Defining Financial Terms Essay

692 WordsFeb 26, 20143 Pages
Defining Financial Terms Financial terms are used every day. Understanding financial terms is important in business as well as everyday life. The following will define financial terms and identify their roles in finance. The following terms are all retrieved from financial management: Principles and applications text. Finance Finance is the management of money and the market. It targets the formation and application of value and wealth. Just about every adult has to deal finance as well as business. Individuals and companies use different tactics to reach different goals. They want to increase their value and wealth. Efficient Market An efficient market shows all the available public information at any time. It will also show the value of the assets and securities. The price will change instantaneously to new information. Securities are sold and purchased based on the information flow and what they think is the true value of the security. The role of the market is to ease unpredictability and assist business to make decisions. Good decision should increase security prices and bad decisions should lower prices. Primary Market The primary market is for new securities. It is the first offering of security. It consists of the initial public offering and seasoned new issues. The initial public offering is the first time the company if offering the security and the seasoned new issue is new security available but already has some securities already issued. The company receives the money for purchase of the security. Secondary Market The secondary market is for securities that have already been publicly traded at least once. The buyer would receive the money the money after the purchase not the company. This keeps securities that have already been offered available to purchase or sell. Risk Risk is the potential for an undesirable outcome. Risk is

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