Essential Financial Terms

Definition: Money or assets used to start or grow a business or make investments.

Example: "She raised capital to open her new café."

Definition: The cost of borrowing money, or the money earned on savings or investments.

Example: "The bank charges 5% interest on the loan."

Definition: Money borrowed that must be repaid, usually with interest.

Example: "They took a loan to buy new equipment for the factory."

Definition: The ability to borrow money or buy goods and pay later.

Example: "He used a credit card to pay for the flight."

Definition: Money owed to others.

Example: "The company is trying to reduce its debt this year."

Definition: Something valuable owned by a person or business.

Example: "A car, a house, or stocks can all be assets."

Definition: Something a person or business owes, like a loan or unpaid bills.

Example: "The company's main liability is its mortgage."

Definition: Ownership in an asset or business after subtracting debts.

Example: "She has 60% equity in her family’s business."

Definition: A measure of how much profit is made from an investment.

Example: "The ROI on the new software was 20% in the first year."

Formula: (Net Profit / Cost of Investment) * 100

Definition: A share of ownership in a company.

Example: "He bought 100 shares of Apple stock."

Definition: A loan made to a company or government that pays interest over time.

Example: "Many people buy government bonds as a safe investment."

Definition: A portion of a company’s profits paid to shareholders.

Example: "She received a $100 dividend from her investments."

Definition: A financial plan showing expected income and expenses.

Example: "We created a monthly budget to manage our spending."

Definition: A prediction of future financial performance.

Example: "The company forecast strong sales for the next quarter."

Definition: How easily an asset can be turned into cash.

Example: "Cash is the most liquid asset."

Definition: The total value of assets minus liabilities.

Example: "Her net worth increased after paying off her debts."

Definition: The general rise in prices over time, reducing purchasing power.

Example: "Inflation caused food prices to go up last year."

Definition: Spreading investments across different assets to reduce risk.

Example: "He diversified his portfolio by buying both stocks and bonds."

Definition: The possibility of losing money in an investment.

Example: "Investing in new companies comes with high risk."

Definition: A collection of financial investments like stocks, bonds, or real estate.

Example: "Her investment portfolio includes tech stocks and mutual funds."

In monetary policy, a hawkish stance generally favors tighter policies, such as raising interest rates to combat inflation.

In monetary policy, a dovish stance favors looser policies, such as lowering interest rates to stimulate the economy.