help in homework

New User?

Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive /  financial market is created to satisfy preferences of market participants

 financial market is created to satisfy preferences of market participants

Finance

 financial market is created to satisfy preferences of market participants. (10 Marks) a. Distinguish the difference between primary and secondary markets. Support your answer by using examples. b. Distinguish the difference between money markets and capital markets. Support your answer by using examples.

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

Difference between Primary and Secondary market

 

Primary market

Secondary market

Also called as

New Issue Market (NIM)

After Issue Market (AIM)

Role of the market

Market where stocks are issued for the first time

Market where stocks are traded once issued

Intermediaries

Investment banks

Brokers

Sale of securities

Directly by companies to investors

Sold and purchased amongst investors and traders

Price of shares

Fixed at par value

Changes depending on the supply and demand of shares

Example of Primary market

For example, company ABCWXYZ Inc. hires five underwriting firms to determine the financial details of its IPO. The underwriters detail that the issue price of the stock will be $15. Investors can then buy the IPO at this price directly from the issuing company.

This is the first opportunity that investors have to contribute capital to a company through the purchase of its stock. A company's equity capital is comprised of the funds generated by the sale of stock on the primary market.

Example of Secondary market

For example, if you go to buy Amazon (AMZN) stock, you are dealing only with another investor who owns shares in Amazon. Amazon is not directly involved with the transaction

B)

BASIS FOR COMPARISON MONEY MARKET CAPITAL MARKET
Meaning A segment of the financial market where lending and borrowing of short term securities are done. A section of financial market where long term securities are issued and traded.
Nature of Market Informal Formal
Financial instruments Treasury Bills, Commercial Papers, Certificate of Deposit, Trade Credit etc. Shares, Debentures, Bonds, Retained Earnings, Asset Securitization, Euro Issues etc.
Institutions Central bank, Commercial bank, non-financial institutions, bill brokers, acceptance houses, and so on. Commercial banks, Stock exchange, non-banking institutions like insurance companies etc.
Risk Factor Low Comparatively High
Liquidity High Low
Purpose To fulfill short term credit needs of the business. To fulfill long term credit needs of the business.
Time Horizon Within a year More than a year
Merit Increases liquidity of funds in the economy. Mobilization of Savings in the economy.
Return on Investment Less Comparatively High

Sitejabber (5.0)

BBC (5.0)

Trustpilot (4.9)

Google (5.0)