An overview of the financial system - Financial Markets - primary and secondary market

8 important questions on An overview of the financial system - Financial Markets - primary and secondary market

What is the difference between the primary and secondary market?

Primary: where new issues of a security are sold to initial buyers by the firm or government borrowing the funds.
Secondary: securities that have been issued before can be resold.

Why are investment banks an important intermediary in the primary market?

Because it underwrites securities: it guarantees a price for a firm's securities and then sells them to the public.

What are the important intermediaries of the secondary market?

Brokers and dealers
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What is the difference between a broker and a dealer?

Broker: agents of investors who match buyers and seller of securities
Dealer: agents that link buyers and seller (buying and selling securities at stated prices. )

Why is the secondary market important?

It generates liquidity and increases the attractiveness of the primary market. The prices of the secondary market will also determine the prices of the primary market

What can cause liquidity to dry up in the OTC-Markets?

The fact that dealers can withdraw from the market

What are the differences between OTC-Markets and exchanges?

OTC: less transparent, fewer rules, foreign exchange, federal funds

Why are OTC-Markets not considered exchanges?

Because they are not open to all participants equally.

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