Financial Economics Vocabulary

profiting from price differences in different markets

“Arbitrage opportunities disappear quickly in efficient markets.”

the ease of converting an asset to cash without loss

“Real estate has lower liquidity than stocks.”

using borrowed money to amplify potential returns

“High leverage increases both risk and potential reward.”

an investment to offset potential losses

“Airlines hedge against fuel price increases.”

a financial instrument whose value derives from an underlying asset

“Options and futures are common derivatives.”

the return on an investment, usually expressed as a percentage

“Bond yields rose as prices fell.”

the degree of variation in trading prices over time

“Market volatility spiked during the crisis.”

a collection of investments held by an individual or institution

“Diversifying your portfolio reduces risk.”

wealth used to generate more wealth

“The startup raised capital from venture investors.”

anything of value owned by an individual or entity

“Real estate is a major asset class.”