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Key Terms


Binary Predictive Measures
These financial instruments help gather information on and predict outcomes for natural assets. For example, will Lake Tahoe water clarity be greater in one year or less. The market takes in information on potential events and/or decisions that may effect water clarity — snowfall, development plans, etc. and a simple binary option (so called because there are only two outcomes yes or no) is created. The investors choose to be on one side or the other of the trade — yes water quality will increase or no it will decrease by the expiration date of the contract. Stakeholders garner important information from the collective insights of the market participants and can make better decisions with this information.

Debt
In finance, a debt is a means of using anticipated future purchasing power in the present before it has actually been earned. A debt is created when a creditor agreed to lend a sum of assets to a debtor. Debt is usually granted with expected repayment; in modern society, in most cases, this includes repayment of the original sum, plus interest.

Derivative 
These financial assets 'derive' their value from other assets. For example, an option to buy a share of stock is derived from the underlying value of that share.

Financial Asset
Financial assets are intangible asset that derives value because of a contractual claim. Examples include bank deposits, bonds and stocks. Financial assets are usually more liquid than tangible assets such as land or real estate, and are traded on financial markets.

Futures Contract
In finance a futures contract is a standardized contract between two parties to buy or sell a specified asset of standardized quantity and quality for a price agreed upon today (the futures price or strike price) with delivery and payment occurring at a specified future date, the delivery date. Settlement may be in cash or physical delivery of the asset. Futures are used to “hedge” or protect against price volatility. For example, the price of a crop from the time it is planted till it is harvested.  Speculators accept this risk and provide liquidity in the market and a lower cost protection for those seeking to protect their investment. 

Intrinsic Value
Financial Meaning: In finance, intrinsic value refers to the actual value of a company or stock determined through fundamental analysis without reference to its market value.

Ethical Meaning: Intrinsic value is an ethical and philosophic property. It is the ethical or philosophic value that an object has "in itself" or "for its own sake", as an intrinsic property. An object with intrinsic value may be regarded as an end or end-in-itself.

Negative Externality
A negative externality is the side effect or consequence to an industrial or commercial activity that negatively affects other parties without being reflected in the cost. For example, pollution causes negative effects to the general population but is not reflected in the cost of the product or service.

Positive Externality
A positive externality is a side effect or consequence of an activity that has positive or spillover benefits to a third party not reflected in the cost. For example, if some households invest in fire protection to reduce the chance of a fire spreading and others do not, the free fire protection benefiting the households that do not invest in fire protection is a positive extrernality.

Price
In modern economies, prices are generally expressed in units of some form of currency, some economists define price more generally as the ratio of the quantities of goods that are exchanged for each other.

Price Signaling
A price signal is information conveyed, to consumers and producers, via the price charged for a good or service thus providing a signal to increase supply and/or decrease demand for the priced item.

Trade
In finance, a trade is an exchange of a security (stocks, bonds, commodities, currencies, derivatives or any valuable financial instrument) for cash.

Value
In finance, the quantity of labor, goods or money that people are generally willing to give in exchange for something.

Worth
Something is worth whatever you think it is worth.