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Securities Market – Investment Environment | Finance MCQs

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Securities Market

Securities Market | Types of Securities Market | Investment Environment | Finance MCQs

Securities Market is the marketplace where transactions of securities take place. It can be defined as a platform that brings buyers and sellers together. The securities market brings buyer and seller together for transactions of securities. It provides the liquidity of securities. Securities Markets can be classified as followings;

Money Market

The security market where short-term securities that have a maturity of less than one year, such as treasury bills, banker’s acceptance, certificate of deposit, LIBOR markets, etc. are traded. These securities are highly liquid and risky as compared to long-term securities.

Capital market

The security market where long-term securities that have a maturity of more than one year, such as bonds, debentures, preferred stocks, and common stocks are traded. Generally, these long-term securities yield higher than money market instruments since capital market instruments have higher risks. Those risks could be maturity risk, default risk, and other financial risks.

Primary Market

Primary market is the market for raising new capital (Trading between issuer and investor). The market where first-handed securities are traded is called the primary market. Primary market companies raise funds with the help of investment bankers and investors directly purchase the securities from the companies through investment bankers. it can be further classified as:

Unseasonal Primary Market

It refers to the market of securities that are newly issued for the first time. Under the unseasonal primary market, there is no existing market for the securities issued. There is a high level of uncertainty about whether the securities issued will be successful or not. Initial public offering (IPO) is an example of an unseasonal market.

Seasonal Primary Market

It refers to the market of the newly issued additional securities but that securities of the company are issued and established already in the market. Seasoned market securities are less risky than the unseasonal market because these securities have a stable price than unseasoned securities. Further Public Offering (FPO) is an example of a seasonal primary market.

Secondary Market

The security market which deals with trading of outstanding securities under a set of rules and regulations. The market where second-handed securities are traded. The secondary market is the exchange of cash and certificate of securities between investors. By selling new securities in the secondary market company doesn’t get the funds. Under secondary market transaction/ trading occurs between investor to the investor not between investors and issuers. The market where previously traded securities are bought and sold and the main purpose of the secondary market is to provide liquidity to investors.

• NEPSE (Only one example of organized exchange secondary market in Nepal.
• NASDAQ
• NYSE

 

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