Introduction to Finance
Lecture 1
✓ Basic terminologies
To understand and study finance, there are some of the key and commonly used terms
that are as follows:
• Financial assets - A financial asset is a liquid asset that gets its value from a
contractual right (contracts). E.g. stocks, bonds, bank deposits, etc. A financial asset
has no requirement to have any physical form. Rather their values are affected and
determined by their demand and supply and the level of risk they carry. These assets
exist on paper and computer screens. Financial assets are also called securities.
• Financial market - It is the market where financial assets are bought and sold. When
Party A buys a financial asset from Party B, funds are transferred from Party A to
Party B. In this market, there are financial institutions such as banks, credit unions,
etc.
• Surplus units- Usually, this term is used for parties who receive more money than
they spend. For example, investors invest in a company with $100 and receive $500
in return as dividends (share of company profits). So they received more money than
they had spent.
• Deficit units- This term is used for parties who spend more money than they receive.
For example, borrowers, who initially take a loan for $100 but pay back $100 with
added interest. So here, they spent (paid back) more money than they had received as
a loan.
• Issuer- The party who sells the contract
• Holder- The party who buys the contract
Md Tanvir Shahriar| BRAC University |1 | P a g e
Lecture 1
✓ Basic terminologies
To understand and study finance, there are some of the key and commonly used terms
that are as follows:
• Financial assets - A financial asset is a liquid asset that gets its value from a
contractual right (contracts). E.g. stocks, bonds, bank deposits, etc. A financial asset
has no requirement to have any physical form. Rather their values are affected and
determined by their demand and supply and the level of risk they carry. These assets
exist on paper and computer screens. Financial assets are also called securities.
• Financial market - It is the market where financial assets are bought and sold. When
Party A buys a financial asset from Party B, funds are transferred from Party A to
Party B. In this market, there are financial institutions such as banks, credit unions,
etc.
• Surplus units- Usually, this term is used for parties who receive more money than
they spend. For example, investors invest in a company with $100 and receive $500
in return as dividends (share of company profits). So they received more money than
they had spent.
• Deficit units- This term is used for parties who spend more money than they receive.
For example, borrowers, who initially take a loan for $100 but pay back $100 with
added interest. So here, they spent (paid back) more money than they had received as
a loan.
• Issuer- The party who sells the contract
• Holder- The party who buys the contract
Md Tanvir Shahriar| BRAC University |1 | P a g e
