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Untitled2_35 - Chapter 2 Introduction to financial systems...

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Structure of financial markets Financial markets can be classified on the basis of several parameters: the nature of the financial securities traded (primary versus secondary markets), forms of organisation (organised exchanges versus over-the- counter markets), maturity of the financial instruments traded (capital markets versus money markets), and forms of trade intermediation (quote- driven dealer markets, order-driven markets and brokered markets). Primary and secondary markets A primary market is a financial market in which new issues of financial securities (both bonds and stocks) are sold to initial buyers. A secondary market is one in which securities that have been previously issued can be resold. Primary markets facilitate new financing to corporations, but most of the trading takes place in the secondary markets. Although some commentators have argued that secondary markets are less important to the economy than primary markets, they serve two important functions. First, they make financial securities more liquid. The
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