Listen to a Business English Dialogue About Primary market
Aubrey: Hi Aaron, have you heard of the primary market in finance?
Aaron: Yes, Aubrey, I have. The primary market is where new securities, such as stocks and bonds, are issued and sold for the first time directly from the issuer to investors.
Aubrey: That’s correct. Can you explain how companies typically raise funds in the primary market?
Aaron: Certainly, Aubrey. Companies raise funds in the primary market by issuing new shares of stock through an initial public offering (IPO) or by issuing bonds directly to investors. These funds are then used by the company for various purposes, such as expansion, research and development, or debt repayment.
Aubrey: I see. What role do investment banks play in the primary market?
Aaron: Investment banks act as intermediaries between the issuing company and investors in the primary market. They help the company structure the offering, set the offering price, underwrite the securities, and facilitate the sale to investors.
Aubrey: That makes sense. How do investors typically participate in the primary market?
Aaron: Investors participate in the primary market by purchasing newly issued securities directly from the issuing company or through their brokerage firms. They can place orders for shares or bonds during the offering period, and once the securities are issued, they become shareholders or bondholders of the company.
Aubrey: I understand. Are there any risks associated with investing in the primary market?
Aaron: Yes, Aubrey. Investing in the primary market carries risks, such as the risk of loss if the value of the securities declines after purchase, or if the issuing company fails to meet its financial obligations.
Aubrey: Thanks for explaining, Aaron. The primary market seems like a crucial avenue for companies to raise capital and for investors to participate in new investment opportunities.
Aaron: Absolutely, Aubrey. It plays a fundamental role in the functioning of the financial markets by facilitating the allocation of capital to companies with growth potential.