Financial Terms and Roles

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Financial terms and Roles


Financial terms and Roles

In today’s business world, it is beneficial to know and understand some of the specific and yet commonly used financial terms. Not only is it important to know the definitions of such terms but also their roles in finance as well. The following list of terms, definition, and roles are from multiple sources, including a book titled “Financial management: Principles and applications” written by S. Titman, A. J. Keown, and J. D. Martin.

“Finance is the study of how people and businesses evaluate investments and raise capital to fund them” (Titman, Keown, & Martin, 2011, pg. 4). In the business world, finance helps business owners and upper management make executive decisions toward the purchase of future products, assets, and investments to benefit the success of their organization.

“Efficient market is the market where all pertinent information is available to all participants at the same time, and where prices respond immediately to available information” (WebFinance, 2012, pg. 1). The role of the efficient market is to provide a place where investors and business owners can obtain quick and accurate prices.

“Primary market is a market in which new, as opposed to previously issued, securities are bought and sold for the first time” (Titman, Keown, & Martin, 2011, pg. 26 ). Primary markets provide an opportunity for organizations to raise money to fund their organization or to sell securities to increase future assets and opportunities of expansion.

“Secondary market is where all subsequent trading of previously issued securities takes place” (Titman, Keown, & Martin, 2011, pg. 26). This market’s role in finance is to provide an opportunity for individuals and investors to sell or trade his or her securities, such as stocks and bonds. This not only provides a way for these individuals to make a profit off their securities but also businesses to obtain new investors and to continue...