FIN370 Week 1 Financial Term Definitions Essay

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Financial Term Definitions
University of Phoenix
Bernd D. Ratsch
March 10, 2013

a. Finance: The study of money and how it is used. Finance takes into consideration the relationship of money, time, and risk. Finance may deal with either personal or corporate issues; such as to how an individual or company acquires the money needed to perform a certain act.
b. Efficient Market: When the information that investors need to make investment decisions is widely available, thoroughly analyzed, and regularly used, the result is an efficient market.
c. Primary Market: The first group of investors to whom a new issue of a security is sold. The primary market consists of the issuer and the first buyers of the issue. All subsequent trading takes place on the secondary market.
d. Secondary Market: The market in which existing securities are traded among investors through an intermediary. Organized exchanges such as the New York Stock Exchange (NYSE) facilitate the trading of securities in the secondary market.
e. Risk: The uncertainty associated with any type of investment; meaning the risk has the possibility that the actual return on an investment will be different from its expected return.
f. Security: A document that is typically a physical certificate (but increasingly becoming electronic) and shows the portion owned of a publicly-traded company; or is owed a portion of a debt issue. Securities are tradable and typically refer to stocks and bonds, but are sometimes referred to derivatives such as futures and options.
g. Stock: A portion of ownership in a corporation. The holder of a stock is entitled to the company's earnings and is responsible for its risk for the portion of the company that each stock represents. There are two primary classes of stock: common stock and preferred stock.
h. Bond: Bonds are a debt and are issued for a period of time; usually more than one year. The United States government, local governments, utilities, companies, and many other types of institutions sell bonds. When an investor buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the loan at a specified time.
i. Capital: Capital is money that is used to generate income or to make an investment. As an example; the money used to buy shares of a mutual fund is capital that is being invested in the fund. Companies typically raise capital from investors by selling stocks and bonds which are used in exchange for money to expand, make acquisitions, or otherwise build the business.
j. Debt: A debt is an obligation to repay an amount that is