Primary and Secondary Markets
*Explain the difference between the primary and secondary markets. What roles do banks play in these markets?
*What is the purpose of an initial public offering (IPO)? How does an investment bank facilitate the process? List and describe several recent IPOs. Discuss the advantages and disadvantages of an IPO.
*How does risk affect a company’s financial decisions? What risks should a CFO consider in making a decision? Name at least five and describe each.
*How does the creation of a portfolio reduce risk? What type of assets should be included in a diverse portfolio? Why should they be included?
Difference between Primary and Secondary Markets
Primary markets are the market where companies sell their new stocks for the first time. When the government or companies want to raise funds, they issue securities and bonds, which are purchased directly from the issuer. Secondary markets involve sales of stocks and other securities among investors without the involvement of the underlying company. Primary markets are important in facilitating the supply of funds to budding enterprises and existing companies for diversification and expansion. Secondary markets help drive share prices toward intrinsic values promoting economic and market efficiency through supply and demand (Thakur, 2022).
Role of Banks in the Market
Banks play a different role in each market. In primary markets, investment banks facilitate the issuance of bonds and shares while expediting the sales and trade of issued debts and equities among sellers and buyers. The banks provide equity research covering each stock’s downside risk and upside potential and the rationale to facilitate sellers and buyers in making a judgment. The banks also engage in the selling and trading of securities, maximizing their profits (Corporate Finance Institute, 2022).
Corporate Finance Institute. (2022). What Do Investment Bankers Do? Retrieved from
Thakur, M. (2022). Primary Market Versus Secondary Markets. Retrieved from https://www.educba.com/primary-market-vs-secondary-market/