Defining Terms

Name: Walter Chisholm

Date: August 1, 2011

Course: FIN/370 Finance for Business

Topic: Defining Financial Terms

Instructor: Rodney Nelsestuen

Financial Management: Principals and applications.

Define the following terms and identify their roles in finance:

Finance - Financial management is concerned with the maintenance and creation of economic

value or wealth. Consequently, this course focuses on decision making with an eye toward

creating wealth. As such, we will deal with financial decisions such as when to introduce a

new product, when to invest in new assets, when to replace existing assets, when to borrow

from banks, when to issue stocks or bonds, when to extend credit to a customer, and

how much cash to maintain. (Arthur J. Keown, John D. Martin, J. William Petty, and David F. Scott, Jr.-2005)

Efficient market- is a market in which the values of all assets and securities at any instance in time fully reflect all available public information. An efficient market is characterized by a large number of profit-driven individuals who act independently. In addition, new information regarding securities arrives in the market in a random manner. Given this setting, investors

adjust to new information immediately and buy and sell the security until they feel the market price correctly reflects the new information. ( Author J. K. et all- 2005)

Primary market is a market in which new, as opposed to previously issued, securities are traded. This is the only time that the issuing firm actually receives money for its stock. For example, if Nike issues a new batch of stock, this issue would be considered a primary market transaction. In this case, Nike would issue new shares of stock and receive money from investors.

Secondary market is the market in which stock previously issued by the firm trades. Once the newly issued stock is in the public’s hands, it then begins trading in the secondary market. Securities that have previously been issued...