Financial Definitions

Finance - Finance involves the saving of money, investment of money, and loaning of money. Within the area of finance transactions that deal with length of time, various forms of use of money, various levels of risk and how they are interconnected with one another.

Efficient market - An efficient market is where all relevant information is accessible to all applicable participants at the same time and when prices react instantly to the accessible information. Stock markets such as the Dow Jones are a good example of an efficient market.

Primary market - A primary market is when new securities are traded within a market. With this type of market this will be the only instance when a firm actually receives funds for their stock issuance. Two different types of offerings are available in the primary market: initial public offering and primary offering.

Secondary market - Once stock has been newly issued to the public, it then starts being traded in the secondary market. When securities had been previously issued and bought they then live within secondary market.

Risk - Risk is defined by a chosen action which will lead to a potential loss. Some investors choose to place their funds in risky investments because of larger expected returns. The higher the risk, the larger expected return.

Security - Securities are financial instrument which are negotiable and represent a financial value. Within both primary and secondary markets, securities can be traded.

Stock - Stock is the original capital paid invested or into the business by its owners. It is also used as a security for future creditors which cannot be withdrawn by creditors. Stock is the assets of the business which can vary in worth and quantity. The primary purpose of businesses is to maximize the market value of shareholders' common stock.

Bond - A bond is a long-term promissory note, typically with a maturity of great than ten years which is issued by the borrower, with a promise to pay within a predetermined fixed amount of interest which is paid at a specific time.

Capital - Capital of funds used by businesses and entrepreneurs to buy materials to purchase real capital equipment to produce their products or provide goods and services.

Debt - Debt is money owed for anything acquired. When a creditor lends funding to a entity creating debt for the debtor. When a creditor grants a debtor funding there is an expectation that funds will be repaid plus interest.

Yield - Describes the amount in cash that returns to the owners of a security. Yield relates to many specified rates of return on bonds, stocks, bonds and various other investment types.

Rate of return - When money is invested, the ratio of money gained or lost comparative to the total funds invested is the definition of rate of return.