Financial Terms

Financial Terms Week 1

Create a list of definitions of the following terms and identify their roles in finance:

Finance - Finance is the study of how people and businesses evaluate investments and raise capital to fund them.

Efficient market- this is the market where all information is available to everyone at the same time. An example of efficient market would be the stock market.

Primary market – This is a market where new securities are purchased and sold for the first time. New securities are created to help the company raise money. This is to help finance the business. In the primary market, the money is kept by the firms that sell the securities.

Secondary market – This is the market where the selling of previous securities takes place. The difference with this market is that the firm that sell, does not receive any finances. This is because the securities that are sold are just being transferred between investors.

Risk – This is the uncertainty of any investment. This means that the actual return of investment may be different than the expected return of investment.

Security – This is something that represents a financial claim. A security can be in the form of a stocks or a debt agreement.

Stock – Stocks represent the shares of an organization. Stocks may increase or decrease depending on how well an organization is progressing financially.

Bond – A debt that has a maturity of longer than 10 years, and it is sold in the capital market. The note is issued by the borrower with the promise to pay the owner a fixed amount of interest every year.

Capital- Capital is goods or money that is use to produce income.

Debt- This is what an organization owes. This is money that has been borrowed and must be paid back. An example of this in finance is bank loans or bonds.

Yield – The income that is earned annually from an investment.

Rate of return

Return on investment – a measure of profitability that can tell if a company is using its...