The financial markets can broadly be divided into money and capital market.
Money Market: Money market is a market for debt
securities that pay off in the short term usually less than one year, for
example the market for 90-days treasury bills. This market encompasses the
trading and issuance of short term non equity
debt instruments including treasury bills, commercial papers, bankers
acceptance, certificates of deposits, etc.
Capital Market: Capital market is a market for
long-term debt and equity shares. In this market, the capital funds comprising
of both equity and debt are issued and traded. This also includes private
placement sources of debt and equity as well as organized markets like stock
exchanges. Capital market can be further divided into primary and secondary
markets.
What is meant
by the Secondary Market?
Secondary Market refers to a market where securities
are traded after being initially offered to the public in the primary market
and/or listed on the Stock Exchange. Majority of the trading is done in the
secondary market. Secondary market comprises of equity markets and the debt
markets.
For the general investor, the secondary market
provides an efficient platform for trading of his securities. For the
management of the company, Secondary equity markets serve as a monitoring and
control conduit—by facilitating value-enhancing control activities, enabling
implementation of incentive-based management contracts, and aggregating
information (via price discovery) that guides management decisions.
What is the
difference between the primary market and the secondary market?
In the primary market, securities are offered to
public for subscription for the purpose of raising capital or fund. Secondary
market is an equity trading avenue in which already existing/pre- issued
securities are traded amongst investors. Secondary market could be either
auction or dealer market. While stock exchange is the part of an auction
market, Over-the-Counter (OTC) is a part of the dealer market.
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