Definition of Financial Terms

Finance Essay on Definition of Financial Terms

Definition of Financial Terms

Government bonds: refers to debt securities the federal government issues to support its spending with the assurance of making periodic interests and repaying face value to bearers at the end date. Often, government bonds are denominated by the currency of a nation. When they are issued as foreign currency, they are known as sovereign bonds.

Corporate Fixed Income Securities: these are securities that are issued by companies. Companies in this case pay bearers on fixed periods and the principal amount is repaid on maturity.

Corporate stock: this tool signifies ownership equity in a company or corporation. Each is a representation of a claim on proportionate interest share in the corporation. However, debtors of a corporation are often given priority and first right to claim on profits and assets.

Options and Warrants: stock options refer to contracts or agreements between 2 parties and they giver owners the right to trade in outstanding stocks at a specific price and at particular dates. Stock warrants are contracts between 2 parties, the buyer and financial institution issuing the warrant on the company’s behalf. The company is the one that issues the stock warrants rather than other investors. Stock warrants are beneficial to the company while Stock Options are beneficial to the investors.

Forward and Future Contracts: Forward contract refers to agreement between a seller and buyer to sell assets (of any kind) at prices that are pre-determined (forward price) at a pre-agreed future time (settlement date). Future contracts refer to standardized contracts, to exchange commodities at certain dates in the future and at specified price. Future contracts are official and regulated compared to Forward contracts which are customized to cater to the needs of customers.

Investment companies and Mutual Funds: these refer to collective investment schemes pooling resources from different investors and investment of resources in bonds, stocks and other securities. Investors are able to buy stock in investment companies from the fund or a broker but they cannot buy from other investors on secondary markets.

Primary vs. Secondary Markets: A primary market deals with issuance of new securities. Governments, companies or corporations obtain financing by selling new stocks or issuance of bonds. The market gets facilitated by underwriting groups consisting of investment banks that set initial price for given security. On the other hand, secondary market refers to a market where securities have been issued already in the primary market where they are traded. On primary market, investors buy securities from the company as such, they benefit it while on secondary market; investors also buy securities from fellow investors.

The Organized Exchanges: This refers to a marketplace or security exchange operating under the regulations and rules set by the exchange. Brokers and traders meet in order to trade on securities on a regular basis and also act according to the rules set.

Over the Counter Market (OTC): Basically, OTC markets are spot markets localized for a specific commodity. OTC or off-exchange trades are carried out between 2 parties directly, without supervision from the exchange. The price is not necessarily made public. Sellers and buyers negotiate the price of stocks directly as well.

Trading Technique: Trading technique refers to a plan designed to accomplish profitable earnings not just in the long term but the short term as well. Both the brokers and investors use different kinds of techniques in order to achieve this.


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