Defining Financial Terms

Defining Financial Terms

University of Phoenix

FIN 370

Defining Financial Terms

1. Finance

a. Finance is the study of how people and businesses evaluate investment and raise capital to fund them. Finance is primarily about the management of money.

2. Efficient Market

b. The prices that succeed in the market are always fair. Efficient market means that the price has incorporated and reflects all related information.

3. Primary market

c. Primary Market is a market in which new, as opposed to previously issued, securities are bought and sold for the first time. Firms issue new securities to raise money that they can then use to help finance their business. The fey key feature of the primary market is that the firm selling securities actually receive the money raised.

4. Secondary market

d. Secondary Market I where all subsequent trading of previously issued securities take place. In this market the issuing firm does not receive any new financing, as the securities it has are sold simply being transferred from one investor to another.

5. Risk

e. Risk can be categorized into three; market risk, credit risk, and operational risk. Return on investment is associated with risk attached to that investment. There is a tradeoff between risk and return. If risk is high the return is high and if risk is low the return is low.

6. Security

f. Security is a negotiable investment that represents a financial claim. Investors in security markets provide money directly to the firms that need it, as opposed to making deposits in commercial banks that then loan money to those firms.

i. Debit securities

ii. Equity securities

1. Common stock

2. Preferred stock

7. Stock

g. Stock represents ownership in the business and a claim on part of the company’s assets and earnings. Stocks can also be classified into the two categories of common stock and preferred stock....