What is secondary market? Describe in detail the objectives and functions of secondary market.
Answers
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(1) It Creates Liquidity:
The most important feature of the secondary market is to create liquidity in securities. Liquidity means immediate conversion of securities into cash. This job is performed by the secondary market.
(2) It Comes after Primary Market:
Any new security cannot be sold for the first time in the secondary market. New securities are first sold in the primary market and thereafter comes the turn of the secondary market.
(3) It has a Particular Place:
ADVERTISEMENTS:
The secondary market has a particular place which is called Stock Exchange. However, it must be noted that it is not essential that all the buying and selling of securities will be done only through stock exchange.
Two individuals can buy or sell them mutually. This will also be called a transaction of the secondary market. Generally, most of the transactions are made through the medium of stock exchange.
(4) It Encourages New Investment:
The rates of shares and other securities often fluctuate in the share market. Many new investors enter this market to exploit this situation. This leads to an increase in investment in the industrial sector of the country.