Finance Terms

Finance Terms Definition Paper

University of Phoenix

Finance

Finance deals with creating and maintaining economic value or wealth. It is about setting proper and precise goals that deal with the complexities of the real world so that shareholder wealth can be maximized. Finance does this through the most efficient use of capital resources.

Efficient Market

An efficient market is a market in which the values of all assets and securities at any instant in time fully reflect all available public information. It is generally characterized by a large number of individuals who are concerned with profit and who act independently.

Efficient markets play a valuable role in finance because information is reflected in the prices of the security prices with such speed that the security prices reflect the expected earnings and risks involved and create a more competitive environment thus giving a true picture of the value of a firm.

Primary Market

A primary market is the market where new securities are traded. It is in this market where the company actually receives money for the stock sold. There are two types of offerings in the primary market. The first is the initial public offering and the second is the seasoned new issues or primary offerings.

This plays a vital role in finance as a way for an emerging firm to create large amounts of capital for expansion and growth.

Secondary Market

This is the market where the shares of stock are traded after being purchased in the initial public offering or primary market. In this market the profit or loss realized does not directly affect the company whose shares are being traded. The individual or individuals who purchased the shares in the original offering will either have proceeds or a loss from the shares that are sold.

Risk

Risk is the uncertainty associated with an investment. Risk connotes there may be a lower return on an investment than had been expected. In finance, there are various types of...