Financial Terms and Definitions sample essay
Finance is the study of how people and businesses evaluate investments and raise capital to fund them.
2. Efficient market:
Efficient market is the concept that all trading opportunities are fairly priced.
3. Primary market:
Primary market is a part of the financial market where new security issues are initially bought and sold.
4. Secondary market:
Secondary market is the financial market where previously issued securities such as stocks and bonds are bought and sold.
Risk is the potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome).
Security is a negotiable instrument that represents a financial claim that has value. Securities are broadly classified as debt securities (bonds) and equity securities (shares of common stock).
Stock is an instrument that signifies an ownership position in a corporation.
Bond is 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.
Capital is the amount of cash and other assets owned by a business. These business assets include accounts receivable, equipment, and land/buildings of the business. Capital can also represent the accumulated wealth of a business, represented by its assets less liabilities.
Debt is money that has been borrowed and must be repaid. This includes such things as bank loans and bonds.
Yield is the income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value.
12. Rate of return:
The gain or loss on an investment over a specified period, expressed as a percentage increase over the initial investment cost. Gains on investments are considered to be any income received from the security plus realized capital gains.
13. Return on investment:
A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.
14. Cash flow:
Cash flow is a revenue or expense stream that changes a cash account over a given period. Cash inflows usually arise from one of three activities – financing, operations or investing – although this also occurs as a result of donations or gifts in the case of personal finance. Cash outflows result from expenses or investments. This holds true for both business and personal finance
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