Finance Terms and Roles Paper
Finance is simply the management of money. It is also described as the study of how people and businesses evaluate investments and raise capital to fund them (Mayo, 2012). When one think of finance, the first thing that comes to mind is cash flow (the amount of cash a company spend and receives.) The financial aspect of business includes receipt of cash, sales, management of finances, amongst other financial transactions. Loans and investments into a business is one of the first portions business owners seek knowledge in. Most first time business owns seek out loans and investments for startup money. Finance is an important aspect of business and in everyday situations.
An efficient market is when all of the market’s participants can see the values of a public company at any given moment. The importance of an efficient market is there are not any over or undervalued stocks because all stock is traded based on information that is available to everyone. In this market businesses are able to raise money. A primary market is a financial market in which new securities (tradable assets) are bought and sold the initial time (Mayo, 2012). On the other hand, a secondary market is a market where previously issued securities are bought and sold (Mayo, 2012). Companies do not receive any additional money in a secondary market. A loss is a loss and a profit is a profit.
Risk is the chance investors take when investing money into a business. Investors take risks because they have faith that the business will do well. However, there is not any foreseen knowledge on how the company will actually perform. Risk factors are based on the investors’ expected return, not actual return. Investors aim to get a return on investment. A return on investment is a specific formula that calculates how much of a profit a business expects to earn. The rate of