Financial Terms and Roles Essay

Submitted By andyll
Words: 667
Pages: 3

Financial Terms and Roles
Finance is the study of how people in their personal life and businesses evaluate investments and raise capital to fund them in the economic world. The role in finance is that it deals with matters that are related to money and markets.
Efficient markets are a hypothesis that prices in a market that are continually fair. It consists of incorporated market prices that reflect information. The role of efficient market is to keep the price fair and stops anyone from making high returns unless they make a high investment.
Primary market is a marketplace where securities are distributed for the first time. The government and businesses issue debt or equity based securities to raising finance. In this market, prices are the same for all buyers except investors do not purchase from other investors.
A secondary market is another marketplace where the securities that have already been sold or purchased by investors. Prices in this market can vary from the issue price and the prices can vary from the original cost. Issuers are not affected by the changes in pricing.
A risk is the probabilities of differences in the total investments earned on an annual return. The risks are divided into three groups. They are market, credit, and operational risk. The role that risk plays is on the return on investment. If the risks are low, the return is low, if they are high, the return is high.
Security is an investment or financing system supplied by the government or organization that represents stocks that indicate the right to ownership and bonds representing the debt to an agreement. Security plays a role that consists of a source who issues securities and the source of investments in purchasing securities.
Stocks are part of an organizations assets that give a part of ownership in a business. They assist investors in establishing financial trust in an organization. Stocks are not obloigated to have a maturity date and usually have face value. There are two types of stocks. They are common and preferred. Common stocks are not fixed, have voting rights, and have a lower claim on earnings and assets, where preferred stocks are fixed, do not have voting rights, and the holder has a higher claim on earnings and assets. A bond is a debt instrument confirming a contract between the bond issuer and the bond holder. The instruments define the amount of the loan, interest rates, method of payments on interest and principal, and maturity dates. Capital is the sum of money that is invested by the owners of the business.