Question

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

• A. Based on Nature of Securities, Price Determination, and Entry.
• B. Based on Capital Formation, Participants, and Geographical Location.
• C. Based on Type of Capital, Risks, and Liquidity.
• D. Based on Regulation, Management, and Dividends.

Hint:

In the Primary Market, the company is always involved in the transaction. In the Secondary Market, the company is usually not involved; the trade happens between two investors.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
The Capital Market is divided into two segments: the Primary Market (New Issue Market) and the Secondary Market (Stock Market). The Primary Market deals with new securities, while the Secondary Market deals with existing ones.
Step 2: Detailed Explanation:
\begin{tabular}{|l|p{5cm}|p{5cm}|} \hline Basis & Primary Market & Secondary Market
\hline Nature of Securities & It deals with new securities being issued for the first time. & It deals with existing or "second-hand" securities.
\hline Capital Formation & It directly promotes capital formation as funds flow from households to business. & It indirectly promotes capital formation by providing liquidity and a platform for investors.
\hline Price Determination & Prices are determined by the management of the company. & Prices are determined by the forces of demand and supply in the market.
\hline \end{tabular}
Step 3: Final Answer:
The Primary Market is for fresh capital raising directly from the company, whereas the Secondary Market provides a platform for investors to trade existing securities among themselves.