Finance Terms Essay

981 WordsApr 19, 20124 Pages
1. Finance Terms and Definitions, and their Roles in Finance 2. Finance is defined as a study of how people and businesses evaluate investments and raise capital to fund them. The role that finance plays is how people in business invests to produce capital, while evaluating the investments they are using for funding, and forming a residual income within their business. 3. Efficient Marketing is defined as the speed in which investors act and the way that prices respond to the information determines the efficiency of the market. The role that this plays is gaining a response from investors to new information by buying and selling their investments. It is the prices of financial claims traded in the public financial markets and the rapid response it has to new information (moving upward if the information is better than expected and downward if the information is worse than expected). This is a very rapid process. 4. Primary Market is where securities are sold for cash in a corporation. It is a market of which new, as opposed to previously issued, securities are bought and sold for the first time. There are four steps to this process Step 1: Securities sold for cash; Step 2: Corporation invests in return-generating assets; Step 3: Cash flow operations/Cash distributed back to investors; Step 4: Securities are traded among investors in the secondary market. The role this plays is to raise funds in the financial market. Where the assets are given back to the investors and paid to the government in the form of taxes. Then the securities are traded in the secondary market amongst investors to set the market price. 5. Secondary Market is defined as a trading place of securities for investors. It is where all subsequent trading of previously issued securities takes place. The role this plays is as a shareholder if you decide to sell shares you purchased of a company

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