Financial Terms

Defining Financial Terms

FIN 370

September 10, 2013

Defining Financial Terms

Defining Financial Terms

* Finance

* Finance is the management and movement of assets and liabilities. A financial system is established to manage and regulate the operation and effectiveness at all levels of the operation.

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* Efficient market

* An efficient market is to ensure a fair market on all trading opportunities and fairly priced. Stock markets are an example of an efficient market.

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* Primary market

* The primary market is where issuance of securities is initially offered for trade. Buyers and sellers negotiate transactions without a middle man. Investment banks can administrate this market.

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* Secondary market

* The secondary market is where previously issued securities or financial instruments are exchanged through buying and selling. Commodities, over-the-counter, and exchanges are part of the secondary market. This helps reduce the risk of investment while maintaining liquidity.

* Risk

* Risk, in reference to the text, is “The doubt which an anticipated return cannot be obtained” (Mayo, H.B. 2010) Risk is the possible loss or lower than expected return on a specific asset. There are several risk types: Basic, Capital, Country, Default, Delivery, Economic, Exchange rate, Interest rate, Liquidity, Operations, Payment system, Political, Refinancing, Reinvestment, Settlement, Sovereign, and Underwriting.

* Security

Issued by a company or agency that provides evidence of ownership and a right to share in the debt and earnings. Bonds, notes, options are included as securities. Securities can be trade by stock exchanges.

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* Stock

Ownership and claim on assets and earnings of a corporation. There are two main types of stock, common which allows shareholders to vote at shareholder meetings and receive dividends from the stock options. Preferred do not generally have voting rights, but...