Distinguish between the following.

Points

Primary Market

Secondary Market

1) Meaning

The issue of new shares by the company is done in the primary market.

The securities issued earlier are traded in the secondary market.

2) Mode of Investment

Direct investment in the securities. Securities are acquired directly from the company.

Indirect investment as the  securities are acquired from other stakeholders.

3) Parties in action

The parties dealing in this market are company and investors.

The parties dealing in this market are only investors.

4) Intermediary

The underwriters are the

intermediaries.

The security brokers are the

intermediaries.

5)  Value of security

The price of security in the primary market is fixed as it is decided by the company.

The price of security is fluctuating, depending on the demand and supply conditions in the market.

Points

Money Market

Capital Market

1) Meaning

It is a component of the financial market where short-term borrowing takes place.

It is a component of financial market where long-term borrowings takes place.

2) Time period

In money market, the instruments traded have maturity period of one year or less than one year.

In capital market, the instruments traded have maturity period of more than one year.

3) Instruments

Certificate of deposits, Repurchase agreements, Commercial paper, Treasury bills, etc. are the instruments traded in the money market.

Stocks, Shares, Debentures, Bonds, Securities of the government are the instrument of capital market.

4) Purpose of borrowing

Funds are borrowed to meet working capital requirements or for small investments.

Long term funds are required to establish new business, expand or diversify business or purchase of fixed assets.

5) Institutions

Participants in the market are Central banks, Commercial banks, Acceptance houses, Non-bank financial institution, Bill brokers, etc.

Stock exchanges,  Commercial banks and Non-bank institutions, financial intermediaries, etc. are the participants in the market.

6) Risk

In the money market, risk factor is very less because maturity period of the instruments is less than one year.

In capital market, the risk is more as compared to in the money market. The reason behind this is the instruments have long maturity period.

7) Return on Investment

Return on investment in money market is less as they are highly liquid and safe.

Return on investment in capital market is comparatively high as they are more risky.

8) Role in Economy

This market increases liquidity of funds in the economy.

This market helps in mobilization of savings in the economy.