Wednesday, February 9, 2011

Basic Finance Definitions

Before we get into the thick of finance, it would probably be helpful for me to define a few basic financial terms.

Money markets are financial markets where short-term debt securities (sometimes called money market instruments) are bought and sold. For example, a US treasury bill is a short-term debt security and will often end up being traded in money markets.

Capital markets are financial markets where long-term debt and equity securities are bought and sold.

These can be either primary or secondary markets.

A primary market is where debt and equity securities are FIRST created. So when a corporation first sells it’s stock through an IPO (initial public offering), it is called a transaction within a primary market.

When that equity is then sold to someone else, it is done so in a secondary market. For example, the New York Stock Exchange would be considered a secondary market.

In order for a firms stock to actually be listed (stocks being traded) on an exchange, the firm must meet specific minimum criteria. Different exchanges, of course, have different criteria; some points of concern though are minimums in net tangible assets, pre-tax earnings, outstanding share market value, and more.

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