Financial Terms and Roles

Financial Terms and Roles

Finance – (Definition) The study of how people and businesses raise capital to fund investments and evaluate investments. (Role) Is to answer three basic questions; 1. What long-term investments should be undertaken? 2. How should money be raised for investments? 3. How can cash flows be managed in day-to-day operations? (Titman, Keown, & Martin, 2011).

Efficient Market – (Definition) The price of an asset reflects all of the available information. (Role) Attempts to explain the accuracy of market prices and how financial mechanisms reduce inefficiencies in market prices (Conner, 2012).

Primary Market – (Definition) Issue new securities on an exchange. (Role) Facilitates capital growth by allowing governments, companies, and others to obtain financing through debt or equity securities (Investopedia, 2013).

Secondary Market – (Definition) Investors purchase securities or assets from other investors instead of the issuing company of the securities or assets. (Role) Less volatile than the primary market because supply and demand determine the price of securities (Investopedia, 2013).

Risk – (Definition) The chance an investments return will be different than what is was expected. (Role) The more risk an investor takes on , the greater the potential of their return on the risk (Investopedia, 2013).

Security – (Definintion) A negotiable instrument representing a finical claim. (Role) Allows individuals and businesses to trade securities that are issued by public corporations (Titman, Keown, & Martin, 2011).

Stock – (Definition) An equity security that represents ownership in a corporation. (Role) Provides voting rights and allows the holder to a share of the company’s success in the form of dividends and other capital appreciation in the value of the security (Titman, Keown, & Martin, 2011).

Bond – (Definition) Long-term promissory note that is for 10 or more years issued by the borrower that promises to pay the owner of...