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Terms in the Financial Field

Define the following terms and identify their role in finance, which means you must explain why this is important to the discipline. Do not forget to provide in-text citations and references.

a. Finance
b. Efficient Market
c. Primary Market
d. Secondary Market
e. Risk
f. Security
g. Stock
h. Bond
i. Capital
j. Debt
k. Yield
l. Rate of Return
m. Return on Investment
n. Cash Flow

Solution Preview

a. Finance pertains to the sourcing of necessary capital to finance a business activity. This concept is important as it differentiate the other activities of an organization - operations and investment activities.

b. An efficient market is "a market in which any relevant information is immediately impounded in asset prices" (CFA 2008, p. G-16). Efficient market plays an important role in the analysis and management of investments.

c. It is the market in which "newly issued securities are sold by their issuers, who receive the proceeds" (CFA 2008, p. G-38). Primary markets are important as they provide a place where institutions which needed capital and investors with extra funds can meet and do business.

d. An example of a secondary market is the New York Stock Exchange where investors, whether individual or institutional, can buy and sell financial securities particularly the stocks of publicly traded firms. This market is very important in finance as it provides liquidity for investors ...

Solution Summary

The solution defines terms in the financial field. The terms role in finance is examined.