Financial Terms

Financial Terms

FIN/370

October 15, 2012

• Finance – Study of how people and businesses evaluate investments and raise capital to fund them. Finance is about management of money.

• Efficient market - A market whose prices quickly respond to the announcement of new information. Information analyzed and used by investors to make financial decisions.

• Primary market - A part of the financial market where new security issues are initially bought and sold. Brings investors together with businesses looking for financing.

• Secondary market - The financial market where previously issued securities such as stocks and bonds are bought and sold.

• Risk - The uncertainty associated with any investment. That is, risk is the possibility that the actual return on an investment will be different from its expected return.

• Security - A negotiable instrument that represents a financial claim that has value. Securities are broadly classified as debt securities (bonds) and equity securities (shares of common stock).

• Stock - An instrument that signifies an ownership position in a corporation.

• Bond - A long-term (10-year or more) promissory note issued by a borrower, promising to pay the owner of the security a predetermined amount of interest each year.

• Capital - funds provided by lenders (and investors) to businesses to purchase equipment for producing goods/services, or physical goods that assist in the production of other goods and services, or saved-up financial wealth, especially that used to start or maintain a business.

• Debt - Money that has been borrowed and must be repaid. This includes such things as bank loans and bonds.

• Yield - The percentage return paid on a stock in the form of dividends, or the effective rate of interest paid on a bond or note.

• Rate of return - The gain or loss on an investment over a specified period, expressed as a percentage increase over the initial investment cost

• Return on...