Basic Financial Terms

Finance: Finance is typically a branch of economics that helps in studying the management of money and other assets. It assists to manage and utilize the available economic resources effectively to generate profits (Brigham & Houston, 2009).

Efficient market: In an efficient market the price of every security will be correctly valued depending on the available information. It defines the effectiveness of market operations with minimum friction in transactional cost (Dacorogna, 2001).

Primary market: Primary market is the market from where the corporate are raising new capital with the help of IPO and FPO. It helps the investor to invest their funds as the market is much safe due to less manipulation in the prices (Wilson, 2009).

Secondary market: In secondary market investor can directly purchase the assets from the other investors at the market price irrespective of the assts issue price. All the stock exchanges work as the secondary market for example New York Stock Exchange (Wilson, 2009).

Risk: Risk is defined as the uncertain factor that is included in any decision. It is most important concept of the financial management as investor has to minimize its risk in investment and to generate revenue (Holton, 2004).

Security: Security is negotiable instrument having some financial value and is traded in both primary and secondary market. Its price will be decided on the basis of demand and supply of the security. It can be classified mainly into debt, equity and derivative securities (Klein & Iammartino, 2009).

Stock: Those assets which are purchased to resale it or its derivative in tangible or intangible form to generate profit is known as stock. It helps in determining the profit of any business. It includes raw material, finished goods, payment on account, etc (HM Revenue & Customs, 2011).

Bond: Bond is a debt security that generates revenue for the investor in term of interest. The debt holder has to repay the principle at some later date fixed at the time of issuing bond. It is also known as loan (Maeda, Beck-Woods & Lyman, 2009).

Capital: financial capital is the money used by the businessman to buy the raw material and other assets in order to produce products or services in order to generate income for the organization (Ellis, 2004).

Debt: A debt is the bowered amount given by a party known as creditor to another party, debtor for a fix amount for a fix period of time with floating or fixed interest rate. Debt can be represented by a loan note, bond and mortgage (Hunt, 2004).

Yield: It is described as the amount of money received by the owner of the security. It is applied differently on different types of security such as fixed income instruments, insurance products (Barnhill, Maxwell & Shenkman, 2003).

Rate of return: Rate of return is the ratio of money received or lost on a fixed investment i.e. it is the percentage of amount received on a particular invested amount. It is also known as return on investment (Brigham & Ehrhardt, 2010).

Return on investment: Return on investment is also same as the rate of return that helps the investor to calculate the profit percentage on any invested amount. It is helpful to understand the overall return of the portfolio if the investor invests in more than two investments (Brigham & Ehrhardt, 2010).

Cash flow: Cash flow is the amount of cash transected while performing the business activity calculated for a fix period of time by using cash flow statement. The net result found will always be the cash in hand or nil balance (Maeda, Beck-Woods & Lyman, 2009).

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References

Barnhill, T. M., Maxwell, W. F. & Shenkman, M. R. (2003). High yield bonds: market structure, portfolio management, and credit risk modeling. USA: McGraw-Hill Professional.

Brigham, E. F. & Ehrhardt, M. C. (2010). Financial Management Theory and Practice. USA: Cengage Learning.

Brigham, E. F. & Houston, J. F. (2009). Fundamentals of Financial Management. USA: Cengage Learning.

Dacorogna, M. M. (2001). An introduction to high-frequency finance. USA: Academic Press.

Ellis, C. D. (2004). Capital: the story of long-term investment excellence. USA: John Wiley and Sons.

Helfert, E. A. (2001). Financial analysis: tools and techniques: a guide for managers. USA: McGraw-Hill Professional.

HM Revenue & Customs. (2011). Stock: meaning of: what is stock? Retrieved September 09, 2011 from http://www.hmrc.gov.uk/manuals/bimmanual/bim33015.htm.

Holton, G. A. (2004). Defining Risk. Financial Analysts journal, 6(60), 1-7.

Hunt, A. E. (2004). The debt: a story of a past redeemed. USA: Thomas Nelson Inc.

Klein, P. J. & Iammartino, B. R. (2009). Getting Started in Security Analysisi. USA: John Wiley and Sons.

Madura, J. (2003). What every investor needs to know about accounting fraud. USA: McGraw-Hill Professional.

Maeda, M., Beck-Woods, M. A. & Lyman, J. A. (2009). The Complete Guide to Investing in Bonds and Bond Funds: How to Earn High Rates of Return – Safely. USA: Atlantic Publishing Company.

Sims, R. R. (2003) Ethics and corporate social responsibility: why giants fall. USA: Greenwood Publishing Group.

Westerholm, P., Nilstun, T. & Øvretveit, J. (2004). Practical ethics in occupational health. UK: Radcliffe Publishing.

Wilson, C. (2009). Financial management: principles and applications. Australia: Pearson Australia.