Question

Discuss why the secondary markets are critical to firms who want to raise capital given that firms raise capital in the primary markets and not the secondary markets. To get full credit, you need to clearly explain your answer. Note that while there is more than one viable reason, you need to only address one reason – just address it well.

Answer 1

FOR FINDING OUT THE TRENDS OF THE STOCK MARKET AND GENERAL ECONOMY-

Secondary markets are full of market participants who are continuously trading various stocks in order to derive the prices so secondary market will be reflecting the overall mood of the market and when the company will be listing its shares they will want the market mood to be bullish, and hence they can gain through the macroeconomic factors so most companies will be wanting the market participants to be bullish and they will be listing their shares mostly at the time when economy is flourishing as they can extract the maximum valuation as those times, so secondary market will be providing them with an idea about the prospect of the current market and if there is a bullish trend in the secondary market, it will mean that the market participants are highly bullish and they will subscribe the shares of the company at large so, the company will be motivated to issue their securities into the market.