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Efficient, Primary, and Secondary Markets

Article Notes: FIN/370 Week 1

Efficient Market

An efficient market is a market where business and investors interact, with the primary purpose being to generate profits. Supply and demand drive the prices of the market, and it will react quickly to any changes or external forces. This will prevent people from exploiting public information to make a profit.

Primary Market

A primary market is where new securities are traded for the first time. When dealing with stocks this will usually be an Initial Public Offering. A company can build long term capital by dealing stock directly to investors. For government bonds, it is simply the market where newly issued bonds are sold.

Secondary Market

The secondary market is where investors trade securities with other investors. This is where the majority of security trading takes place and provides liquidity to the market. I n the USA, some of the major secondary markets are the NYSE and NASDAQ.

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