Terminologies | Capital Market

Hello guys, here's some of my "own definition" related to capital market. I hope it'll help a lot specially to financial management students.

This is only my "own understanding" therefore, search if you want to seek some answers to your questions for you to widen your knowledge.

Investment – is allocating the financial assets to generate future income.

Real Assets – are the physical or tangible assets that can be used to produce goods and services such as land, buildings, and machines.

Financial Assets – is a liquid asset, meaning it can be easily converted to cash. Financial assets claims to the income generated from the real assets, therefore as long as it derives value it is assets.

Fixed-income (debt) securities – from the word itself “fixed”-income, it is already set therefore when you promised a fix interest rate in the September year of 2020, you’ll no longer be able to change it because it is already determined by the specific formula.

Equity – also called common stock or an ownership. Equity is more riskier than debt securities because your income will only depend on performance of the firm. If the firm is successful, the value of your equity will increase and vice versa.

Derivative Securities – most likely have contracts between two or more people. It is an agreement that are determined by the other assets, whether it secure you financially or not. Since, no one knows with certainty.

Agency Problem – it is usually refers to a conflict of a company’s management and stockholders, bondholders and managers.

Asset Allocation – is allocating the assets such as stocks, bonds, real estate, commodities and such where the decision made by the investors.

Security Collection – it is the choice by the investors in which these assets will be hold.

Security Analysis – it is where the investors finding the proper value of particular securities.

Risk-return trade-off – since investing in stocks, bonds, and such aren’t predictable, it will always associated with risk; the higher the risk, the higher the return.

Passive Management – from the word itself “passive”, it is most likely without spending effort to improve investment performance.

Active Management – opposite of passive management, where you attempt to improve performance and the management style is active.

Financial Intermediaries – is an institution or investment companies such as bank, mutual fund, or insurance company; a middleman between two parties in a financial transaction like household to banks.

Investment Companies – other example of financial intermediaries and credit unions, where they pooling the resources of many small investors and be able to lend large amount to trusted borrowers.

Investment Bankers – an individual who plays an important role to the investing companies, they represent themselves to the investing public and they are primarily concerned with raising capital for corporations, entities and such.

Primary Market – all the IPO/Initial Public Offering are in this category, “primary” market meaning it is where the “new” securities are created.

Secondary Market – it is where the securities are traded by the investors.

Venture Capital – are those investors who are willing to invest in return for an ownership and most likely to invest on start-up companies.

Private Equity – is an investment and consists of capital that is not listed on a public stock exchange and composed of funds and investors that directly invest in private firms.

Securitization – it is the practice of pooling the various types of financial assets and a process by which a company choosing a financial securities to issue to investors.

Systemic Risk – is a risk of breakdown in the financial system or event that could trigger/collapse an entire industry or economy.

Fighting to all financial management students!! Stay safe and good luck!