Sample Paper on Definition of Financial Terms

Definition of Financial Terms

Government bonds: these are debt securities issued by the federal government to support its spending with an assurance of paying periodic interests and repaying the face value to the bearer at the end date. In most cases, Government bonds are denominated the nation’s currency. If issued in terms of foreign currency, they are referred to as sovereign bonds.

Corporate Fixed Income Securities: these are types of securities issued by companies. The companies pay the bearers a fixed amount on fixed periods and repay the principal amount on maturity.

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

Options and Warrants: Stock Options are agreements or contracts between two parties and give the owner the right to trade outstanding stocks at a particular price and particular date. Stock Warrants are contracts between two parties- the buyer and financial institution issuing the Warrants on behalf of a company. Stock Warrants are issued by the company and not by another investor. Stock Warrants benefit the company while Stock Options benefit the investor.

Forward and Future Contracts: A forward contract is an agreement between the buyer and seller to sell an asset (of any kind) at a predetermined price (the forward price) at a pre-agreed future time (settlement date). Futures contracts are standardized contracts, to exchange commodities at a certain date in the future at a specified price. Future contracts are regulated and official in comparison to Forwarding contracts that are customized to cater to customer needs.

Investment companies and Mutual Funds: These are collective investment schemes that pool resources from various investors and invest the resources in stocks, bonds, and other securities. Investors buy stock in the investment companies from the fund itself or a broker but cannot buy from other investors on a secondary market.

Primary vs. Secondary Markets: a primary is a market that deals with the issuance of new securities. Companies, governments, or corporation can obtain financing by selling new stocks or issuing bonds. The market is facilitated by underwriting groups that consist investment banks that set the initial price for given security. On the other hand, a secondary market is a market where securities that have already been issued in the primary market are traded. On the primary market, investors buy securities from the company thus benefiting it while on the secondary market; investors buy securities from other investors.

The Organized Exchanges: this is a security exchange or marketplace operating under the rules and regulations set by the exchange. Traders and brokers meet to trade on securities on a regular basis and act in accordance with the set rules.

Over the counter Market (OTC): OTC markets are basically spotted markets that are localized for a particular commodity. OTC or off-exchange trades are done between two parties directly with no supervision from the exchange. The price does not have to be necessarily made public. Buyers and sellers negotiate for the price of the stocks directly.

Trading technique: a trading technique is a plan designed to accomplish profitable earnings both in long term and in short-terms. Both the investors and brokers various techniques to achieve this