Financial Terms and Roles Essay

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Financial Terms and Roles FIN/370 July 1l, 2011 Ashok Padhi Financial Terms and Roles 1. Finance – Finance is the study of how people and businesses evaluate investments and raise capital to fund them. Finance is in basically how we manage our money whether it is to save for retirement or to buy a car or a home. 2. Efficient market – An efficient market is a market in which all the available information is fully incorporated into securities prices, and the returns investors will earn on their investments cannot be predicted. Efficient market is stating that investors have all the information available and there is no given guarantee of what one will earn on an investment. 3. Primary market – A primary market is a market in which new, as opposed to previously issued, securities are bought and sold for the first time. An investment company issues a new bond and the investor gives the investment company cash for it to use towards their business. 4. Secondary market – The secondary market is where all subsequent trading of previously issued securities takes place. The investment company already has securities and it sells them from one investor to the next. Mortgage companies purchasing loans from banks are an example. 5. Risk – The amount of money that may be gained or loss as investing. 6. Security - A negotiable instrument that represents a financial claim that has value. It means owning stocks or bonds. 7. Stock - Having ownership of a portion of a company. A stockholder owns some of a company and has certain rights like voting. 8. Bond - A long-term (10-year or more) promissory note issued by a borrower, promising to pay the owner of the security a predetermined amount of interest each year. Bonds can be purchased through a company or government and can be used to fund a certain project. 9. Capital – Capital is the

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