Defining Financial Terms

Running Head: Defining Financial Terms

Defining Financial Terms

University of Phoenix, SF Campus

Michael Charley

FIN 370 – Finance for Business

December 8, 2010

Instructor: Deepak A. Patel

Finance is to apply for a credit loan to finance a home, car, and business, from a Bank when funds are needed for this type of huge purchase

* Efficient market- Profit driven individuals that act on their own; where all assets, securities reflect any and all available public information at any instant in time; Investors also make sure the price reflects appropriately the expected earnings and the risks that are involved as well as the value of the firm

Role in Finance- When the information that investors need to make investment decisions is widely available, thoroughly analyzed, and regularly used, the result is an efficient market. This is the case with securities traded on the major US stock markets. That means the price of a security is a clear indication of its value at the time it is traded. Conversely, an inefficient market is one in which there is limited information available for making rational investment decisions and limited trading volume.

* Primary market- When new trades are put on the market that have not been sold or traded to investors.

Role in Finance- Primary markets enable firms to raise capital through the sale of financial assets. Businesses are able to access potential investors that are outside its immediate influence. Businesses have to meet stringent market standards to issue securities at the primary market. The added scrutiny makes the issue more attractive to potential investors, and the company is able to raise the capital with lower costs. The company can also continue to raise more capital for future investments through multiple issues because it is not restricted to a single set of investors.

* Secondary market- Where trades have been sold and or traded

Role in Finance- Once something has gone through its...