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Defining Financial Terms

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Defining Financial Terms
Finance – Built upon a combination of both economic and accounting principles. Finance creates a value of wealth and aims to maintain that value of wealth in the market. Finance investigates everything that has to do with money or the value of wealth in the market. The role of finance is to help management deal with financial issues a corporation may encounter.
Efficient market – The stock prices reflect available and relevant information therefore the value of assets and securities at any instant is the same. Available information is public therefore profit-driven individuals cannot profit from public information because the price is right. The role of efficient market is to present quick information with precise prices.
Primary market – A market that offers new securities for the first time to potential new investors (Keown, Martin, Petty, & Scott, 2005). For example a new issue of common stock by a company is considering a primary market transaction. The role of the primary market in finance is creating new markets or channels for investors.
Secondary market – A market were previously issues stock is sold or traded among investors rather than from the companies that originally issue the stock. For example the New York Stock Exchange is a secondary market. The role of the secondary market is to allow investors to resale or exchange the stock.
Risk – The possibility that the return on an investment will be different from what an individual or company expected to receive. The outcome of the investment can be unforeseen or unfavorable. The role of risk is involved in making decisions in finance.
Security – Is an instrument of investment if the forms of a document for example, stock, certificate, or bond. The security will provide evidence for the owner to prove its ownership. The role of security is that it can be...

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