Explain briefly how secondary markets help facilitate capital formation (investment in real assets). Solution Capital formation takes place as a result of increase/addition in the existing level of capital stock such as buildings, equipment or other forms of real assets. Secondary markets donot directly contribute to the process of capital formation as is the case with primary markets. However, the transfer of capital from surplus spending units (SSUs) to deficit spending units (DSUs) through various financial intermediaries result in the formation of capital as DSUs are able to utilize such borrowed capital/funds for procuring assets. SSUs are mostly investors/lenders and DSUs are borrowers. In simple words, the process of borrowing money from from such lenders for the purpose of making investments in tangible assets (particularly fixed assets) facilitate capital formation in the secondary markets..