A financial system is generally comprised of the money market and the capital. A capital market is a market for securities which could be debt or equity, where business enterprises and government can raise long-term funds. Securities traded in the capital market are usually long dated financial instruments like:

Treasury Bonds, Municipal Bonds, Corporate Bonds and debentures, shares or stocks issued by companies.The capital market is further divided into primary and secondary market.

Primary market

The primary market is the market for new issuers or where new capital is raised. It is the market where securities are sold for the first time. At the primary market sale proceeds of the securities offered flow directly from the buyers or investors to the issuers of the securities.

Secondary market

The secondary market is the market for trading securities that have been sold or issued in the primary market and already in the hands of the public. Once securities have been successfully issued in the primary market, they are subsequently traded in the secondary market. This is where stock markets, stock exchanges or OTC markets by whichever name the market may be referred to, provide the facilities for secondary trading.

The secondary market, provide a very important complement to the primary market. An active secondary market makes it easier for corporate entities and Governments to raise fresh capital through the primary market.