Finance Terms and Concepts: A Comprehensive Glossary, Quizzes of Finance

Download Finance Terms and Concepts: A Comprehensive Glossary and more Quizzes Finance in PDF only on Docsity! TERM 1 Incremental Cash Flow DEFINITION 1 the difference between the cash flows a company will produce both with and without the investment it is thinking about making. TERM 2 opportunity cost DEFINITION 2 the next best alternative available to the decision maker given a level of risk. TERM 3 Efficient Market DEFINITION 3 is one where the price of assets traded in the market fully reflect all available info at any instant in time. TERM 4 agency problem DEFINITION 4 problems and conflicts occurring from the separation of the management and ownership of the firm. TERM 5 Capital Budgeting DEFINITION 5 the decision making process with respect to investments in fixed assets. TERM 6 Capital Structure Decision DEFINITION 6 the decision making process with funding choices and the mix of long-term finance sources. TERM 7 Working Capital management DEFINITION 7 the management of the firms current assets and short-term financing. TERM 8 Financial Markets DEFINITION 8 institutions and procedures that facilitate transactions in all types of financial claims. TERM 9 Limited Liability Company (LLC) DEFINITION 9 a cross between a partnership and a corporation, taxed like a partnership With limited liabilities TERM 10 Capital Markets DEFINITION 10 all the financial institutions that help a business raise long- term capital. TERM 21 Future Market DEFINITION 21 Markets where you can buy or sell something at a future date.Ex a contract stating what, how much, what price and when you will buy something. TERM 22 Organized Security Exchange DEFINITION 22 formal organizations that facilitate the trading of securities. TERM 23 Over-the-counter Market DEFINITION 23 all security markets except organized security exchanges.Examples: the money market TERM 24 Investment Banker DEFINITION 24 a financial specialist who underwrites and distributes new securities and advises clients about raising new funds. TERM 25 Underwriting DEFINITION 25 the purchase and subsequent resale of a new security issue. the risk of selling the new issue is at a satisfactory (profitable) price is assumed (underwritten) by the investment banker. TERM 26 Underwriter's Spread DEFINITION 26 the difference between the price the corp raising money and the public offering price of a security. TERM 27 Syndicate DEFINITION 27 a group of investment bankers who contractually assist in the buying and selling of a new security issue. TERM 28 Privileged Subscription DEFINITION 28 the process of marketing a new security issue to a select group of investors. TERM 29 Direct Sale DEFINITION 29 The sale of securities by a corp to the investing public without the services of an investment-banking firm TERM 30 Floatation Costs DEFINITION 30 the transaction cost incurred when a firm raises funds by issuing a particular type of security. the underwriters spread issuing cost - Printing and engraving, legal fees, accounting fees, trustee fees TERM 31 Nominal Rate of Interest DEFINITION 31 Interest rate paid on debt securities without an adjustment for any loss in purchasing power. TERM 32 Inflation-risk premium DEFINITION 32 a premium to compensate for anticipated inflation that is equal to the price change expected to occur over the life of the bond or investment instrument TERM 33 default-risk premium DEFINITION 33 The additional return required by investors to compensate them for the risk of default. it is calculated as the difference between a U.S treasury bond and a corp bond of the same maturity. TERM 34 Maturity Premium DEFINITION 34 the additional return required by investors in longer-term securities to compensate them for the greater risk of price fluctuations on those securities caused by interest rate changes. TERM 35 Liquidity Premium DEFINITION 35 The additional return required by investors for securities that cannot be quickly converted into cash at a reasonably predicable price.