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GA Topper Series: ABC of Economy

Hello students, there are times when you read some economics news and it doesn’t make any sense. To explain certain fancy terms of economic news, we have written brought up this article. Consider it as learning the ABC of the economic news.

Capital Market: It’s a market where funds are taken for a longer period of time, more than one year. It has two parts. Primary market and secondary market.

Primary market: recently you must have read the government-issued IPO of LIC. IPO means Initial public offering. So for the first time when a company allows the public to buy its share is called an Initial Public Offering. It launched in the primary market. 

Now consider you have bought the share of LIC. But you need money, so want to sell it to your friend. Where will you sell it? That will be the secondary market. So secondary market is a place where shares are traded.

If a company issue IPO but is scared what if no one buys its share. So to eliminate this risk they ask the investment company to take the guarantee that if the shares are unsold investment company will buy them. This process is called Underwriting

Now let us consider that if LIC wants to sell more shares to the public then what will it issue? That will Further Public Offer- FPO. In technical terms, FPO is the Issuance of shares of a company that is already listed on the stock exchange. 

Here comes another fancy term, stock exchange, and listing. 

Stock exchange/stock market/ Bourse: All these terms mean the market where shares are bought and sold. As you know in the secondary market there are no new shares but a limited number of shares are bought and sold thus exchanged between people. Thus the name becomes the stock exchange. In India, we have the Bombay Stock Exchange, a national stock exchange. 

What does listing mean?

When a company’s shares are available to be traded on an exchange then that company is said it is listed on the stock exchange.

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