Resource: Financial Management
Create a list of definitions for the following terms and identify their roles in finance.
Finance ~ The allocation of assets and liability. Prices assets based upon their risk as well as the expected rate of return. Finance is a necessary part of business, as money is the reason the business exists.
Efficient market ~ The degree which stock prices reflect all relevant information. How investors make money, they purchase stock when it is undervalued, and sell once the price goes up. Buy low, sell high theory.
Primary market ~ The market that issues new securities on an exchange (Investopedia, 2013). Companies, government, and other groups obtain financing through debt or equity based securities.
Secondary market ~ Once the initial sale is complete, further trading is called the secondary market. Investors are free to resell securities to other investors immediately after purchase.
Risk ~ Risk vs return. Risk is the possibility that an investor will not get the return expected from an investment. Risk is the chance investors take when investing and could result in a loss of the original investment (Investopedia, 2013).
Security ~ A negotiable instrument that represents a financial claim. It can be a stock, or a debt agreement. Securities market brings investors and corporations together.
Stock ~ A type of security that shows ownership of a corporation. Common stock is used to represent not only ownership, but entitles owner to benefit from the company’s success or share in the failure.
Bond ~ A note that matures in longer than 10 years. Sold on the capital market and is a long term instrument of debt.
Capital ~ Financial assets of the corporation, such as cash, buildings, machines, or equipment. Capital is necessary to business to function unless it is a business that is virtual and has no need to purchase things to make the business function.
Debt ~ Money a firm owes such as a bank loan, or a note. Debt...