If you set out to study finance, you'll see that things can get very complicated. As we want to start at the beginning and consolidate concepts, we show you the most important ones for the understanding of finances.

1. Time value of money:

Imagine that you can have a certain amount of money to invest and that money you have to pay. The concept of the time value of money is that it is preferable to receive a payment today instead of at a future date.

If today you receive money and invest it, it will produce interests from now on. But if you receive it later, you will lose purchasing power due to the effect of inflation.

2. Risk premium:

The risk premium is the difference between the return on an investment and the interest rate on the securities that are considered safe.

Investors always move in the same way: they act in markets trying to get the best possible return for their money and at the same time they try to make that investment as risk-free as possible. It is clear that the higher profitability there will be a greater risk, investors have to weigh that and this is one of the data that the capital market offers us.

3. Interest rate:

The interest rate is defined as the amount paid in a unit of time per unit of capital invested.

Interest rates affect investment, trade, and consumption. This is because many of the purchases we make every day are paid with debit or credit cards. Also, the businesses have to buy the products that are going to sell to us and they usually do it on credit. Regarding investments, these are supported by debt issuance through bonds or bank loans.

4. Inflation:

We go with a concept that, luckily or unfortunately, accompanies everywhere. Inflation consists of a continuous increase in prices even in 菜市場理財法 which leads to the loss of the value of money in order to acquire the products and services we need.

5. Opportunity cost:

You are an investor, you are interested in two options and you decide to invest all the money that you thought in one of the options. The opportunity cost is what you give up because you have discarded one of the possibilities you were weighing.

In the world of finance, we also understand it as that which is lost by giving up consumption or investment to use the resources in another project.

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