Question

Differentiate between 'Primary Market' and 'Secondary Market' on any five basis.

Accepted Answer

Differentiation between Primary Market and Secondary Market: Primary Market Secondary Market --- --- --- (i) There is sale of securities by new companies or new issues of securities by existing companies to investors. There is trading of existing shares only. (ii) Securities are sold by the company to the investor directly or through an intermediary. Ownership of existing securities is exchanged between investors while the company is not involved. (iii) The flow of funds is from savers to investors, i.e., primary market directly promotes capital formation. It enhances encashability of shares, i.e., it indirectly promotes capital formation. (iv) Only buying of securities takes place in the primary market, securities cannot be sold there. Both buying and selling of securities can take place on the stock exchange. (v) Prices are determined and decided by the management of the company. Prices are determined by demand and supply of the security. (vi) There is no fixed geographical location. The location is at specified places.

Differentiate between 'Primary Market' and 'Secondary Market' on any five basis.

Marking-scheme solution

More from Financial Markets

	Primary Market	Secondary Market
(i)	There is sale of securities by new companies or new issues of securities by existing companies to investors.	There is trading of existing shares only.
(ii)	Securities are sold by the company to the investor directly or through an intermediary.	Ownership of existing securities is exchanged between investors while the company is not involved.
(iii)	The flow of funds is from savers to investors, i.e., primary market directly promotes capital formation.	It enhances encashability of shares, i.e., it indirectly promotes capital formation.
(iv)	Only buying of securities takes place in the primary market, securities cannot be sold there.	Both buying and selling of securities can take place on the stock exchange.
(v)	Prices are determined and decided by the management of the company.	Prices are determined by demand and supply of the security.
(vi)	There is no fixed geographical location.	The location is at specified places.