Final answer:
The primary market allows firms to issue new securities, whereas the secondary market is where these securities are traded among investors. Relatively large and well-known firms often issue bonds to raise substantial capital, whereas smaller firms may find bank borrowing a more suitable option for customized smaller loans.
Step-by-step explanation:
The primary market is where securities are created. It's in this market that firms sell new stocks and bonds to the public for the first time, such as with an initial public offering (IPO). The secondary market is where previously issued securities are traded among investors. While the initial issuance of securities in the primary market does provide capital to firms, it is the secondary market that supports the pricing and liquidity of those securities, which is vital to investors.
When discussing bank borrowing versus bond issuance, we note that bank borrowing tends to be a more personalized and potentially better option for smaller firms. Relatively large and well-known firms might opt for issuing bonds as they can raise significant amounts of capital for investments, acquisitions, or refinancing previous debts. While there is a notion that smaller loans typically come from banks and larger ones from the bond market, this is not a fixed rule. Large loans can also be syndicated among banks, and smaller or lesser-known companies can access the bond market under the right conditions.