Question

Define THE 5  terms. Give examples where applicable

Primary market:

Secondary market:

Debt:

Equity:

Financial Intermediary:

Answer 1

Solution.>

The primary market is where securities are created. It's in this market that firms sell (float) new stocks and bonds to the public for the first time. An initial public offering, or IPO, is an example of a primary market.

The secondary market, also called the aftermarket and follow on public offering, is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. The national exchanges, such as the New York Stock Exchange (NYSE) and the NASDAQ, are secondary markets.

Debt is an amount of money borrowed by one party from another. Debt is used by many corporations and individuals as a method of making large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.

Equity is ownership of assets that may have debts or other liabilities attached to them. Equity is measured for accounting purposes by subtracting liabilities from the value of an asset. For example, if someone owns a car worth $9,000 and owes $3,000 on the loan used to buy the car, then the difference of $6,000 is equity.

A financial intermediary is an entity that acts as the middleman between two parties in a financial transaction, such as a commercial bank, investment bank, mutual fund, or pension fund.

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