Money and Capital Market Analysis

Running head: MONEY AND CAPITAL MARKET ANALYSIS
Money and Capital Market Analysis
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MONEY AND CAPITAL MARKET ANALYSIS1
1. Introduction
Financial market is a world where all the new securities are issues to the public daily
of different financial products and services that are tailored to the need of each and every
individual from all the income brackets (Pilbeam, 2018). These type of financial products are
bought and sold in the capital market, which is again divided into Primary and Secondary
market. This paper shall elaborate on discussing about the differences between the primary
and secondary markets. It shall further explain on the vitality of these markets to be well-
developed within financial systems.
2. Discussion
2.1. Difference between Primary and secondary markets
Prior to investing the money in the financial asset such as debentures, bonds, shares
and commodities, it is necessary to be well aware of the differences in between the primary
and the secondary markets in order to better use his or her savings. It is to note that the
primary and secondary markets are the two parts of Capital market. Capital market refers to
the part of a financial system that raises capital from the shares, bonds, or any other types of
investments (Sornette, 2017).
Figure 1: Process of investment in Primary Markets

MONEY AND CAPITAL MARKET ANALYSIS2
Figure 2: Process of investment in Secondary Markets
According to Ehrhardt and Brigham (2016), primary markets are the markets where
the securities are formed. Within this market, the companies float new stocks to public. IPO
(Initial Public Offering) is one of the examples of primary markets. It is to note that an IPO
takes place when a non-government firm issues its stocks to public for the first time.
Different forms of issues that are produced by the corporation are referred to as Public issue,
Issue of IDR, Offer for Sale, Right Issue etc. The firms that bring the IPO are known as
issuers and this process is called public issue (Chaplinsky, Hanley & Moon, 2017). It
included several investment bands and the underwriters by means of which the shares, bonds
and debentures could be directly sold to investors. For example, if a company hires a total of
four underwriting firms for determining the financial details of its IPO, it is then detailed by
the underwriters about the stock price to be 20 dollars. It is when the investors can purchase
them the IPO at the rate that is directly gained from issuing the firm. It is the very first chance
that the investors need to aid capital to a firm by means of purchasing its stock. It is also to
note that the equity capital of the company is composed of the funds that are formed by the
sale of stock in primary market.
On the contrary, the secondary markets are often called as stock market. The
securities are first offered in primary markets to the general public for the subscription where
a firm gains money from its investors and then in turn, the investors get final securities. After