The role of finance - Investment Essay Example
1 - The role of finance introduction. Finance is the process of raising funds or capital for any kind of expenditure. The role of finance in finance is basically involving business finance, personal finance, and public finance. 2. Efficient Market is one where the market price is an unbiased estimate of the true value of the investment. The role of efficient market in finance is that it studies the response of prices when all necessary information is available in the market. 3.
Primary Market is a newly issued security is first offered and all subsequent trading of this security occurs is done in the secondary market. The role of primary market in finance is a vital part of the capital markets and underlying strength of the economy. 4. Secondary Market is when people buy and sell previously issued securities, such as stock exchanges, bond markets, and other entities that trade financial instruments. The role of secondary market in finance is that it provides a place for buyers to get rid of unwanted products without wasting them.
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Risk is a probability or threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through preemptive action. The role of risk in finance is the probable ability of an investment to fail. 6. Security is a document that proves ownership of stocks, bonds, and other investments. The role of security in finance is that it allows businesses and individual investors to trade the securities issued by public corporations.
7. Stock is the subscribed capital of a corporation or limited liability company, usually divided into shares and represented by transferable certificates. The role of stock in finance is the contractual relationship between the companies and its stockholders or shareholders on the detail certificates set forth the division of the risk, income, and control of the business. 8. Bond is a loan contract issued by local, state, or national governments and by private corporations specifying an obligation to return borrowed funds.
A bond’s role in finance is by investing in a long future that pays interest on a regular basis and also known as long-term investments. 9. Capital is money that one has invested. The role of capital in finance is a free flow of capital into investments is a major component of economic growth. 10. Debt is a method of financing in which a company receives a loan and gives its promise to repay the loan. The role that debt is used in finance is both secured and unsecured loans. 11. Yield is the amount of cash that returns to the owners of a security.
The role of yield in finance is various stated rates of return on stocks such as common, preferred, and convertible. Also includes fixed income instruments such as bonds, notes, bills, strips, zero coupon along with some other investment type insurance products. 12. Rate of return is a gain or loss on an investment over a specified period, expressed as a percentage increase over the initial investment cost. The role of rate of return is used to track all different types of investments from savings account to profit and losses earned on investments in stocks. 3. Return on investment is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. The role of return of investment in finance is by investors can gauge on how efficiently capital is used. It is used in small and large businesses. 14. Cash Flow is the amount of net cash generated by an investment or a business during a specific period. The role of cash flow in finance is the cash fuel that drives a business and is considered to be a company’s most important financial statistic.