Financial Terms and Roles

Financial Terms and Roles

Finance – Money management by governments and companies.

The word finance is simply the definition of what finance is and that is the role finance plays.

Efficient Market – The market in which pertinent information is open to all participants at the same time.

Efficient markets allow businesses and investors to make educated accurate investment decisions from the current information.

Primary Market – A market in which companies sell stock after they have been authorized to do so.

The primary market makes it possible for firms to raise available capital by selling initial stock publicly.

Secondary Market – The market that allows investors to sell and trade stocks previously issued.

The secondary market allows investors to buy, sell, and trade previously issued stock to earn money from it. The gain or loss however is absorbed by the person who initially purchased the stock instead of the company that issued the stock.

Risk – This is like a gamble in the scense that the actual return on investment may not turn out to be what was projected on the return.

When there are risks taken on investments there is a chance more investors will want to invest with you. When projected returns are higher due to risk of failure, or even loss of money, it creates a higher possibility.

Security – Instruments of value issued to show ownership. Common securities include bonds, notes, and stock shares.

Securities are used by publicly traded companies to lift capital in hopes of future expansion of the existing company.

Stock – The capital increase by the selling of shares. Stock is also proof of partial ownership in a publicly traded company.

Stocks are used by companies to raise money and by investors to purchase or sell to profit from.

Bond – A type of security issued by a company basically a loan by members of the public. The company issues the bond to a bondholder for a given amount that is based on the amount borrowed and the...