Financial Terms

Finance
Finance is an aspect of business involving payment or receiving money. A company may evaluate investments and raise capital to fund future investments.

Efficient market
An efficient market occurs when pricing of securities reflect expected cash flow based on the financial information that is available to investors. Regardless of the information, the prices of securities respond to the information and reflect the action of the investors essentially determining the security pricing.

Primary market
The primary market is the market where buyers and sellers negotiate and make transactions directly without additional resale brokers. It is the market where the new securities are issued and offered to the public. An example of a transaction in the primary market is a relatively new company offering stocks to the public.

Secondary market
The secondary market is a financial market that deals with previously issued items like notes, shares, and bonds. It also tends with buying and selling financial items like bills of exchange and certificates of deposit. Commodities and stock exchanges are considered secondary market because they provide a ring for resale and help to reduce the risk of investment, maintaining liquidity in the financial system.

Risk
A risk is the possibility of loss or gain not expected with original investment. Economic change can affect the market lessening loss of the original investment. If a security has a higher level of risk, there is a better chance that the return provided will not be good.

Security
A security is a financial item that represents debt or equity. They are sold to investors who want to make a return on the original purchase price. Securities have a certain level of risk.

Stock
Stocks, also known as shares, represent ownership in a business. They are considered equity securities -common stock and preferred stock. The difference between the two is the amount of dividends paid to shareholders. Stocks...