The Financial Environment

Vocabulary

401(k)

retirement investment vehicle sponsored by employers. It is named a 401(k) plan due to the tax code that regulates these tax plans.

bond market

marketplace where participants issue new debt or buy and sell debt securities

capital market

financial system concerned with raising funds by dealing in shares, bonds, and other long-term investments

debt security

financial instrument that establishes a creditor-debtor relationship or that represents investment in the form of debt

debt security market

marketplace where short- and long-term debt securities are bought and sold

derivative security market

marketplace where financial instruments such as futures contracts and options derived from another asset can be bought and sold

entrepreneurial finance

study of value and resource allocation applied to new or fast-growing ventures

equity security

ownership interest held by a stakeholder in a business entity and realized in the form of proprietorship

equity security market

marketplace where ownership rights in organizations can be listed in equity markets to be bought and sold or privately traded

ethical behavior

behavior that is consistent with what society, businesses, and individuals typically think are good values

finance

field concerned with the allocation of assets and assumption of liabilities under conditions of risk and uncertainty

financial environment

part of an economy in which the major players (financial and banking firms, investors, and markets) make decisions on the allocation of investments or resources

financial institution

entity that conducts financial transactions, including investments and loans, or accepts deposits

financial instrument

legal document representing the right to receive an asset such as cash, a contractual right to deliver or receive cash, or another form of owned equity that can be traded

financial market

marketplace where investors trade derivatives and securities, such as stocks and bonds

financial system

process that allows borrowers and lenders to exchange funds through loans

foreign exchange market (Forex)

currency marketplace that is expressly used for trading currencies

individual retirement account (IRA)

non–company-sponsored account with tax advantages that helps individuals save for retirement

investment

asset purchased with the goal of achieving financial gain

money market

marketplace where financial instruments with high liquidity and very short maturities are traded

mortgage market

marketplace where borrowers who intend to purchase real estate secure loans originated in primary markets and traded in secondary markets

mutual fund

financial instrument composed of pooled funds for the purpose of collective investment to achieve financial goals of growth or income or both

personal finance

concept encompassing everything an individual does to manage their money, including saving, spending, investing, and planning for retirement

primary market

marketplace that issues new securities on the exchange to investors as either stocks or bonds

retirement planning

process whereby an individual organizes income goals, makes decisions, and plans actions in advance to achieve retirement objectives

secondary market

marketplace where previously issued securities are sold and bought by investors