Economic Interdependence

The markets for new and old securities are, economically, an integral part of a single markets the industrial securities market. Their mutual interdependence from the economic point of view has two dimensions. One, the behavior of the stock exchanges has a significant bearing on the level of activity in the NIM and, therefore, its responses to capital issues: Activity In the new Issues market and the movement In the prices of stock exchange securities are broadly related new issues. Increase when share values are rising and vice versa. This is because the two parts of the industrial securities market are susceptible to common influences and they act and react upon each other. The stock exchanges are usually the first to feel a change in the economic outlook and the effect is quickly transmitted to the new issue section of the market.

The second dimension of the mutual interdependence of the two parts of the market is that the prices. If new issues are influenced by the price movements on the stock market. The securities market represents an important case where the stock-demand and supply curves, as distinguished from flow demand and supply curves, exert a dominant influence on price determination. The quantitative predominance of old securities in the market usually ensures that it is these which set the tone of the market as a whole and govern the prices and acceptability of the new issues. Thus, the flow of new savings into new securities is profoundly influenced by conditions prevailing in, the old securities market – the stock exchange .

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