May 08, 2013
Professor Johnnie Bayles
Financial Terms and Roles
Finance is a broad discipline. From an individual’s perspective, finance encompasses financial institutions and investments. Finance is considers the management of how income acquired and used. Whether dealing with cooperate or personal issues, finance may consist of how individual or business acquires, invest, and manage money. Financial decisions are the role finance plays, which consist of money as the resource and how and the source of how the organization obtain the revenue (Titman, Keown, & Martin, 2011).
Efficient markets are a hypothesis that prices in a market are continually fair. This consists of incorporated market prices reflecting associated information completely. Keeping values is the role efficient markets play by keeping market price fair and prohibiting anyone to make a high returns unless he or she buys a much high risk investment (Titman, Keown, & Martin, 2011).
A primary market is a marketplace where securities are distributed for the first time. The government, business, and other groups issue debt or equity-based securities permissible to raising finance. In primary market prices are the same for every buyer; however, investors in a primary market do not purchase securities from other investors (Mayo, 2012).
A secondary market is a marketplace where securities that already issued are sold or purchased by investors. Prices in a secondary market vary from the issue price and prices can vary from the original cost, although prices are affected by market sentiments in a secondary market issuers are not affected because of the changes in pricing ("Financialdictionary.net", n.d).
Risk are the probabilities of differences in the investments earned on an annual return. These risks are divided in three different groups, market, credit, and operational risk. In finance risk plays a role in the return on investment. If the risk are low the return is low if they are high the return is high ("Financialdictionary.net", n.d).
Securities are known as stocks indicating right to ownership to a debt agreements and bond indicating debt agreements. Security is an investment in the financial sector, a security is a blanket term referring to an instrument usually just recorded as a piece of paper that represents financial value, such as stock, bonds, debt securities, funds, options, futures contracts and other derivatives. Technically currency can also be regarded as a security, such as a paper note, although they are generally not seen that way (Mayo, 2012).
Stock, sold as shares, is the representative term given to the financial instruments sold on the public stock market in order to raise capital for public companies. A single piece of stock or several shares represent a percentage of ownership in said company and therefore a percentage of future profits. Shares are usually denoted in the form of a stock certificate. There are several different types of stock, with different benefits. Usually these are common stock or preferred stock (Titman, Keown, & Martin, 2011).
Basically a bond is labeled as a debt security. In this case an authorized issuer is involved, who owes a debt to the holder, which he’s supposed to repay the principal amount as well as the interest at a later set date. This later date or day is known as the maturity date or day.
In other words a bond is a loan in the form of a security following different terms and conditions. In this case the lender is the bond holder, the issuer is the borrower and finally the coupon is the interest. Bonds can be used by the person or persons to expand their business, garage, showroom renovation etc. depending on the type of business they are doing, instead of taking loans in such circumstances, many companies opt to give out bonds by