Finance Terms

Financial Terms and Roles

John Monroe

FIN/370 Finance for Business

June 11, 2012

Dr. Virginia Jones

Financial Terms and Roles

Finance – the study of how people and business evaluate investments and raise capital to fund them. Ex. When a family is ready to purchase a home the realtor prepares the paperwork. The home owners provide a suitable down payment and the realtor finds a reliable bank that is willing to mortgage the remaining amount. The role of the finance in this example is the home buyer can provide a down payment of cash for the home and the bank can finance the remaining balance of the mortgage to allow the buyers to move in will gaining interest.

Efficient Market – is a market whose prices quickly respond to the announcement of new information. (Role) As long as the market prices are always fair no one can make high returns without buying riskier investment.

Primary Market – is part of the financial market where new security issues are initially bought and sold. The primary market role is to allow companies such as T-Mobile or Sprint to sell securities directly to the investors in order to increase the company stock and to prevent the investor from buying from another organization.

Secondary Market – is the financial market where previously issued securities such as stocks and bonds was brought and sold rather than from an issuing company. The ability to buy securities from the market at a price that could be lower than the original investor price.

Risks – is very important when dealing with finance because risk involves the possibility of the actual return on investment differing from the expected return of the investment. When dealing with finance risk is generally associated with high levels of volatility.

Security – is a negotiable instrument that represents a financial claim that has value such as bonds and shares of common stock. When dealing with finance securities is sold to investors who...