Chapter 1 - Introduction to Finance - OpenStax

secondary market

• A market for new securities issued by companies

• A term used in financial markets to represent the purchase or sale of used securities that trade after the initial sale by the offering firm

• A platform for trading commodities and futures

• A place where investors can only buy stocks directly from companies

negotiable certificate of deposit

• A type of savings account with a fixed interest rate

• Very large CDs issued by financial institutions, redeemable only at maturity but can and often do trade prior to maturity in a broad secondary market; also called jumbo CDs because they sell in increments of $100,000 or more

• A short-term loan provided by banks to individuals

• A type of investment that guarantees a fixed return over a specified period

non-diversifiable risk

• risk that can be eliminated by holding a diversified portfolio

• risk that affects only a specific company or industry

• risk that cannot be eliminated by simply holding a portfolio of securities; also known as systematic risk

• risk that is entirely predictable and manageable

Treasury bonds

• Short-term debt obligations issued by the US government

• Long-term debt obligations issued by the US government characterized by having maturities of greater than 10 years and making periodic interest payments as well as principal payment at maturity

• Equity securities issued by private corporations

• Debt instruments with maturities of less than 5 years

chief financial officer (CFO)

• an executive-level officer responsible for managing the company's financial actions

• a mid-level manager overseeing daily financial operations

• the individual who handles all accounting tasks within the organization

• a consultant who advises on financial investments

financial industry regulatory authority (FINRA)

• an independent, nongovernmental organization that writes and enforces the rules governing registered brokers and broker-dealer firms in the United States

• a government agency that oversees all financial transactions in the country

• a private company that provides financial advice to investors

• a non-profit organization that advocates for consumer rights in the financial sector

commercial paper (CP)

• short-term, unsecured financial obligations issued by firms as a means of short-term financing for items such as inventory or payables

• long-term secured loans provided by banks for capital expenditures

• equity shares issued by companies to raise funds from the public

• government bonds used for funding public projects

Securities Investor Protection Corporation (SIPC)

• a nonprofit corporation that provides brokerage customers up to $500,000 coverage for cash and securities held by the firm

• a government agency that regulates the stock market and protects investors

• a private insurance company that offers coverage for real estate investments

• a nonprofit organization that provides financial education to investors

Treasury bills (T-bills)

• short-term debt obligations of one year or less issued by the US government

• long-term equity investments in private companies

• government bonds with a maturity of over 10 years

• savings accounts offered by commercial banks

economic value

• the amount a consumer is willing to pay for a particular asset or service, usually greater than or equal to the current market price or present value of the asset

• the total cost of production divided by the number of units produced

• the perceived benefit of a product compared to its price

• the difference between the market price and the intrinsic value of an asset