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Finance Topics

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DOI: 10.13140/RG.2.2.19838.97605

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 Financial Research
Writer: Eric Justice

I have worked at 2/4 biggest investment banks in the world, Merrill Lynch and Morgan
Stanley, I worked at Canadian Imperial Bank of Commerce (CIBC) as well. I think experience in
the field is required to fully understand the field of finance. After all, finance is the study of how
currency is used and managed. I received my bachelor’s degree in finance at Loyola University
Chicago. I took different courses such as: Principles of Corporate Finance, Investments, Banking
Money-Capital Markets, Portfolio Management, Financial Institutions, International Financial
Management, Economics, Business Statistics, and Business Information Systems. All of the
experiences and education I have received, prepared me to write this research paper. I give a
thank you to all my professors in every class that I took throughout my education which led me
to this paper. The research paper will cover different definitions of financial concepts and finance
itself.

“Finance is the study and discipline of money, currency and capital assets. It is related to, but not
synonymous with economics, which is the study of production, distribution, and consumption of
goods and services; the discipline of financial economics bridges the two” (Wikipedia).

There are many different things to cover in relation to finance. There are financial
institutions, investments, portfolio management, investment banking, financial management, real
estate, insurance, and more. The different types of finance include, “Corporate finance, Business,
Government, Term loan, Corporate finance, Behavior finance, Business finance, debt financing,
Private equity” (Web). There are more types of finance such as compound interest and others that
I will cover in my research. Different concepts may include, “corporate finance, investment,
credit, asset, business, management, compound interest, balance sheet, budget, valuation, market
liquidity, cash flow, insurance, cost, strategy, capital market, decision-making, interest, audit,
time value of money, anchoring effect, amortization, sales” (Web). This list of concepts can be
increased in the world of finance. I will make real life examples associated with what I have
provided.

I will start with investments and the different types of investments. Such investments
include, “Mutual fund, real estate, bond, stock, real estate investment trust, trade,
exchange-traded fund (ETF), commodity, index fund, option, money market fund, annuity,
alternative investment, derivative, cryptocurrency, certificate of deposit, security, corporate bond,
equity, cash, hedge fund” (Web).

Mutual Fund: “A mutual fund is an investment fund that pools from many investors to
purchase securities” (Wikipedia).
 Real Estate: “Real estate is property consisting of land and the buildings on it, along with
its natural resources such as growing crops, minerals or water, and wild animals; immovable
property of this nature; an interest vested in this an item of real property, buildings or housing in
general” (Wikipedia).

Bond: “In finance, a bond is a type of security under which the issuer owes the holder a
debt, and is obliged – depending on the terms – to provide cash flow to the creditor” (Wikipedia).

Stock: “Stocks consist of all the shares by which ownership of a corporation or company
is divided. A single share of the stock means fractional ownership of the corporation in
proportion to the total number of shares” (Wikipedia).

Real estate investment trust: “A real estate investment trust is a company that owns, and
in most cases operates, income-producing real estate. REITs own many types of commercial real
estate, including office and apartment buildings, warehouses, hospitals, shopping centers, hotels
and commercial forests. Some REITs engage in financing real estate” (Wikipedia).

Trade: “Trade involves the transfer of goods and services from one person or entity to
another, often in exchange for money. Economists refer to a system or network that allows trade
as a market” (Wikipedia).

Exchange-traded fund: “An exchange-traded fund is a type of investment fund that is also
an exchange-traded product, i.e., it is traded on stock exchanges. ETFs own financial assets such
as stocks, bonds, currencies, futures contracts, and/or commodities such as gold bars”
(Wikipedia).

Commodity: “In economics, a commodity is an economic good, usually a resource, that

specifically has full or substantial fungibility: that is, the market treats instances of the good as
equivalent or nearly so with no regard to who produced them” (Wikipedia).

Index Fund: “An index fund is a mutual fund or exchange-traded fund designed to follow
certain preset rules so that it can replicate the performance of a specified basket of underlying
investments” (Wikipedia).

Option: “In finance, an option is a contract which conveys to its owner, the holder, the
right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument
at a specified strike price on or before a specified date, depending on the style of the option”
(Wikipedia).

Money market fund: “A money market fund is an open-ended mutual fund that invests in
short-term debt securities such as US Treasury bills and commercial paper. Money market funds
are managed with the goal of maintaining a highly stable asset value through liquid investments,
while paying income to investors in the form of dividends” (Wikipedia).

Annuities: “In investment, an annuity is a series of payments made at equal intervals.

Examples of annuities are regular deposits to a savings account, monthly home mortgage
payments, monthly insurance payments and pension payments. Annuities can be classified by the
frequency of payment dates” (Wikipedia).

Alternative Investment: “An alternative investment, also known as an alternative asset or

alternative investment fund, is an investment in any asset class excluding capital stocks, bonds,
and cash” (Wikipedia).

Derivative: “In finance, a derivative is a contract that derives its value from the
performance of an underlying entity. This underlying entity can be an asset, index, or interest
rate, and is often simply called the underlying” (Wikipedia).

Cryptocurrency: “A cryptocurrency, crypto-currency, or crypto is a digital currency

designed to work as a medium of exchange through a computer network that is not reliant on any
central authority, such as a government or bank, to uphold or maintain it” (Wikipedia).

Certificate of deposit (CD): “A certificate of deposit is a time deposit sold by banks, thrift
institutions, and credit unions in the United States. CDs typically differ from savings accounts in
that the CD has a specific, fixed term before money can be withdrawn without penalty and
generally higher interest rates” (Wikipedia).

Security: “Security is a tradable financial asset. The term commonly refers to any form of
financial instrument, but its legal definition varies by jurisdiction” (Wikipedia).

Corporate bond: “A corporate bond is a bond issued by a corporation in order to raise

financing for a variety of reasons such as to ongoing operations, M&A, or to expand business.
The term is usually applied to longer-term debt instruments, with maturity of at least one year”
(Wikipedia).

Equity: “In finance, equity is an ownership interest in property that may be offset by
debts or other liabilities. Equity is measured for accounting purposes by subtracting liabilities
from the value of the assets owned” (Wikipedia).

Cash: “In economics, cash is money in the physical form of currency, such as banknotes
and coins. In bookkeeping and financial accounting, cash is current assets comprising currency
or currency equivalents that can be accessed immediately or near-immediately” (Wikipedia).
 Hedge fund: “A hedge fund is a pooled investment fund that holds liquid assets and that
makes use of complex trading and risk management techniques to improve investment
performance and insulate returns from market risk. Among these portfolio techniques are short
selling and the use of leverage and derivative instruments” (Wikipedia).

We have covered the different types of finance, as well as financial concepts. My research is
done in an attempt to write in my own words but some of the work is quoted based on my
research.

Stock: Stock is one of the most important concepts to learn in investments. I would say it’s
probably the most popular type of security investment in finance. A stock has shares, shares are
what the investor holds as proof of ownership. You become a shareholder when you own share(s)
of a company’s stock. You become a partial owner of the company whose share(s) you own. That
is the best and most simple way to understand a stock and its components.

I would rather have my research include mostly quotes and direct sources from the web than my
own words. I think this will be more valuable research. Although I have a degree in finance,
using sources from the web is the best approach to my research.

I am going to cover a few more definitions based on my research from the field of finance.

Financial Institution: “A financial institution, sometimes called a banking institution, is a

business entity that provides service as an intermediary for different types of financial monetary
transactions” (Wikipedia).

Financial modeling: “Financial modeling is the task of building an abstract representation of a

real world financial situation. This is a mathematical model designed to represent the
performance of a financial asset or portfolio of a business, project, or any other investment”

Types of stock: Common stock and Preferred Stock

“Common stock is a form of corporate equity ownership, a type of security. The terms voting
share and ordinary share are also used frequently outside of the United States. They are known as
equity shares or ordinary shares in the UK and other Commonwealth realms” (Wikipedia).

“Preferred stock is a component of share capital that may have any combination of features not
possessed by common stock, including properties of both an equity and a debt instrument, and is
generally considered a hybrid instrument” (Wikipedia).
Private Equity: “In the field of finance, private equity is stock in a private company that does
not offer stock to the general public. Private equity is offered instead to specialized investment
funds and limited partnerships that take an active role in the management and structuring of the
companies” (Wikipedia).

Private equity for financial modeling:

“From a financial modeling perspective, the primary levers available to private equity investors to
drive returns are:
○ Revenue growth
○ Margin expansion (typically an EBITDA margin)
○ Free cash flow generation / debt paydown
○ Valuation multiple expansion (typically an Enterprise Value / EBITDA
multiple)” (Wikipedia).

Initial Public Offering or IPO: “An initial public offering or stock launch is a public offering in
which shares of a company are sold to institutional investors and usually also to retail investors.
An IPO is typically underwritten by one or more investment banks, who also arrange for the
shares to be listed on one or more stock exchanges” (Wikipedia).

Initial Coin Offering or ICO (Cryptocurrency): “An initial coin offering or initial currency
offering is a type of funding using cryptocurrencies. It is often a form of crowdfunding, although
a private ICO which does not seek public investment is also possible” (Wikipedia).

Public company: “A public company is a company whose ownership is organized via shares of
stock which are intended to be freely traded on a stock exchange or in over-the-counter markets.
A public company can be listed on a stock exchange, which facilitates the trade of shares, or not”
(Wikipedia).

Bonds:

Issuance: “Bonds are issued by public authorities, credit institutions, companies and supranational
institutions in the primary markets. The most common process for issuing bonds is through
underwriting. When a bond issue is underwritten, one or more securities firms or banks, forming a
syndicate, buy the entire issue of bonds from the issuer and resell them to investors.” (Wikipedia).

Features of bonds:

Principal: “Nominal, principal, par, or face amount is the amount on which the issuer pays interest,
and which, most commonly, has to be repaid at the end of the term. Some structured bonds can
have a redemption amount which is different from the face amount and can be linked to the
performance of particular assets.” (Wikipedia).
Maturity: “The issuer is obligated to repay the nominal amount on the maturity date. As long as all
due payments have been made, the issuer has no further obligations to the bond holders after the
maturity date. The length of time until the maturity date is often referred to as the term or tenor or
maturity of a bond. The maturity can be any length of time, although debt securities with a term of
less than one year are generally designated money market instruments rather than bonds. Most
bonds have a term shorter than 30 years. Some bonds have been issued with terms of 50 years or
more, and historically there have been some issues with no maturity date (irredeemable). In the
market for United States Treasury securities, there are four categories of bond maturities:
● short term (bills): maturities under one year;
● medium term (notes): maturities between one and ten years;
● long term (bonds): maturities between ten and thirty years;
● perpetual: no maturity period.” (Wikipedia).

Coupon: “The coupon is the interest rate that the issuer pays to the holder. For fixed rate bonds, the
coupon is fixed throughout the life of the bond. For floating rate notes, the coupon varies throughout
the life of the bond and is based on the movement of a money market reference rate (historically this
was generally LIBOR, but with its discontinuation the market reference rate has transitioned to
SOFR).
Historically, coupons were physical attachments to the paper bond certificates, with each coupon
representing an interest payment. On the interest due date, the bondholder would hand in the
coupon to a bank in exchange for the interest payment. Today, interest payments are almost always
paid electronically. Interest can be paid at different frequencies: generally semi-annual (every 6
months) or annual.” (Wikipedia).

Yield: “The yield is the rate of return received from investing in the bond. It usually refers to one of
the following:
● The current yield, or running yield: the annual interest payment divided by the current
market price of the bond (often the clean price).
● The yield to maturity (or redemption yield, as it is termed in the United Kingdom) is an
estimate of the total rate of return anticipated to be earned by an investor who buys a
bond at a given market price, holds it to maturity, and receives all interest payments and
[7]
the capital redemption on schedule. It is a more useful measure of the return on a bond
than current yield because it takes into account the present value of future interest
payments and principal repaid at maturity. The yield to maturity or redemption yield
calculated at the time of purchase is not necessarily the return the investor will actually
earn, as finance scholars Dr. Annette Thau and Dr. Frank Fabozzi have noted. The yield
to maturity will be realized only under certain conditions, including: 1) all interest
payments are reinvested rather than spent, and 2) all interest payments are reinvested at
[8][9]
the yield to maturity calculated at the time the bond is purchased. This distinction
may not be a concern to bond buyers who intend to spend rather than reinvest the
coupon payments, such as those practicing asset/liability matching strategies.”
(Wikipedia).
Credit Quality: “The quality of the issue refers to the probability that the bondholders will receive
the amounts promised at the due dates. In other words, credit quality tells investors how likely the
borrower is going to default. This will depend on a wide range of factors. High-yield bonds are bonds
that are rated below investment grade by the credit rating agencies. As these bonds are riskier than
investment grade bonds, investors expect to earn a higher yield. These bonds are also called junk
bonds.” (Wikipedia).

Market Price: “The market price of a tradable bond will be influenced, among other factors, by the
amounts, currency and timing of the interest payments and capital repayment due, the quality of the
bond, and the available redemption yield of other comparable bonds which can be traded in the
markets.

The issue price at which investors buy the bonds when they are first issued will typically be
approximately equal to the nominal amount. The net proceeds that the issuer receives are thus the
issue price, less issuance fees. The market price of the bond will vary over its life: it may trade at a
premium (above par, usually because market interest rates have fallen since issue), or at a discount
(price below par, if market rates have risen or there is a high probability of default on the bond).”
(Wikipedia).

Most common types of bonds are:

● Government bonds
● Corporate bonds

Hedge fund strategies:

“Hedge fund strategies are generally classified among four major categories: global macro,
[64]
directional, event-driven, and relative value (arbitrage). Strategies within these categories each
entail characteristic risk and return profiles. A fund may employ a single strategy or multiple
[65]
strategies for flexibility, risk management, or diversification. The hedge fund's prospectus, also
known as an offering memorandum, offers potential investors information about key aspects of the
[66]
fund, including the fund's investment strategy, investment type, and leverage limit.

There are a variety of market approaches to different asset classes, including equity, fixed income,
commodity, and currency. Instruments used include equities, fixed income, futures, options, and
swaps. Strategies can be divided into those in which investments can be selected by managers,
known as "discretionary/qualitative", or those in which investments are selected using a
[67]
computerized system, known as "systematic/quantitative". The amount of diversification within the
fund can vary; funds may be multi-strategy, multi-fund, multi-market, multi-manager, or a
combination” (Wikipedia).

Hedge fund-Relative value:

“Relative value arbitrage strategies take advantage of relative discrepancies in price between
securities. The price discrepancy can occur due to mispricing of securities compared to related
securities, the underlying security or the market overall. Hedge fund managers can use various
types of analysis to identify price discrepancies in securities, including mathematical, technical, or
[80]
fundamental techniques. Relative value is often used as a synonym for market neutral, as
strategies in this category typically have very little or no directional market exposure to the market as
[81]
a whole. Other relative value sub-strategies include:
● Fixed income arbitrage: exploit pricing inefficiencies between related fixed income
securities.
● Equity market neutral: exploit differences in stock prices by being long and short in
stocks within the same sector, industry, market capitalization, country, which also creates
a hedge against broader market factors.
● Convertible arbitrage: exploit pricing inefficiencies between convertible securities and the
corresponding stocks.
● Asset-backed securities (fixed-income asset-backed): fixed income arbitrage strategy
using asset-backed securities.
● Credit long/short: the same as long/short equity, but in credit markets instead of equity
markets.
● Statistical arbitrage: identifying pricing inefficiencies between securities through
mathematical modelling techniques
● Volatility arbitrage: exploit the change in volatility, instead of the change in price.
● Yield alternatives: non-fixed income arbitrage strategies based on the yield, instead of
the price.
● Regulatory arbitrage: exploit regulatory differences between two or more markets.
● Risk arbitrage: exploit market discrepancies between acquisition price and stock price.
● Value investing: buying securities that appear underpriced by some form of fundamental
analysis” (Wikipedia).

Mutual Funds:
“A mutual fund is an investment fund that pools money from many investors to purchase
securities. The term is typically used in the United States, Canada, and India, while similar
structures across the globe include the SICAV in Europe ('investment company with variable
capital'), and the open-ended investment company (OEIC) in the UK.
Mutual funds are often classified by their principal investments: money market funds, bond or
fixed income funds, stock or equity funds, or hybrid funds.[1] Funds may also be categorized as
index funds, which are passively managed funds that track the performance of an index, such as
a stock market index or bond market index, or actively managed funds, which seek to outperform
stock market indices but generally charge higher fees. The primary structures of mutual funds are
open-end funds, closed-end funds, and unit investment trusts.” (WIkipedia).

“Market Size:
 [5]
At the end of 2020, open-end mutual fund assets worldwide were $63.1 trillion. The countries with
the largest mutual fund industries are:
1. United States: $23.9 trillion
2. Australia: $5.3 trillion
3. Ireland: $3.4 trillion
4. Germany: $2.5 trillion
5. Luxembourg: $2.2 trillion
6. France: $2.2 trillion
7. Japan: $2.1 trillion
8. Canada: $1.9 trillion
9. United Kingdom: $1.9 trillion
10. China: $1.4 trillion

Regulation and Operation in the United States:

In the United States, the principal laws governing mutual funds are:
● The Securities Act of 1933 requires that all investments sold to the public, including
mutual funds, be registered with the SEC and that they provide potential investors with a
prospectus that discloses essential facts about the investment.
● The Securities Exchange Act of 1934 requires that issuers of securities, including mutual
funds, report regularly to their investors; this act also created the Securities and
Exchange Commission, which is the principal regulator of mutual funds.
● The Revenue Act of 1936 established guidelines for the taxation of mutual funds. Mutual
funds are not taxed on their income and profits if they comply with certain requirements
under the U.S. Internal Revenue Code; instead, the taxable income is passed through to
the investors in the fund. Funds are required by the IRS to diversify their investments,
limit ownership of voting securities, distribute most of their income (dividends, interest,
and capital gains net of losses) to their investors annually, and earn most of the income
[16]
by investing in securities and currencies. The characterization of a fund's income is
unchanged when it is paid to shareholders. For example, when a mutual fund distributes
dividend income to its shareholders, fund investors will report the distribution as dividend
income on their tax return. As a result, mutual funds are often called flow-through or
pass-through vehicles, because they simply pass on income and related tax liabilities to
[citation needed]
their investors.
● The Investment Company Act of 1940 establishes rules specifically governing mutual
funds. The focus of this Act is on disclosure to the investing public of information about
the fund and its investment objectives, as well as on investment company structure and
operations.
● The Investment Advisers Act of 1940 establishes rules governing the investment
advisers. With certain exceptions, this Act requires that firms or sole practitioners
compensated for advising others about securities investments must register with the
[17]
SEC and conform to regulations designed to protect investors.
 ● The National Securities Markets Improvement Act of 1996 gave rulemaking authority to
the federal government, preempting state regulators. However, states continue to have
the authority to investigate and prosecute fraud involving mutual funds.
Mutual funds are overseen by a board of directors if organized as a corporation, or by a board of
trustees, if organized as a trust. The Board must ensure that the fund is managed in the interests of
the fund's investors. The board hires the fund manager and other service providers to the fund.
The sponsor or fund management company often referred to as the fund manager, trades (buys and
sells) the fund's investments in accordance with the fund's investment objective. Funds that are
managed by the same company under the same brand are known as a fund family or fund complex.
A fund manager must be a registered investment adviser.” (Wikipedia).

The main two types of investment funds are listed above: Hedge fund and mutual fund

Below is the definition of investment fund:

“An investment fund is a way of investing money alongside other investors in order to benefit
from the inherent advantages of working as part of a group such as reducing the risks of the
investment by a significant percentage” (Wikipedia).

Financial Institution: “A financial institution, sometimes called a banking institution, is a

business entity that provides service as an intermediary for different types of financial monetary
transactions” (Wikipedia).

“A financial institution, sometimes called a banking institution, is a business entity that provides
service as an intermediary for different types of financial monetary transactions. Broadly speaking,
[1][2]
there are three major types of financial institution:
1. Depository institution – deposit-taking institution that accepts and manages deposits
and makes loans, including bank, building society, credit union, trust company, and
mortgage broker;
2. Contractual institution – insurance company and pension fund
3. Investment institution – investment bank, underwriter, and other different types of
financial entities managing investments.
Financial institutions can be distinguished broadly into two categories according to ownership
structure:
● commercial bank
● cooperative bank
Commercial bank: “A commercial bank is a financial institution which accepts deposits from the
public and gives loans for the purposes of consumption and investment to make profit.
It can also refer to a bank or a division of a large bank which deals with corporations or a large or
middle-sized business, to differentiate it from a retail bank and an investment bank. Commercial
banks include private sector banks and public sector banks” (Wikipedia).

Cooperative bank: “Cooperative banking is retail and commercial banking organized on a

cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of
the world.
Cooperative banking, as discussed here, includes retail banking carried out by credit unions, mutual
savings banks, building societies and cooperatives, as well as commercial banking services
provided by mutual organizations (such as cooperative federations) to cooperative businesses.”
(Wikipedia).

Based on my search: Types of Financial Institutions

“Types of Financial Institutions:

● Investment Banking
● Commercial Bank
● Bank
● Credit Union
● Savings and loan association
● Central Bank (Federal Reserve)
● Company
● Retail Banking
● Business
● Brokerage firm
● Retail
● Depository institution
● Savings bank
● Cooperative banking
● Investment company
● Non-bank financial institution
● Internet
● National bank
● Mortgage banker” (Web)

Online banking: “Online banking, also known as internet banking, virtual banking, web banking
or home banking, is a system that enables customers of a bank or other financial institution to
conduct a range of financial transactions through the financial institution's website or mobile app.
Since the early 2000s this has become the most common way that customers access their bank
account” (Wikipedia).

Cryptocurrency:
1st and most valuable cryptocurrency built on the blockchain:
1. Bitcoin

Most popular altcoins

2. Ethereum
3. Litecoin

Blockchain: “The validity of each cryptocurrency's coins is provided by a blockchain. A blockchain is

a continuously growing list of records, called blocks, which are linked and secured using
[59][61] [61]
cryptography. Each block typically contains a hash pointer as a link to a previous block, a
[62]
timestamp and transaction data. By design, blockchains are inherently resistant to modification of
the data. It is "an open, distributed ledger that can record transactions between two parties efficiently
[63]
and in a verifiable and permanent way". For use as a distributed ledger, a blockchain is typically
managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks.
Once recorded, the data in any given block cannot be altered retroactively without the alteration of
all subsequent blocks, which requires collusion of the network majority.” (Wikipedia).

Nodes: “A node is a computer that connects to a cryptocurrency network. The node supports the
cryptocurrency's network through either relaying transactions, validation, or hosting a copy of the
blockchain. In terms of relaying transactions, each network computer (node) has a copy of the
blockchain of the cryptocurrency it supports. When a transaction is made, the node creating the
transaction broadcasts details of the transaction using encryption to other nodes throughout the
node network so that the transaction (and every other transaction) is known.
Node owners are either volunteers, those hosted by the organization or body responsible for
developing the cryptocurrency blockchain network technology, or those who are enticed to host a
node to receive rewards from hosting the node network” (Wikipedia).

Records or record keeping:

Every transaction ever made on the blockchain should be recorded on a ledger. It would provide
the address and time as a minimum requirement most likely.

Wallets:
“A cryptocurrency wallet is a means of storing the public and private "keys" (address) or seed which
[82]
can be used to receive or spend the cryptocurrency. With the private key, it is possible to write in
the public ledger, effectively spending the associated cryptocurrency. With the public key, it is
possible for others to send currency to the wallet” (Wikipedia).
I won’t get too involved with the research because most cryptocurrency is based on technology.
It does mostly deal with finance as well but I do not want to get too much into the weeds with
cryptocurrency. Cryptocurrency was looked down upon for years but has slowly become more
and more a part of everyday conversation.

International Finance: “International finance is the branch of financial economics broadly

concerned with monetary and macroeconomic interrelations between two or more countries”
(Wikipedia).

Financial Management: “Financial management is the business function concerned with

profitability, expenses, cash and credit. These are often grouped together under the rubric of
maximizing the value of the firm for stockholders” (Wikipedia).

Most banks will offer financial services. The definition for financial services is below:
“Financial services are economic services tied to finance provided by financial institutions.
Financial services encompass a broad range of service sector activities, especially as concerns
financial management and consumer finance” (Wikipedia).

Behavioral economics: “Behavioral economics studies the effects of psychological, cognitive,

emotional, cultural and social factors in the decisions of individuals or institutions, and how these
[1][2]
decisions deviate from those implied by classical economic theory.
Behavioral economics is primarily concerned with the bounds of rationality of economic agents.
Behavioral models typically integrate insights from psychology, neuroscience and microeconomic
[3][4]
theory. The study of behavioral economics includes how market decisions are made and the
mechanisms that drive public opinion” (Wikipedia).

There will be more research on economics but not until later in the paper.

Estate planning: “Estate planning is the process of anticipating and arranging for the
management and disposal of a person's estate during the person's life in preparation for a person's
future incapacity or death” (Wikipedia).
Wills: “Wills are a common estate planning tool, and are usually the simplest device for planning
the distribution of an estate. It must be created and executed in compliance with the laws of the
jurisdiction where it is created. If Probate proceedings may occur in a different jurisdiction, it is
important also to ensure that the will complies with the laws of that jurisdiction or that the
jurisdiction will follow the provisions of a valid out-of-state will even if those provisions might
be invalid for a will executed in that jurisdiction.[7]”
Trusts: “A trust may be used as an estate planning tool to direct the distribution of assets after the
person who creates the trust passes away or becomes incapacitated. Trusts may be used to
provide for the distribution of funds for the benefit of minor children or developmentally
disabled children. For example, a spendthrift trust may be used to prevent wasteful spending by a
spendthrift child, or a special needs trust may be used for developmentally disabled children or
adults. Trusts offer a high degree of control over management and disposition of assets.[8]
Furthermore, certain types of trust provisions can provide for the management of wealth for
several generations past the settlor. Typically referred to as dynasty planning, these types of trust
provisions allow for the protection of wealth for several generations after a person's death”
(Wikipedia).

More definitions below for finance:

Prime Brokerage: “Prime brokerage is the generic term for a bundled package of services
offered by investment banks, wealth management firms, and securities dealers to hedge funds
which need the ability to borrow securities and cash in order to be able to invest on a netted basis
and achieve an absolute return” (Wikipedia).

Assets under management: “In finance, assets under management, sometimes called fund under
management, measures the total market value of all the financial assets which an individual or
financial institution” (Wikipedia).

Compound interest: “Compound interest is the addition of interest to the principal sum of a loan
or deposit, or in other words, interest on principal plus interest” (Wikipedia).

A=P (1+r/n)^nt
A=final amount
P=Initial principal balance
r=interest rate
n=number of times interest applied per time period
t=number of time periods elapsed

Example: $1,000 in your bank account that earns 5% interest per year.
After 1 year, your bank account will have $1,050 in it. After year two, it will have $1,102 in it
and so on. The compound interest increases as your account value increases.

Central bank: “A central bank, reserve bank, or monetary authority is an institution that manages
the currency and monetary policy of a country or monetary union. In contrast to a commercial
bank, a central bank possesses a monopoly on increasing the monetary base” (Wikipedia).

The main focus on finance is how you can manage the money of others and capitalize on their
investments. Financial management is a very important part of the field. People trust someone to
manage their finances, that person has a fiduciary responsibility to their client.

Leverage; “In finance, leverage is any technique involving borrowing funds to buy an
investment, estimating that future profits will be more than the cost of borrowing” (Wikipedia).

The financial system: “As outlined, the financial system consists of the flows of capital that take
place between individuals and households (personal finance), governments (public finance), and
businesses (corporate finance). "Finance" thus studies the process of channeling money from
savers and investors to entities that need it. [b] Savers and investors have money available which
could earn interest or dividends if put to productive use. Individuals, companies and
governments must obtain money from some external source, such as loans or credit, when they
lack sufficient funds to run their operations” (Wikipedia)

Financial Theory: “Financial theory is studied and developed within the disciplines of management,
[14][30]
(financial) economics, accountancy and applied mathematics. Abstractly, finance is concerned
with the investment and deployment of assets and liabilities over "space and time"; i.e., it is about
performing valuation and asset allocation today, based on the risk and uncertainty of future
outcomes while appropriately incorporating the time value of money. Determining the present value
of these future values, "discounting", must be at the risk-appropriate discount rate, in turn, a major
[31]
focus of finance-theory. As financial theory has roots in many disciplines, including mathematics,
[32]
statistics, economics, physics, and psychology, it can be considered a mix of an art and science,
and there are ongoing related efforts to organize a list of unsolved problems in finance” (Wikipedia).

[37]
Financial Economics: “Financial economics is the branch of economics that studies the
interrelation of financial variables, such as prices, interest rates and shares, as opposed to real
economic variables, i.e. goods and services. It thus centers on pricing, decision making, and risk
[37][30]
management in the financial markets, and produces many of the commonly employed financial
models. (Financial econometrics is the branch of financial economics that uses econometric
techniques to parameterize the relationships suggested.)
[30]
The discipline has two main areas of focus: asset pricing and corporate finance; the first being
the perspective of providers of capital, i.e. investors, and the second of users of capital; respectively:
● Asset pricing theory develops the models used in determining the risk-appropriate
discount rate, and in pricing derivatives; and includes the portfolio- and investment theory
applied in asset management. The analysis essentially explores how rational investors
would apply risk and return to the problem of investment under uncertainty, producing the
key "Fundamental theorem of asset pricing". Here, the twin assumptions of rationality
and market efficiency lead to modern portfolio theory (the CAPM), and to the
Black–Scholes theory for option valuation. At more advanced levels – and often in
response to financial crises – the study then extends these "Neoclassical" models to
incorporate phenomena where their assumptions do not hold, or to more general
settings.
● Much of corporate finance theory, by contrast, considers investment under "certainty"
(Fisher separation theorem, "theory of investment value", Modigliani–Miller theorem).
Here, theory and methods are developed for the decisioning about funding, dividends,
and capital structure discussed above. A recent development is to incorporate
uncertainty and contingency – and thus various elements of asset pricing – into these
decisions, employing for example real options analysis.” (Wikipedia).

[39]
Financial mathematics: “Financial mathematics is the field of applied mathematics concerned
with financial markets; Louis Bachelier's doctoral thesis, defended in 1900, is considered to be the
first scholarly work in this area. The field is largely focused on the modeling of derivatives – with
much emphasis on interest rate- and credit risk modeling – while other important areas include
insurance mathematics and quantitative portfolio management. Relatedly, the techniques developed
are applied to pricing and hedging a wide range of asset-backed, government, and
corporate-securities” (Wikipedia).

Behavioral finance: “Behavioral finance studies how the psychology of investors or managers affects
[43] [44]
financial decisions and markets and is relevant when making a decision that can impact
either negatively or positively on one of their areas. With more in-depth research into behavioral
finance, it is possible to bridge what actually happens in financial markets with analysis based on
[45]
financial theory. Behavioral finance has grown over the last few decades to become an integral
aspect of finance” (Wikipedia).

Researchers are looking into quantum finance and computational finance.

Savings: “Saving is income not spent, or deferred consumption. Methods of saving include
putting money aside in, for example, a deposit account, a pension account, an investment fund,
or as cash. Saving also involves reducing expenditures, such as recurring costs” (Wikipedia).
There are plenty of topics and definitions covered in my research either from the web or from
wikipedia. Definitions seem to be the best option for explaining the meaning of financial terms
and concepts.

Share price: “A share price is the price of a single share of a number of saleable equity shares of
a company. In layman's terms, the stock price is the highest amount someone is willing to pay for
the stock, or the lowest amount that it can be bought for” (Wikipedia).

Stock Market: “A stock market, equity market, or share market is the aggregation of buyers and
sellers of stocks (also called shares), which represent ownership claims on businesses; these may
include securities listed on a public stock exchange, as well as stock that is only traded privately,
such as shares of private companies which are sold to investors through equity crowdfunding
platforms. Investment is usually made with an investment strategy in mind” (Wikipedia).

“Size of the market: The total market capitalization of all publicly traded stocks worldwide rose from
US$2.5 trillion in 1980 to US$93.7 trillion at the end of 2020” (Wikipedia)

“Stock Exchange: A stock exchange is an exchange (or bourse) where stockbrokers and traders can
buy and sell shares (equity stock), bonds, and other securities. Many large companies have their
stocks listed on a stock exchange. This makes the stock more liquid and thus more attractive to
many investors. The exchange may also act as a guarantor of settlement. These and other stocks
may also be traded "over the counter" (OTC), that is, through a dealer. Some large companies will
have their stock listed on more than one exchange in different countries, so as to attract international
investors.
The purpose of a stock exchange is to facilitate the exchange of securities between buyers and
sellers, thus providing a marketplace. The exchanges provide real-time trading information on the
listed securities, facilitating price discovery” (Wikipedia).

“Investment strategies: Many strategies can be classified as either fundamental analysis or technical
analysis. Fundamental analysis refers to analyzing companies by their financial statements found in
SEC filings, business trends, and general economic conditions. Technical analysis studies price
actions in markets through the use of charts and quantitative techniques to attempt to forecast price
trends based on historical performance, regardless of the company's financial prospects. One
example of a technical strategy is the Trend following method, used by John W. Henry and Ed
Seykota, which uses price patterns and is also rooted in risk management and diversification”
(Wikipedia).

The stock market can be described by a marketplace that allows consumers to exchange securities.
Bond Market: “The bond market (also debt market or credit market) is a financial market where
participants can issue new debt, known as the primary market, or buy and sell debt securities,
known as the secondary market. This is usually in the form of bonds, but it may include notes, bills,
and so on for public and private expenditures. The bond market has largely been dominated by the
United States, which accounts for about 39% of the market. As of 2021, the size of the bond market
(total debt outstanding) is estimated to be at $119 trillion worldwide and $46 trillion for the US
market, according to the Securities Industry and Financial Markets Association (SIFMA)”
(Wikipedia).

Participants in the bond market are below:

“Bond market participants are similar to participants in most financial markets and are essentially
either buyers (debt issuer) of funds or sellers (institution) of funds and often both.
Participants include:
● Institutional investors
● Governments
● Traders
● Individuals
Because of the specificity of individual bond issues, and the lack of liquidity in many smaller issues,
the majority of outstanding bonds are held by institutions like pension funds, banks and mutual
funds. In the United States, approximately 10% of the market is held by private individuals”
(Wikipedia).

Types of Finance:
Personal finance: “Personal finance is the financial management which an individual or a family
unit performs to budget, save, and spend monetary resources over time, taking into account
various financial risks and future life events” (Wikipedia)

Corporate finance: “Corporate finance is the area of finance that deals with the sources of
funding, and the capital structure of corporations, the actions that managers take to increase the
value of the firm to the shareholders, and the tools and analysis used to allocate financial
resources” (Wikipedia)

Public Finance: “Public finance is the study of the role of the government in the economy. It is
the branch of economics that assesses the government revenue and government expenditure of
the public authorities and the adjustment of one or the other to achieve desirable effects and
avoid undesirable ones” (Wikipedia).
Wealth management: “Wealth management or wealth management advisory is an investment
advisory service that provides financial management and wealth advisory services to a wide
array of clients ranging from affluent to high-net-worth and ultra-high-net-worth individuals and
families” (Wikipedia).

Financial statements: “Financial statements are formal records of the financial activities and
position of a business, person, or other entity. Relevant financial information is presented in a
structured manner and in a form which is easy to understand” (Wikipedia).

“Relevant financial information is presented in a structured manner and in a form which is easy to
understand. They typically include four basic financial statements accompanied by a management
[1]
discussion and analysis:
1. A balance sheet or statement of financial position, reports on a company's assets,
liabilities, and owners equity at a given point in time.
2. An income statement—or profit and loss report (P&L report), or statement of
comprehensive income, or statement of revenue & expense—reports on a
company's income, expenses, and profits over a stated period. A profit and loss
statement provides information on the operation of the enterprise. These include
sales and the various expenses incurred during the stated period.
3. A statement of changes in equity or statement of equity, or statement of retained
earnings, reports on the changes in equity of the company over a stated period.
4. A cash flow statement reports on a company's cash flow activities, particularly its
operating, investing and financing activities over a stated period” (Wikipedia).

A balance sheet shows the company’s balances.

An income statement shows the revenue generated for the company.
Statement of changes in equity shows the changes in shareholders equity.
A cash flow statement shows cash flow and cash equivalents.

I wouldn’t say any statement is more important than the other, I believe all financial statements to be
crucial when evaluating a company.

Asset: “In financial accounting, an asset is any resource owned or controlled by a business or an
economic entity. It is anything that can be used to produce positive economic value. Assets
represent the value of ownership that can be converted into cash” (Wikipedia).

Financial accounting: “Financial accounting is a branch of accounting concerned with the

summary, analysis and reporting of financial transactions related to a business. This involves the
preparation of financial statements available for public use” (Wikipedia).
Balance sheet continued:
“The balance sheet is the financial statement showing a firm's assets, liabilities and equity (capital)
at a set point in time, usually the end of the fiscal year reported on the accompanying income
statement. The total assets always equal the total combined liabilities and equity. This statement
best demonstrates the basic accounting equation:
Assets = Liabilities + Equity” (Wikipedia).

Cash flows continued:

“The statement of cash flows considers the inputs and outputs in concrete cash within a stated
period. The general template of a cash flow statement is as follows: Cash Inflow - Cash Outflow +
Opening Balance = Closing Balance
Example 1: in the beginning of September, Ellen started out with $5 in her bank account. During that
same month, Ellen borrowed $20 from Tom. At the end of the month, Ellen bought a pair of shoes for
$7. Ellen's cash flow statement for the month of September looks like this:
● Cash inflow: $20
● Cash outflow:$7
● Opening balance: $5
● Closing balance: $20 – $7 + $5 = $18” (Wikipedia).

Income Statement continued:

“The statement of profit or income statement represents the changes in value of a company's
accounts over a set period (most commonly one fiscal year), and may compare the changes to
changes in the same accounts over the previous period. All changes are summarized on the "bottom
line" as net income, often reported as "net loss" when income is less than zero.
The net profit or loss is determined by:
Sales (revenue)
– cost of goods sold
– selling, general, administrative expenses (SGA)
– depreciation/ amortization
= earnings before interest and taxes (EBIT)
– interest and tax expenses

= profit/loss” (Wikipedia).
Works cited:
Google.com
Wikipedia.org
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