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Defining Financial Terms and Role in Finance

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Defining Financial Terms and Role in Finance

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Running Head: DEFINING FINANCIAL TERMS AND ROLE IN FINANCE

Defining Financial Terms and Role in Finance
University of Phoenix
FIN 370/ Finance for Business
November 10, 2010

Defining Financial Terms and Role in Finance
The following paragraphs contain financial terms and their role in finance. The terms are finance, efficient market, primary market, secondary market, risk, security, stock, bond, capital, debt, yield, rate of return, return on investment, and cash flow. The fourteen terms all have an important relationship in the world of business.

The first term is finance. Finance is managing money or supplying funds to provide a resource. A bank or loan company is a source of finance because they both provide cash. Cash is the resource that one needs to survive or make a purchase. For instance, when a customer walks into a car dealership and is ready to buy a car, the salesperson draws up the paperwork and two items are in need. The first item is cash and the second is the search for a finance company to finance the car. The role of finance in this example is the customer can provide the cash to make the purchase and the finance company can supply the funds and terms of agreement to help the owner purchase the car.

The second term is efficient market. Efficient market is a hypothesis that prices prevail in the market is always fair. Its role in finance according to EMH is no one can make high return without buying riskier investment as market prices are always fair.

The third term is primary market. Primary market is when securities, stocks and bonds, are offered to potential investors for the first time. Companies like Verizon or AT & T can issue or sell securities directly to an investor. The primary market role in finance is to allow the potential investor to buy from the company and not other investors to increase the stock.

The fourth term is secondary market. Secondary market is opposite of primary because it allows the investor...