Interrelationship between Primary Markets and Secondary Markets
The markets for new and old securities are, economically, an integral part of a single market – the capital market. Their mutual interdependence from the economic point of view has following two dimensions:
- One, the quantum of trading and the participation of the investors on stock exchange has a significant bearing on the level of activity in the primary market and, therefore, its responses to capital issues.
- Second, the dimension of mutual interdependence is based on the fact that the level of activity in primary market has a direct impact on the level of activity in secondary market. As more and more companies issue their securities in the capital market, investment options for investors increase which leads to a wider participation by investors in the secondary market.
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