Session:16 Understanding Financial Management and Securities Markets
Key Terms
Introduction to Business | Leadership Development – Micro-Learning Session
Rice University 2020 | Michael Laverty, Colorado State University Global Chris Littel, North Carolina State University| https://openstax.org/details/books/introduction-business
- accounts payable
- Purchases for which a buyer has not yet paid the seller.
- accounts receivable
- Sales for which a firm has not yet been paid.
- bond ratings
- Letter grades assigned to bond issues to indicate their quality or level of risk; assigned by rating agencies such as Moody’s and Standard & Poor’s (S&P).
- bonds
- Long-term debt obligations (liabilities) issued by corporations and governments.
- broker markets
- National and regional securities exchanges that bring buyers and sellers together through brokers on a centralized trading floor.
- capital budgeting
- The process of analyzing long-term projects and selecting those that offer the best returns while maximizing the firm’s value.
- capital expenditures
- Investments in long-lived assets, such as land, buildings, machinery, equipment, and information services, that are expected to provide benefits over a period longer than one year.
- cash flows
- The inflow and outflow of cash for a firm.
- cash management
- The process of making sure that a firm has enough cash on hand to pay bills as they come due and to meet unexpected expenses.
- circuit breakers
- Corrective measures that, under certain conditions, stop trading in the securities markets for a short cooling-off period to limit the amount the market can drop in one day.
- commercial paper
- Unsecured short-term debt—an IOU—issued by a financially strong corporation.
- common stock
- A security that represents an ownership interest in a corporation.
- dealer markets
- Securities markets where buy and sell orders are executed through dealers, or “market makers,” linked by telecommunications networks.
- dividends
- Payments to stockholders from a corporation’s profits.
- electronic communications networks (ECNs)
- Private trading networks that allow institutional traders and some individuals to make direct transactions in the fourth market.
- exchange traded fund (ETF)
- A security similar to a mutual fund; holds a broad basket of stocks with a common theme but trades on a stock exchange so that its price changes throughout the day.
- factoring
- A form of short-term financing in which a firm sells its accounts receivable outright at a discount to a factor.
- financial management
- The art and science of managing a firm’s money so that it can meet its goals.
- financial risk
- The chance that a firm will be unable to make scheduled interest and principal payments on its debt.
- futures contracts
- Legally binding obligations to buy or sell specified quantities of commodities or financial instruments at an agreed-on price at a future date.
- insider trading
- The use of information that is not available to the general public to make profits on securities transactions.
- institutional investors
- Investment professionals who are paid to manage other people’s money.
- interest
- A fixed amount of money paid by the issuer of a bond to the bondholder on a regular schedule, typically every six months; stated as the coupon rate.
- investment bankers
- Firms that act as intermediaries, buying securities from corporations and governments and reselling them to the public.
- line of credit
- An agreement between a bank and a business that specifies the maximum amount of unsecured short-term borrowing the bank will allow the firm over a given period, typically one year.
- marketable securities
- Short-term investments that are easily converted into cash.
- mortgage loan
- A long-term loan made against real estate as collateral.
- municipal bonds
- Bonds issued by states, cities, counties, and other state and local government agencies.
- mutual fund
- A financial-service company that pools investors’ funds to buy a selection of securities that meet its stated investment goals.
- National Association of Securities Dealers Automated Quotation (NASDAQ) system
- The first and largest electronic stock market, which is a sophisticated telecommunications network that links dealers throughout the United States.
- options
- Contracts that entitle holders to buy or sell specified quantities of common stocks or other financial instruments at a set price during a specified time.
- over-the-counter (OTC) market
- Markets, other than the exchanges, on which small companies trade; includes the Over-the-Counter Bulletin Board (OTCBB) and the Pink Sheets.
- preferred stock
- An equity security for which the dividend amount is set at the time the stock is issued and the dividend must be paid before the company can pay dividends to common stockholders.
- primary market
- The securities market where new securities are sold to the public.
- principal
- The amount borrowed by the issuer of a bond; also called par value.
- retained earnings
- Profits that have been reinvested in a firm.
- return
- The opportunity for profit.
- revolving credit agreement
- A guaranteed line of credit whereby a bank agrees that a certain amount of funds will be available for a business to borrow over a given period, typically two to five years.
- risk
- The potential for loss or the chance that an investment will not achieve the expected level of return.
- risk-return trade-off
- A basic principle in finance that holds that the higher the risk, the greater the return that is required.
- secondary market
- The securities market where old (already issued) securities are bought and sold, or traded, among investors; includes broker markets, dealer markets, the over-the-counter market, and the commodities exchanges.
- secured loans
- Loans for which the borrower is required to pledge specific assets as collateral, or security.
- securities
- Investment certificates issued by corporations or governments that represent either equity or debt.
- stock dividends
- Payments to stockholders in the form of more stock; may replace or supplement cash dividends.
- stockbroker
- A person who is licensed to buy and sell securities on behalf of clients.
- term loan
- A business loan with a maturity of more than one year; can be unsecured or secured.
- trade credit
- The extension of credit by the seller to the buyer between the time the buyer receives the goods or services and when it pays for them.
- underwriting
- The process of buying securities from corporations and governments and reselling them to the public; the main activity of investment bankers.
- unsecured loans
- Loans for which the borrower does not have to pledge specific assets as security.