Defining Financial Terms and Role in Finance Essay

1197 Words5 Pages

Defining Financial Terms and Role in Finance
University of Phoenix
FIN 370/ Finance for Business
November 10, 2010

Defining Financial Terms and Role in Finance The following paragraphs contain financial terms and their role in finance. The terms are finance, efficient market, primary market, secondary market, risk, security, stock, bond, capital, debt, yield, rate of return, return on investment, and cash flow. The fourteen terms all have an important relationship in the world of business. The first term is finance. Finance is managing money or supplying funds to provide a resource. A bank or loan company is a source of finance because they both provide cash. Cash is
…show more content…
The price is more or less than the issue price of the original company. The fifth term is risk. Risk is the uncertainty or chance of a difference in the actual return earned on investment and the expected return earned on the investment. There are three types of risk: market, credit, and operational. The company return on an investment depends on which risk the company took. For example, people and companies take risk sometimes when they make a financial investment or provide equipment and supplies for an opportunity to receive a high return on their investment. The role of finance for a risk is the uncertainty if they will receive payment for their investment. The higher the risk means the higher the return. The lower the risk means the lower the return.
The next three terms have a correlation. The terms are security, stock, and bond. Security in finance is the relationship and representation of stocks and bonds. Some securities are interest and dividend based. Common and preferred stock, bonds, notes, debenture, and option are some examples of securities. A stock represents ownership in a business, has face value, and may not carry a maturity date. A stock’s role in finance is as follows. Common stock has no fixed rate of dividend and has voting rights. Preferred stock has a fixed rate of dividend and no voting rights and preferred are the two types of stock. A bond is the last term of correlation. A bond is a fixed income security. A

More about Defining Financial Terms and Role in Finance Essay

Get Access