Week 1 Definitions
September 17, 2012
Finance – Finance is basically the management of money and revenues. It deals with the value of money as well as wealth. Efficient Market Theory – A theory is an idea. The efficient market theory is the idea that the market will respond efficiently as things change and new information becomes available. The role it plays in finance is that investors and others will make decisions quickly based on the most recent information. This can be beneficial as it is important to stay on top of things; however a quick reaction may not be the best answer as more information may be needed for the best overall decision. Primary Market – A primary market is where new securities, bonds, stocks, etc. are being offered to investors for the first time. The role in finance is that it is the only time where purchases are made directly from the company. This can often save the investor money and mean bigger profits for the company as the middle person is removed from the equation. Secondary Market – The secondary market is how securities, bonds, stocks, etc. are classified after they leave the primary market. They have already been sold or traded in the primary market. The role in finance is that the price will be different. It is also where the securities, etc. may be traded with each other and not just from the original company. Risk – Risk is the probability of a positive or negative result. The role in finance is that finance often deals with handling money for others. Typically, the greater the risk for a loss, the greater it will pay out. The lower risk investments can result in lower returns. Security – Security is safety and protection. In finance, security is used to negotiate deals. It provides the guarantee that there is value behind each decision. Stock – A stock is a percentage of the company that can be purchased. In finance, stocks can be purchased, sold, and/or traded. The larger the percentage owned in a company...
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