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Are you confused with some of the most basic terminologies?
This is my take on the basics of finance:
Finance is a broad topic that covers a number of issues most of which revolve around money. Different terms have been developed to explain these financial issues and make them easier to understand even if you have little or no background in finance. Below are some basic financial terms that will help you understand better understand the different concepts in finance and how they work in different everyday situations and probably learn how you can put this information into good use and reap some tangible benefits from it.
Stock
This is a type of security that guarantees you ownership to a certain corporation. If you hold stocks in a certain corporation, then you have a claim over the corporation's assets and profits made by the said corporation. The level of ownership in a corporation depends on the number of stock shares that you hold in relation to the total outstanding shares that the company has. This means that if you hold much of a corporation's stock shares, then you have a higher claim to the corporation's ownership and consequently a higher claim to the assets and profits compared to another person who holds less shares.
Stock can be divided in to two major categories. One category represent stock that give you power to vote at the corporations stakeholders meetings and entitle you to dividends. This type of stock is known as the common stock. The other type of stock known as the preferred stock does not give voting rights but it guarantees a higher claim to assets in dividends than the common stock. This means that when a corporation is issuing dividends, preferred stock holders get a higher percentage than common stock holders and are considered first when the corporation is being liquidated whatever the reason for liquidation.
Stocks are one of the best investment options that offer investors high returns. They have been observed to outdo most investment options available today. Research and competent stock brokers help a lot when it comes to making a decision on what stock is more profitable both in the short term and in the long run.
Money Transfer and Money Transfer rate
As the name suggests, money transfer basically involve transferring money from one place to another. There are two main modes of money transfer. These are physical and electronic money transfer. With physical money transfer, money changes hands from one person to the other. In electronic money transfer on the other hand money is transferred from one ban to another without any money or paper changing hands. Financial institutions will normally charge a certain fee where electronic money transfer is involved.
It is possible to have money transferred to another person in another currency (i.e.
Transfer GBP For AUD), for example as would happen if you send money to someone overseas. The amount received on the other end will depend on the prevailing exchange rate. The exchange rate in finance is used to define the price of a certain currency in relation to other currencies. The exchange rate can also be termed as the Forex rate or currency quotation.
When considering the exchange rate there is a base currency and the counter currency. The base currency is usually the domestic currency while the counter currency is the foreign currency. In most situations however, the US Dollar is used as the base currency and the other currency as counter currency unless the exchange involve the common wealth currencies and the Euro.
The exchange rates can either be determined by the market forces or pegged to a widely accepted currency like the US dollar. Most nations however prefer to depend on the market forces where the exchange rate is involved.
Loan
A loan is simply an arrangement between a lender and a borrower. A lender advances money or any other resource to a borrower who then promises to repay the resource advanced at a future date and in most cases at an interest. In some cases, lenders demand some form of collateral/security before advancing a loan. Such loans are referred to as secured loans. Loans that do not require any form of security are referred to as unsecured loans.
There are many types of loans available to borrowers. These loans are designed to meet different borrower's requirements. One of the available loans is the mortgage loan.
A mortgage is a loan advanced for the purchase of real estate. The property purchased acts as the security for the loan. A mortgage can either be a fixed rate mortgage that attracts a fixed interest rate over the repayment period or an adjustable mortgage whose rate changes as more repayments are made. The repayment period, interest rate and the terms of the loan differ depending on the lender, amount advanced and property purchased among other factors.
Debt and Bankruptcy
A debt is the amount owed in relation to the amount borrowed or simply the amount not yet repaid after money is advanced to a borrower. There is however an intention to repay the said amount in future.
In certain cases, debtors are unable to honor their end of the bargain and repay the entire amount they had borrowed. Where such situations arise, the people affected can file for bankruptcy.
Bankruptcy is a legal proceeding that offers borrowers with no means to repay their debts a new start by forgiving the said loans. If the debtors have some form of assets, these assets are sold to settle money owed after which the lender cannot claim more money from the borrower. In some instances a new repayment plan is drafted to allow borrowers more time and leeway when it comes to repaying money owed. This gives borrowers enough breathing space to look for money and repay money owed when they are in a position to do so.
The five terms described above represent just a portion of the terminologies used in finance. There are many more terms developed in relation to different financial situations. You therefore need to stay informed and read on more of the finance terms that you can employ to grow your finances and stay abreast with what is happening around you where finance is concerned.
Many people greatly struggle with their personal finances as they are establishing themselves as adults. What is important to remember is that one can absolutely come back from financial errors that they made in their youth. The key is to be diligent and dedicated in the process. Here are my five most basic tips to improve your personal finances: 