Definition of Financial Terms

For a financial institution to make inform decisions and operate well, an efficient market should be available. An Efficient Market is a market where security prices reflects all the information available and is in a position to adjust instantly to any new information in the market. In this efficient market, it comprises of a primary market and a secondary market for debt and equity securities. A Primary Market is where they offering initials or origination of equity securities and debt. It is the only market, where the issuers of security directly benefit from the sale of the securities. In the other hand, a Secondary Market is a physical location or an electronic forum where equity securities and debts are traded. It facilitates the movement of beforehand issued securities from on hand investors to new investors. This market is divided into short term-money and long term-capital market categories. Capital is the borrowed sum of money or equity with which the firm’s assets are acquired, and its operations are funded. Financial capital is divided into three categories, equity capital, debt capital and specialty capital (Moyer, Joehnk & Koch, 2001).

Equity capital also known as book value or stock is the value of assets minus liabilities. Debt capital is the amount of money that an individual invest into a business with an understanding that it will be refund back at a future date to the lender. The period for the refund to be made is normally stated before the release of the debt capital and upon giving a security. Security is the property, or good an individual gives to a financial institution where the money was borrowed, for example, giving out share as a security from a loan borrowed in a bank. Security can also be made upon an oversight of an identified risk in the business. Risk can be defined as any threat that a company or an organization faces. When the security given represents the debt issued by a company or government it is called a bond. This allows them to borrow money from the bondholders.

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