Fin 370 Defining Financial Terms

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  • Topic: Bond, Rate of return, Investment
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Defining Financial Terms
Week 1
FIN 370

Defining Financial terms
* Finance
* Finance is the study of how people and businesses evaluate investments and raise capital to fund them. Our interpretation of an investment is quite broad. * Business use finance to study every decision they make from investing in a product to market short term or long term, and if the ROI is worth-while or not. Firms must also use this study when recruiting vendors, sub-contractors, and even fresh new employees all of these are investments that need to have a positive ROI in the eyes of the company.

* Efficient market
* An efficient market is a market in which all the available information is fully incorporated into securities prices, and the returns investors will earn on their investments cannot be predicted. * No insider trading or information. Information is available publicly and traded shares are traded based on equal footing.

* Primary market
* A part of the financial market where new security issues are initially bought and sold for the first time. * This gives companies the opportunity to raise money for the company.

* Secondary market
* The financial market where previously issued securities such as stocks and bonds are bought and sold. * This is where investors trade their securities. Companies do not receive any additional money in these transactions it is the profit or loss of the investor.

* Risk
* The chance that an investment's actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment. Different versions of risk are usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment. A high standard deviation indicates a high degree of risk. * Risk is calculated to determine if the initial purchase has a high percentage at reaching a beneficial ROI...
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