Q.Distinguish between Primary Market and Secondary Market.

Both are parts of the same capital market, but only one of them actually puts fresh money into the issuing company's hands — that single fact drives every other difference.

The primary market and the secondary market are the two components of the capital market, and the essential difference between them is whether a transaction puts fresh capital into the issuing company's hands or merely transfers an existing holding between two investors.

As to meaning, the primary market (or new issue market) is where securities are offered and sold for the very first time, while the secondary market (organised through the stock exchange) is where securities already issued are subsequently bought and sold among investors. As to the parties to a transaction, a primary-market transaction is directly between the company and the investor, while a secondary-market transaction is between one investor and another, mediated through the stock exchange. As to the effect on the company's own funds, the company directly receives fresh capital from a primary-market issue, whereas a secondary-market transaction brings no fresh funds to the company at all — only the identity of the security's holder changes. As to price, the issue price in the primary market is fixed by the company (typically in consultation with a merchant banker/lead manager), whereas the price in the secondary market is determined continuously, minute to minute, by the interplay of market demand and supply on the exchange. As to examples, an IPO …

A common confusion is assuming an IPO and ordinary stock-exchange trading are 'the same kind of transaction' simply because both involve shares — the decisive difference students must state explicitly …