Unit IV Personal Finance Set I

Savings

Savings

Income not used for consumption.

Investment

The use of income today in a way that allows for future benefit.

Financial asset

Claim on the property of the borrower (savings accounts, houses, investment accounts).

Financial intermediary

A financial institution that collects funds from savers and then invests these funds in loans and other financial assets. Brings savers and investors together.

Mutual fund

A pool of money managed by an investment company that gathers money from individual investors and purchases a range of financial assets.

Capital market

the market for buying and selling long-term financial assets (longer than a year).

Money market

The market for buying and selling short-term financial assets (shorter than a year).

High risk

High return

Diversification

The practice of distributing investments among different financial assets to maximize return and limit risk.

Initial Public Offering (IPO)

The original stock sale that raises money for the corporation (when a corporation goes public).

Capital gain

Selling the stock at a price greater than the purchase price.

Dividend payment

A share of the corporation's profits that are paid back to the corporation's stockholders.

Common stock

A share of ownership in a corporation, giving holders voting rights and a share of the profits.

Preferred stock

Share of ownership in a corporation giving holder a share of profits (paid before common stockholders) but no voting rights.

Stockbroker

an agent who is paid a commission for buying and selling securities on behalf of customers.