Exercises · Q4
Q.Distinguish between the primary market and the secondary market (the stock exchange).
Maharashtra MsbshseTextbookSubjectiveImportance★★★★★
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Start your 14-day free trial to unlock the full solution →The two markets can be distinguished on several points:
| Basis | Primary market | Secondary market (Stock exchange) |
|---|---|---|
| Nature of securities | Deals in NEW securities, issued for the first time | Deals in ALREADY-ISSUED (existing) securities |
| Who receives the money | The issuing company receives the funds raised | No new funds reach the company; money passes directly between the buying and selling investors |
| Location | No fixed physical location — issue is made through prospectus, brokers, bankers to the issue, etc. | A recognised, organised exchange (e.g. BSE, NSE) with a fixed trading platform |
| Price | Price is fixed by the company in consultation with merchant bankers (fixed price or book-built) | Price is determined continuously by market demand and supply |
| Purpose | Capital formation — raising fresh long-term finance for the company | Providing liquidity and marketability to investors who already hold securities |
| Frequency for one security | Happens only once for a given issue (an IPO, or a further/rights issue) | Can happen repeatedly, any number of times, after the security is listed |
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