These are markets that deal with securities that have been issued for the first time. The money flows directly from transferor (saver of money) to transferee (investing person). They facilitate capital formation.
Economic Advantage of Primary Markets
1. Raising capital for business.
2. Mobilising savings
3. Government can raise capital through sale of Treasury bonds
4. Open market operation to effect monetary policy of the government i.e. control of excess liquidity in the economy5. It is a vehicle for direct foreign investment.
Economic Advantage/Role of Secondary Markets in the Economy
1. It gives people a chance to buy shares hence distribution of wealth in economy.
2. Enable investors realize their investments through disposal of securities.
3. Increases diversification of investments
4. Improves corporate governance through separation of ownership and management. This
increases higher standards of accounting, resource management and transparency.
5. Privatisation of parastatals e.g. Kenya Airways. This gives individuals a chance for ownership in large companies.
6. Parameter for health economy and companies
7. Provides investment opportunities for companies and small investors.