List of Definitions in Financial Management Coursework

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Finance

Finance is defined as the management of money, credit, banking activity as well as investments and involves all commercial activity of providing funds and capital through markets created for transacting assets, liabilities and risks.

Efficient market

In finance, efficient market is the market for transacting assets such as bonds, stocks and other securities and in which the prices of these assets reflect all past publicly available information as well as inside information which is not readily available to the public.

Primary market

Primary market is a capital market which is used by new or expanding businesses to sell new securities directly to the investors. They are important avenues for transacting securities for the first time and therefore they facilitate capital formation in the economy.

Secondary market

Secondary market or aftermarket is a financial market in which investors can purchase from other initial investors securities held by them after the initial issuance. Secondary markets play a vital for facilitating efficient transfer of securities from one investor to another speculator.

Risk

In finance, risk is defined as the possibility of incurring a loss or misfortune or the potential of attaining unexpected good returns.

Security

In finance, the term security refers to all categories of negotiable instruments which are used to present financial value. This includes banknotes, debentures and bonds (which are categorized as debt securities); common stocks (also known as equity securities) and derivative contracts such as swaps and forwards.

Securities are used in business to acquire income for the purpose of investment or as collateral for securing loans.

Stock

Stock is basically business merchandise and is described in finance as capital in form of shares invested by the founders or holders in the business and which entitles the holders to an ownership interest (equity).

Bond

A bond is a type of debt security which is typically a formal contract between the issuer (debtor) and the holder (creditor), requiring the issuer to repay the holder borrowed money with interest (coupon) at specified fixed intervals.

Capital

Capital is money, property, resource (including human resource of economic value) or any form of wealth which is available to the business for production of further assets or for any other economic production.

Debt

Debt refers to an obligation to pay (or do something in kind) for the money, goods or services owed by the debtor to the creditor. Large business companies and corporations often use debt as a financial strategy and as a way of anticipating the company’s future purchasing power.

Yield

The amount of money earned by owners or holders of a security at the end of the day for the amounts committed in the investment is what is described in finance as yield.

Rate of return

Rate of return (ROR) is the ratio of the amount of money earned out of an investment relative to the initial invested amount.

Return on investment

Return on investment (ROI) is also referred as the Rate of return (ROR) and is the ratio of the amount of money earned out of an investment relative to the initial invested amount and is usually expressed as a percentage.

Cash flow

In finance, cash flow refers to the movement of money into and out of a business or the excess of cash revenues over spent (or disbursed) cash over a specified period of time.

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