Explain the meaning of ‘Capital Market’, ‘Primary Market’ and ‘Secondary Market’.

(i) Capital Market: Capital market means that market where transactions in long-term securities are made. This market offers help in meeting the long-term financial needs of various sectors of economy. Transaction of securities in this market include primarily the shares and debentures. This market encourages people to invest their small savings in productive activities. On the one hand, people earn appropriately and on the other hand, the economy develops.

(ii) Primary Market: Primary market is that market in which shares, debentures and other securities are sold for the first time for collecting long-term capital. This market is concerned with new issues. Therefore, the primary market is also called New Issue Market (NIM). Through the medium of this market both the newly established companies as well as the existing companies collect capital. In this market, the flow of funds is from savers to borrowers (Industries).

(iii) Secondary Market: The secondary market is that market in which the buying and selling of the previously issued securities is done. When a security is sold for the first time, it is the activity of the primary market. However, when the same security is sold for the second time, it is the activity of the secondary market. The transactions of the secondary market are generally done through the medium of stock exchange. The chief purpose of the secondary market is to create liquidity in securities.