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Primary
and Secondary Markets
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Primary
and Secondary Markets
The
purpose of primary markets is to facilitate persons to grow capital by
converting saving into investments. It facilitates firms to issue new stock to
generate funds directly from the public to meet fiscal obligations (Eisl et
al., 2019). The mechanism of a primary market revolves around business entities
issuing new securities to the general public through an Initial Public Offer
(IPO) or a further Public Offer (FPO). On the flip side, the secondary market's
purpose is to facilitate the trade of existing debentures, shares and bonds
among investors. The trade involves a seller and purchaser, but the stock
exchange facilitates the transaction. Hence, the issuing entity sells its
securities through the stock exchange rather not directly to the buyers.
Primary markets influence company performance by setting the stock exchange prices before issuing. If a firm intends to raise funds by issuing stock, they create new securities representing a claim on its assets. The sales proceed from securities to...
