Finance Key Terms - Chapter 2 Open Stax

Brokers

• Individuals or a firm that brings together potential buyers and sellers of a product and receives a commission at transaction.

• A type of financial institution that provides loans to individuals and businesses.

• A person who sells products directly to consumers without any intermediaries.

• A company that manufactures goods and sells them to retailers.

Business Finance

• The study of how to minimize costs in a firm.

• The application of financial principles to maximize the value of a firm in a risky environment.

• The analysis of market trends to predict future sales.

• The management of human resources in a financial context.

Political Risk

• The risk of local, state, or national governments 'changing the rules' and disrupting firm cash flows.

• The potential for a company to lose money due to changes in market demand.

• The likelihood of a firm facing bankruptcy due to poor management decisions.

• The chance of a natural disaster affecting a company's operations.

Chief Financial Officer (CFO)

• An executive responsible for managing the company's human resources and organizational structure.

• An executive-level officer who sets policy for working capital management, determines optimal capital structure for the firm, and makes the final decision in matters of capital budgeting.

• An executive who oversees the marketing and sales strategies of the company.

• An executive responsible for the company's information technology and systems.

Municipal Bonds (Munis)

• Short-term loans issued by private corporations.

• Long-term debt obligations issued by state or local governments that often have important tax advantages relative to corporate bonds.

• Equity securities that represent ownership in a company.

• Government-issued currency used for transactions.

Comptroller

• Individual responsible for financial reporting and oversight of accounting activities.

• A type of financial software used for reporting.

• A government official who manages public funds.

• An accountant who specializes in tax preparation.

Secondary Market

• A market where new securities are issued for the first time.

• A market for the purchase or sale of used securities that trade after the initial sale by the offering firm.

• A platform for trading commodities and derivatives.

• A market that only deals with government bonds.

Financial Intermediary

• A type of financial asset that can be traded easily.

• An entity that facilitates transactions between parties, such as a commercial bank or mutual fund.

• A government agency that regulates financial markets.

• A type of investment that guarantees high returns with low risk.

Diversifiable Risk

• A risk that cannot be eliminated by holding a portfolio of securities.

• Also called unsystematic risk, a risk that can be eliminated without the loss of expected return by holding a portfolio of securities.

• A risk that affects the entire market and cannot be diversified away.

• A risk that only affects a specific industry or sector.

Federal Funds Rate

• The rate targeted by the Federal Reserve in the implementation of monetary policy.

• The interest rate at which banks lend to each other overnight.

• The rate at which the government borrows money from the public.

• The rate set by the Treasury for government bonds.