Chapter 2 The Financial Market and Interest Rates Chapter Objectives

Primary and Secondary Markets

Primary Markets – Securities are offered for the first time to investors – a new issue of stock. Increases the total stock of financial assets outstanding in the economy.

Secondary Markets – Transactions in currently outstanding securities. All transactions after the initial purchase. Sales do not affect the total stock of financial assets that exist in the economy.

Money Market and Capital Market

Money Market: all institutions and procedures that provide for transactions in short-term debt instruments

Capital Market: all institutions and procedures that provide for transactions in long-term financial instruments

Organized Security Exchanges and Over-the-Counter Markets

Organized Security Exchanges — Tangible entities; physically operate space, where financial instruments are traded on the premises

• National and regional exchanges