Finance is a broad term that refers to the management of money and financial resources.
It involves the study, creation, and management of wealth and investments.
Finance encompasses a range of activities and disciplines, and it plays a crucial role in both personal and business contexts.
Finance
| Term | Definition |
|---|---|
| Assets | Things you own that have value. |
| Liabilities | Things you owe or need to pay. |
| Equity | Ownership in a company or the value of what you own after subtracting what you owe. |
| Revenue | Money your business makes. |
| Expense | Money your business spends. |
| Profit | Money your business makes after expenses. |
| Loss | Money your business loses when expenses are more than income. |
| Balance Sheet | A snapshot of your money situation at a specific time. |
| Income Statement | A summary of how much money your business earned and spent over a period. |
| Cash Flow Statement | Tracks how changes in your balance sheet and income affect your cash. |
| Budget | A plan showing how much money you expect to earn and spend. |
| Return on Investment (ROI) | How much money you make from an investment compared to what you spent. |
| Dividend | A payment you get for owning shares in a company. |
| Interest | The cost of borrowing money or the return on investment for lending money. |
| Diversification | Spreading investments to reduce risk. |
| Bull Market | A financial market with rising asset prices. |
| Bear Market | A financial market with falling asset prices. |
| Liquidity | The ability to convert assets to cash quickly. |
| Portfolio | A collection of financial assets held by an investor. |
| Risk | The chance of investment return differing from expectations. |
| Market Capitalization | The total value of a company’s outstanding shares. |
| Credit Score | A numerical representation of creditworthiness. |
| Asset Allocation | The distribution of investments among different asset classes. |
| Capital Gain | Profit from the sale of an asset that increased in value. |
| Depreciation | Reduction in the value of an asset over time. |
| Amortization | Gradual repayment of a debt through regular payments. |
Finance advance terminology
| Term | Definition |
|---|---|
| Arbitrage | Exploiting price differences of a financial instrument in different markets to make a profit. |
| Derivative | Financial instrument whose value depends on the underlying asset, often used for risk management. |
| Hedging | Using financial instruments to offset or reduce the risk of adverse price movements in an asset. |
| Leverage | Using borrowed capital to increase the potential return of an investment. |
| Margin Call | Demand by a broker for an investor to deposit more money to cover potential losses. |
| Option | A financial contract giving the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price. |
| Futures Contract | An agreement to buy or sell an asset at a future date for a price agreed upon today. |
| Swaps | Financial agreements between two parties to exchange cash flows or other financial instruments. |
| Basis Point (BPS) | One-hundredth of a percentage point, used to express differences in interest rates. |
| Yield Curve | A graphical representation of the relationship between the interest rates and the time to maturity of debt. |
| Liquidity Risk | The risk that an asset cannot be sold or traded quickly without impacting its price. |
| Default Risk | The risk that a borrower will fail to repay a loan or meet contractual obligations. |
| Alpha | A measure of investment performance, indicating returns above or below a benchmark. |
| Beta | A measure of an asset’s sensitivity to market movements. |
| Standard Deviation | A statistical measure of the dispersion of returns for a given security or market index. |
| Sharpe Ratio | A measure of risk-adjusted performance, indicating return per unit of risk. |
| Capital Asset Pricing Model (CAPM) | A model that calculates the expected return on an investment based on its risk compared to the market as a whole. |
| Efficient Market Hypothesis (EMH) | The theory that asset prices reflect all available information, making it impossible to consistently achieve higher-than-average returns. |
| Quantitative Easing (QE) | A monetary policy in which a central bank buys financial assets to increase the money supply. |
| Private Equity | Investments in private companies or assets not traded on public markets. |
| Venture Capital | Funding provided to early-stage companies with high growth potential. |
| Mezzanine Financing | A hybrid of debt and equity financing often used for expansion or buyouts. |
| Initial Public Offering (IPO) | The first sale of a company’s stock to the public. |
| Market Capitalization Weighted | A method of constructing indices where the weight of each component is based on its market value. |
