock Exchange
 NASDAQ
 The London Stock Exchange
 The Tokyo Stock Exchange
 Shanghai Stock Exchange

PRIMARY
MARKET
SECONDARY
MARKET
Conclusion

Introduction of Primary and secondary market

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