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Role and Functioning of Stock Markets - Coursework Example
Author : laurianne88
Finance & Accounting
Pages 11 (2761 words)
Introduction to Financial Markets: The financial markets comprise of two types of markets: Money market and capital market. Capital markets are also known as long term investment markets. This form of capital markets includes Securities market which further include stock market and bond market…
Moreover, securities markets are further broken down into a primary market and a secondary market. A stock market is a private or public market for the trading of stocks or shares in companies at an agreed upon price. These include securities listed on a stock exchange as well as those traded privately, also known as over the counter securities. A stock market is also known as an equity market (Papadopoulos, 2010). Primary Market and its Role: Primary market is the market in which newly listed companies issue their shares to be traded for the first time, changing hands from the newly listed company to the investors, mostly these first time investors are institutional investors for example pension funds, investment banks, credit unions. This process allows a company, the issuers of stocks, to acquire capital by offering their stocks to investors who in return would supply the capital required. Thereby making primary market that part of capital markets that deals with the issuance of new securities. Privately or Publicly listed Companies, governments or public sector institutions can obtain funding for there projects in this way. Security dealers act as a bridge to link lender to the borrower of the fund. The process of selling new shares is called underwriting. ...