Primary capital markets are those security markets where the equities and bonds of several companies and corporations are offered to the investors for the first time.The primary market securities are known as IPO and underwriting.
These are related to the primary equity market. On the other hand, primary bond market is also there.In the primary bond market the company bonds are offered to the investors to generate funds for different business purposes. These bonds are offered directly to the investors by the issuers and the money goes to the issuer.
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The bonds offered in this market as a primary market securities bears no different name which we can see in case of the equities. On the other hand, there is the primary equity market which offers the IPOs and Underwriting as the primary market securities.
The Initial Public Offerings are those stocks which are offered by the companies for the first time. These Initial Public Offering is a source of generating funds from the stock market. These primary market securities are offered by those companies which are new in the market and are in need of money to expand the company.
The IPO is offered in two forms termed as the common stocks and the preferred stocks. The type of stock that is going to be offered is determined by the underwriting firms. At the same time, price and appropriate time of bringing the share into the market is also determined by the underwriting firms.
The investment in this market depends on the expected performance of the stock in the future. The amount of risk related to the IPOs are also high because it is very hard to predict the future of a particular stock.
Another type of primary market securities is called underwriting. These are the new issues of the existing stock. Investing in these issues are less risky because the stocks are already existing in the market and the performance of the stock can be analyzed by the investor.
According to the trends of the modern capital markets, the primary market securities are preferred by the companies as a source of generating funds for business purpose. These are preferred over the commercial bank loans. Because of this, the stock markets are developing rapidly.
Last Updated on : 22nd July 2016