Go Back   ManagementParadise.com | Management & Business Education Learning Platform Resolve Your Query - Get Help and discuss Projects > Managerial Economics ( Eco )

Glossary of Economic Terms

Discuss Glossary of Economic Terms within the Managerial Economics ( Eco ) forums, part of the Resolve Your Query - Get Help and discuss Projects category; Glossary of Economic Terms Arbitrage: If someone takes advantage of different prices of the same security traded in two or ...

Reply

 

Thread Tools Display Modes
Glossary of Economic Terms
Old
 (1 (permalink))
Anjali Khurana
joel.francis.735 is on a distinguished road
 
whatsup
Manager at Frio Products,
Management Paradise Member
Status: Offline
Posts: 722
Join Date: Dec 2012
Glossary of Economic Terms - February 25th, 2014

Glossary of Economic Terms

Arbitrage: If someone takes advantage of different prices of the same security traded in two or more stock exchanges (by buying in one and selling in the other), it is called arbitrage.

Actuary: A statistician who calculates insurance risk and premiums.

Annual General Meeting: The yearly meeting of shareholders that Joint-Stock Companies are required by law to convene, to allow shareholders to discuss their company's Annual Report and Accounts, elect the Board of Directors and approve the dividend suggested by directors.

Annuity: A series of equal payments at fixed intervals from an original lump sum investment. Where an annuity has a fixed time span, it is termed an annuity certain, and the periodic receipts comprise both a phased repayment of principal (the original lump sum payment) and interest, such that at the end of the fixed term, there is a zero balance on the account. An annuity in perpetuity does not have a fixed time span but continues indefinitely and receipts can therefore come only from interest earned. Annuities can be obtained from pension funds or life insurance schemes.

Anti-Competitive Practice: A practice followed by a firm that restricts, distorts or eliminates competition to the disadvantage of other suppliers and consumers. Examples of restrictive practices include Exclusive Dealing, Refusal To Supply, Tie-In Sales, etc.

Appreciation: An increase in the value of a currency against other currencies under a Floating Exchange Rate System. An appreciation of a currency's value makes imports cheaper and exports more expensive, thereby encouraging additional imports and curbing exports and so helping in the removal of a Balance of Payments surplus and the excessive accumulation of international reserves.

Appreciation: An increase in the price of an asset is also called capital appreciation. Assets held for long periods, such as factory building, offices or houses are most likely to appreciate in value because of the effects of inflation and increasing site values, though the value of short term assets like stocks can also appreciate.

Articles of Association: The legal constitution of a Joint-Stock Company, which governs the internal relationship between the company and its members or shareholders. The articles govern the rights and duties of the membership and administration of the company e.g. directors' powers, meetings, the dividend and voting rights assigned to separate classes of shareholders, etc.

Administered Prices: Prices which are set by management decision rather than by negotiation between buyer and seller. True market prices are to be found only in the stock exchange and other places where prices change constantly. Most retail and industrial prices are set by management, though they will be altered in response to competition.

Anti-Trust (US): Legislation to control monopoly and restrictive practices in favour of competition. It applies not only to group of firms but also to single companies.

Authorized Capital: The share capital fixed in the Memorandum of Association and the Articles of Association of a company as required by law. Also known as nominal capital or registered capital.

Average Cost: Total production costs per unit of output. It is calculated by adding total fixed costs to total variable costs and dividing by the number of units produced. The effect of indivisibilities is that average costs fall as output expands, spreading the fixed cost over more units.

Average Cost Pricing: The pricing of goods or services so as just to cover the average cost of production. The firm engaging in this will make neither a profit nor loss.

Bad Money Drives Out Good: The idea that an injection of low-quality coinage into a monetary system will dissuade holders of high-quality coins from parting with cash. Before paper money (banknote) became universally accepted as a means for settling debts, precious metals were the most common forms of money. Gold and silver coins were struck bearing a face value equal to the value of the metal content. Debasement of the coinage occurred when the face value of their metal content went down as opposed to their denominated worth. The holders of the correctly valued coinage became unwilling to exchange for the debased coinage because they would obtain less metal in exchange than if they bought direct. The result was that the 'good', undebased coinage did not circulate. The process is referred to as Gresham's law.

Bank Rate: The interest rate at which the Central Bank of a country (Reserve Bank of India in case of India) lends to the banking system through rediscounting eligible bills of exchange and other commercial papers. Short-term interest rates are geared to the bank rate through the banking system.

Bad Delivery: The delivery of a share relating to the transaction is considered "BAD" when there are some defects in the share certificate or the transfer deed. SEBI has formulated uniform guidelines for good and bad delivery of documents. The bad delivery may pertain to the transfer deed being torn, mutilate, overwritten, defaced, etc.

Book Value: The book value of a stock is determined from a Company's records, by adding all assets then deducting all debts and other liabilities plus the liquidation price of any preferred issue. The sum is divided by the number of common shares. Book value of the assets of a company or a share security may have little or no significant relationship to market value.

Bonus: A free allotment of shares made in proportion to existing shares out of accumulated reserves. A bonus share does not constitute additional wealth to the shareholders. It merely signifies recapitalisation of reserves into equity capital. However, the expectation of bonus shares has a bullish impact on market sentiment and causes share prices to go up.

Balance of Payments: A tabulation of the credit and debit transactions of a country with foreign countries and international institutions during a specific period. Transactions are divided into two broad groups - current account and capital account. The current account is made up of trade in goods (so-called visible trade) and in services and the profits and interest earned from overseas assets, net of those paid abroad (invisible trade). It is the current account that is generally referred to in the discussion on the balance of payments. The capital account is made up of such items as the inward and outward flow of money for investment and international grants and loans.

Balanced Budget: A situation wherein the government's planned expenditure equals its expected income. In public finance, it is a situation where current income from taxation and other receipts of central government are sufficient to meet payments for goods and services, transfer payments and debt interest. The Indian budget is often in deficit on both current account and capital account and these deficits are financed by net borrowing and changes in the money supply. The importance of the budget balance and how it is financed is that it may affect levels of demand and prices in the economy.

Banker's Draft: A cheque drawn by a bank as opposed to a bank's customer. Banker's drafts are drawn at the customer's request and that customer's account is debited. They are regarded as cash, since they cannot be returned unpaid and are used when a creditor is not willing to accept a personal cheque in payment.

Bear: A speculator who sells stocks or shares that he may or may not possess because he fears a fall in prices and, therefore, that he will be able to buy them (back) later on at a profit; the antonym of bull. A bear who sells securities that he does not possess is described as having 'sold short'. If he does possess the securities he sells, he is described as a 'covered' or 'protected' bear. A 'bear market' is one in which prices are falling.

Bill of Exchange: A term used in international trade by which the drawer makes an unconditional undertaking to pay to the drawee a sum of money at a given date, usually three months ahead. In principle a bill of exchange is similar to a post-dated cheque, and it can be endorsed for payment to the bearer or any named person other than the drawee. A bill of exchange has to be 'accepted' (endorsed) by the drawee before it becomes negotiable. This function is normally performed by an accepting house, but bills may also be accepted by a bank (it is then known as a bank bill) or by a trader (trade bill). Once accepted, the drawee does not have to wait for the bill to mature before getting his money; he can sell it on the money market for a small discount.

Bad Debt: An accounting term for money owed that is unlikely to be paid because, for example, a customer has become insolvent. Such bad debts are written off against the profits of the trading period as a business cost.

Balance of Trade: A statement of a country's trade in goods (visible) with the rest of the world over a particular period of time. The term specifically excludes trade in services (invisibles) and concentrates on the foreign currency earnings and payments associated with trade in finished manufactures, intermediate products and raw materials, which can be seen and recorded by a country's customs authorities as they cross national boundaries.

Balance Sheet: An accounting statement of a firm's assets and liabilities on the last day of a trading period. The balance sheet shows the assets owned by the firm and sets against these the balancing obligations or claims of those groups of people who provided the funds to acquire the assets. Assets take the form of Fixed Assets and Current Assets, while obligations take the form of Shareholders' Capital Employed, Long-Term Loans and Current Liabilities.

Bearer Bonds: Financial securities that are not registered in the name of a particular holder but where possession serves as proof of ownership. Such securities are popular in the American financial system but fairly rare in India, where the names of shareholders are recorded in a company's share register.

Benchmarking: The process of measuring a firm's performance and comparing this measured performance with that of other firms. Benchmarking can help a firm discover where its performance is deficient and can suggest means of improving competitive performance.

Bill of Exchange: A financial security representing an amount of credit extended by one business to another for a short period of time (usually three months). The lender draws up a bill of exchange for a specified sum of money payable at a given future date and the borrower signifies his agreement to pay the amount indicated by signing (accepting) the bill. Most bills are 'discounted' (i.e. bought from the drawer) by the Discount Market for an amount less than the face value of the bill (the difference between the two constitutes the interest charged).

Birth Rate: The number of people born in a population per thousand per year. The difference between this rate and the death rate is used to calculate the rate of growth of the population over time.

Bond: A financial security issued by businesses and by the government as a means of borrowing long-term funds. Bonds are typically issued for periods of several years; they are repayable on maturity and bear a fixed interest rate.

Break Even: The rate of output and sales at which a supplier generates just enough revenue to cover his fixed and variable costs, earning neither a profit nor a loss. If the selling price of a product exceeds its unit Variable Cost, then each unit of product sold will earn a contribution towards Fixed Costs and Profits. Once sufficient units are being sold so that their total contributions cover the supplier's fixed costs, then the company breaks even. If less than the break-even sales volume is achieved, then total contributions will cover the fixed costs and leave a surplus that constitutes profit.

Buffer Stock: A commodity (copper, wheat, etc.) held by a trade body or government to regulate its price. An official price of that commodity is established, and if the open market price falls below this because there is excess supply at the fixed price, than the authorities will buy the surplus and add it to the buffer stock to force the price back up. By contrast, if there is an excess demand at the fixed price, then the authorities will sell some of their buffer stock to bring the price down. Thus, the price of the commodity can be stabilized over time, avoiding erratic, short-term fluctuations in price.

Buyer's Market: A short-run market situation wherein there is excess supply of goods or services at current prices, which brings price down to the advantage of the buyer.

Blue Chip: A first class equity share, which (the hope is), carries little risk of sharp declines in earning in economic recessions. In India, HLL, Infosys and Ranbaxy equities, for example, are commonly regarded as blue chips.

Bond: A fixed-interest security issued by central or local governments, companies, banks or other institutions. Bonds are usually a long-term security but do not always carry fixed interest and may be irredeemable and may be secured/ unsecured. There is no specific stock exchange for these bonds. The term bond has also been given to types of non-fixed-interest security, such as property bonds, which provide the holder with a yield of funds invested in property, or 'managed bonds', in which the bond includes debentures.

Bretton Woods: An international conference held at Bretton Woods, USA, in July 1944 to discuss alternative proposals relating to post-war governments. The agreement resulting from this conference led to the establishment of the International Monetary Fund and the International Bank For Reconstruction and Development (The World Bank), which are also known as the Brettonwoods Sisters.

Budget: An estimate of income and expenditure for a future period as a opposed to an account, which records financial transactions. Budgets are an essential element in the planning and control of the financial affairs of a nation and of business, and are made necessary essentially because income and expenditure do not occur simultaneously.

Capital Adequacy: A requirement on financial intermediaries to maintain a minimum proportion of liquid assets. Various bodies impose minimum capital requirements upon banks, investment banks and investment trusts. For banks these requirements may be used to control monetary aggregates but increasingly they are aimed at preventing failure and instability in the financial system (prudential norms).

Capital Formation: Net investments in fixed assets, i.e., additions to the stock of real capital. Gross fixed capital formation includes depreciation where as net capital formation excludes it.

Current Account: Current account is that portion of balance of payments, which portrays the market value of a country's visible (e.g. commodity trade) and invisible (e.g. shopping services) exports and imports with the rest of the world.

Current Account Balance: Current Account Balance is the difference between (a) exports of goods and services plus inflows of unrequired official and private transfers, and (b) imports of goods and services plus unrequired transfers to the rest of the world included in this figure and all interest payment on external public and publicly guaranteed debt.

Capital Gains: A realized increase in the value of a capital asset, as when a share is sold for more than the price at which it was purchased. Strictly speaking, the term refers to capital appreciation outside the normal courses of business. In India capital gains are subject to Capital Gains Tax (CGT). The tax does not cover gains arising from the sale of personal belongings, including cars or principal dwelling houses, but it does cover gains from the sale of stock exchange securities.

Capital Market: The market for long-term funds as distinct from the money market, which deals in short-term funds. There is no clear-cut distinction between the two markets, although in principle capital-market loans are used by industry and commerce mainly for fixed investment. The capital market is an increasingly international one and in any country is not one institution but all those institutions that match the supply and demand for long-term capital and claims on capital, e.g. the stock exchange, banks and insurance companies. The capital market is not concerned solely with the issue of new claims of capital (the primary or secondary market). The marketability of securities is an important element in the efficient working of the capital market, since investors would be much more reluctant to make loans to industry if their claims could not easily be disposed of.

Capitalism: A socio-economic system in which individuals are free to own the means of production and maximize profits and in which resource allocation is determined by the price system. Marx argued that capitalism would be overthrown because it inevitably led to the exploitation of labour.

Cartel: An association of producers to regulate prices by restricting output and competition. They tend to be unstable because a single member can profit by undercutting the other, while price-fixing stimulates the development of substitutes. The most prominent example of an international cartel (oligopoly) is the Organization of Petroleum Exporting Countries (OPEC). In India, cement manufacturing, steel and iron manufacturing can be cited as examples of cartels or oligopolies.

Central Bank: A banker's bank and lender of last resort e.g. RBI. All developed and most developing countries have a central bank responsible for exercising control on the credit system, sometimes under instruction from government and, increasingly often, under its own authority. Central banks typically execute policy through their lead role in setting short-term interest rates, which they control by establishing the rate at which loans of last resort will be made. Some central banks also use other devices to control money supply, such as special deposits. With monetary policy plays an important part in determining aggregate demand, the stability of the business cycle and the rate of inflation, central banks have found themselves in an increasingly central role in economic management.

Closed Economy: An economic system with little or no external trade, as opposed to an open one, in which a high proportion of output is absorbed by exports and similarly domestic expenditure by imports.

Closing Prices: Price of a commodity e.g. securities on the stock exchange, at the end of a day's trading in a market.

Commodity Exchange: A market in which commodities are bought and sold. It is not necessary for the commodities to be physically exchanged, only rights to ownership need to be exchanged.

Capital: The contribution to productive activity made by investment in physical capital (for example, factories, offices, machinery, tools) and in human capital (for example, general education, vocational training). Capital is one of the three main factors of production, the other two being labour and natural resources. Physical (and human) capital make a significant contribution towards economic growth.

Capital Account: The section of the National Income Accounts that records investment expenditure by government on infrastructure such as roads, hospitals and schools; and investment expenditure by the private sector on plant and machinery.

Capital Goods: The long-lasting durable goods, such as machine tools and furnaces, that are used as factor inputs in the production of other products, as opposed to being sold directly to consumers.

Capital-Intensive Firm/Industry: A firm or industry that produces its output of goods or services using proportionately large inputs of capital equipment and relatively small amounts of labour. The proportions of capital and labour that a firm uses in production depend mainly on the relative prices of labour and capital inputs and their relative productivities. This in turn depends upon the degree of standardization of the product. Where standardized products are sold in large quantities, it is possible to employ large-scale capital-intensive production methods that the facilitate economies of scale. Aluminium smelting, oil refining and steel works are examples of capital-intensive industries.

Capital-Output Ratio: An index of how much additional capital is required to produce each extra unit of Output, or the extra output produced by each unit of added capital. The capital output ratio indicates how efficient new investment is in contributing to Economic Growth. Assuming, for example, a 4:1 capital-output ratio, each four units of extra investment enables national output to grow by one unit. If the capital-output ratio is 2:1, however, then each two units of extra investment expand national income by one unit. Consequently, the lesser the ratio, the better the economic efficiency.

Cash Reserve Ratio: The proportion of a commercial bank's total assets that it keeps in the form of highly liquid assets to meet day-to-day currency withdrawals by its customers and other financial commitments. Deposited with the RBI by every commercial bank, this ratio is subject to periodic changes as per conditions prevailing in the money market. Of late, the ratio is being continuously brought down so as to create more lendable funds with the commercial banks. The CRR is a method of general credit control in the economy, used to tighten or ease the conditions of money supply in the economy.

Cheap Money: A government policy whereby the Central Bank is authorized to purchase government bonds in the open market to facilitate an increase in the money supply.

Cheque: A means of transferring or withdrawing money from a Bank's current or savings account. In this case, the drawer of a cheque gives a written instruction to his bank to transfer funds to some other person's or company's bank. In the latter case money may be withdrawn in cash by a person or company writing out a cheque payable to themselves. Cheques may be open, in which case they may be used to draw cash, or 'crossed' with two parallel lines, in which case they cannot be presented for cash but must be paid into an account.

Clearing House System: A centralized mechanism for settling indebtedness between financial institutions involved in money transmission and dealers in commodities and financial securities. For example, in the case of Indian commercial banking, when a customer of bank A draws a cheque in favour of a customer of bank B, and the second customer pays in the cheque to bank B, then bank A is indebted to bank B for the amount of that cheque. There will be many thousands of similar transactions going on
day by day, creating indebtedness between all banks. The Clearing House brings together all these cheque, cross-cancels them and determines at the end of each day any net indebtedness between the banks which is then settled by transferring balances held by the Commercial Banks at the local clearing house.

Collateral Security: The assets pledged by a borrower as security for a loan, e.g., the title deed of a house. If the borrower defaults, the lender can claim these assets in lieu of the sum owed.

Communism: A political and economic doctrine which advocates that the state should own all property and organize all the functions of production and exchange, including labour. Karl Marx succinctly stated his idea of communism as 'from each according to his ability, to each according to his needs'. Communism involves a centrally planned economy where strategic decisions concerning production and distribution are taken by government as opposed to being determined by the price system, as in a market-based private enterprise economy. China still organizes its economy along communist lines, but in recent years Russia and other former Soviet Union countries and various East European countries have moved away from communism to more market-based economies.

Consumer Durables: Consumer Goods, such as houses, cars, televisions, that are 'consumed' over relatively long periods of time rather than immediately.

Convertibility: The extent to which one foreign currency can be exchanged for some other foreign currency. International trade and investment opportunities are maximized when the currencies used to finance them are fully convertible, i.e. free of foreign exchange control restrictions.

Core Business: The particular products supplied by a firm, which constitute the heart of its business. These are generally products in which the firm has a competitive advantage.

Core Competence: A key resource, processor system of a firm, which lets it gain a competitive advantage over rivals.

Corporate Tax: A direct tax by the government on the profits of businesses. The rate of corporate tax charged is important to a firm as it determines the amount of after-tax profit it has available to pay dividends or to reinvest.

Cost Benefit Analysis: A technique for enumerating and evaluating the total social costs and total social benefits associated with an economic project. Cost benefit analysis is generally used by public agencies when evaluating large-scale public Investment projects, such as major new motorways or rail lines, in order to assess the welfare or net social benefits that will accrue to the nation from these projects. This generally involves the sponsoring bodies taking a broader and longer-term view of a project than would a commercial organization concentrating on project profitability alone.

Cost of Capital: The payment made by a firm for using long-term capital used in business. The average cost of capital to a firm that uses several sources of long-term funds (loans, share capital) to finance its investments will depend upon the individual cost of each separate source (for example, interest on loans) weighted in accordance with the proportions of each source used.

Credit Card: A plastic card or token used to finance the purchase of products by gaining point-of-sale credit. Credit cards are issued by commercial banks, hotel chains and larger retailers.

Cross-Subsidization: The practice of offering internal subsidies to certain products within the firm financed from the profits made by other products. Cross-subsidization is often used by diversified and vertically integrated firms to finance new product development; diversification into new areas; or to facilitate price cuts to match intense competition in certain markets.

Current Assets: Assets, such as stocks, money owed by debtors, and cash, that are held for short-term conversion within a firm as raw materials are bought, made up, sold as finished goods and eventually paid for.

Current Liabilities: All obligations to pay out cash at some date in the near future, including amounts that a firm owes to trade creditors and bank loans/overdrafts.

Customs Duty: A tax levied on imported products. Unlike tariffs, customs duties are used primarily as a means of raising revenue for the government rather than as a means of protecting domestic producers from foreign competition.

Complementary Goods: Pairs of goods for which consumption is interdependent, for example cars and petrol or cups and saucers, are known as complementary goods and changes in the demand for one will have a complementary effect upon the demand for the other. Complements have a negative cross-price elasticity of demand: if the price of one rises, the demand for both may fall.

Consumer Good: An economic good purchased by households for final consumption. Consumer goods include, e.g., chocolate or draught beer consumed immediately as well as durable goods which, yield services over a period of time, for example a washing machine. It is the use to which it is put which determines whether a good is a consumer good, not the characteristics of the good itself. Electricity or a computer, bought for the home is a consumer good, but the same thing bought for a factory is a producer good.

Cost-Push Inflation: Inflation induced by a rise in the production cost. Such cost increases may arise abroad and be transmitted through higher prices of imported raw material. The rapid escalation in oil prices in the 1970s accelerated price inflation in the period, although the rate of inflation had begun to rise before this. Cost increases may also arise within the domestic economy from firms attempting to increase profits and/or employees to increase their earnings. Success in achieving increases depends on their degree of market dominance and, therefore, bargaining power. Any money gains greater than productivity will tend to result in price increases.

Countervailing Duty: An additional import duty imposed on a commodity to offset a reduction of its price as a result of an export subsidy in the country of origin.

Cross Subsidy: Financing a loss-making line of business with profits made elsewhere. This may be motivated by private business concerns (to help establish new lines of business, for example), or by public policy concern (the provision of rural bus routes at the expense of urban ones).

Deficit Expenditure: The amount by which Government expenditure exceeds the tax collections.

Devaluation: Devaluation is the lowering of the official exchange rate between one country's currency and those of the rest of the world.

Dividend: That part of a company's profit, which Directors decide to distribute to the shareholders. It is generally expressed as a percentage of the nominal value of the capital to which it relates.

Development Banks: Development Banks are specialised public and private financial intermediaries providing medium and long-term credit for development project e.g. IDBI, IFCI etc.

Development Plan: Development Plan is the documentation by a government planning agency of the current national economic conditions, proposed public expenditures, likely development in the private sector, a macroeconomic projection of the economy and a review of Government policies. Many governments publish five year development plans to announce their economic objectives to their citizens and others.

Debt Servicing Ratio: Debt Services Ratio of interest and principal payment due in a year to export receipts for the year.

Deficit Financing: The use of borrowing to finance an excess of expenditure over income. Most often, it refers to governments, who often spend more than they can raise in taxation. The term is normally used in economics to refer to a planned budget deficit incurred in the interests of expanding aggregate demand by relaxing fiscal policy and thus injecting purchasing power into the economy, a policy advocated by Keynes to increase employment in the 1930s.

Deflation: A sustained reduction in the general price levels. Deflation is often accompanied by declines in output and employment and is distinct from 'disinflation', which refers to a reduction in the rate of inflation. Deflation can be brought about by either internal or external forces in an open economy.

Deflation: A deliberate policy of reducing aggregate demand and output to reduce inflation rate and the quantity of imports and lower the exchange rates, thus improving export performance and the BoP. Aggregate demand may be reduced by fiscal policy (increasing taxes or reducing government expenditure) or money supply.

Demand: The desire and willingness to buy a particular good or service supported by the necessary money to buy it.

Demand-Pull Inflation: Inflation produced by a persisting excess of aggregate demand over aggregate supply. The excess demand probably persists because there is a growth in the quantity of money either through the creation of money by government to finance the budgetary gap between its expenditure and income or because the quantity of money is allowed to expand to accommodate the rise in prices.

Diminishing Marginal Utility: The psychological law that as extra units of a commodity are consumed by an individual, the satisfaction from each unit will fall. For example, although for every extra Cadbury's bar someone eats he derives extra pleasure, the more Cadbury's that are eaten, the less the pleasure gained from each incremental one. Eventually, as sickness strikes, subsequently consumed Cadbury's bars will yield disutility.

Diminishing Returns, Law of: As extra units of one factor of production are employed, with all others constant, the output from each additional unit will eventually fall. In effect, the marginal product of factors declines when they are employed in increasing quantities. For example, a farm owner with one field might find that one man could produce two tons of grain, two men five tons of grain-more than twice as much, but three men only seven tons of grain. The extra production gained from adding a worker started at two, rose to three, then fell back to two.

Direct Investment: Investment in the foreign operations of a company through acquisition of a foreign operation, or establishment of a new ('greenfield') site. It is often referred to as Foreign Direct Investment (FDI). Direct investment implies control of managerial and perhaps technical input and is generally preferred by the host country to portfolio investment. This investment has been a major source of finance for the developing countries at a time when foreign aid has fallen.

Disguised Unemployment: A situation in which more people are available for work than is shown in the unemployment statistics. Married women, some students or prematurely retired persons may register for work only if they believe opportunities are available to them.

Disinvestment: Negative investment, which occurs where part of the capital stock is diluted by selling it off to the general public/ private companies. India has embarked upon a massive disinvestment exercise in its PSUs and of late, there appears to be a ring of sincerity to the government's efforts to get rid of unprofitable PSUs and focus more on economic facilitation functions.

Diversification: Extending the range of goods and services in a firm or geographic region. The motives will include declining profitability or growth in traditional markets, surplus capital or management resources and a desire to spread risks and reduce dependency upon cyclical activities. Diversification has accounted for a significant proportion of the growth of multinational corporations, though more recently competitive pressures have encouraged large corporations to return to core businesses. This process has been called downsizing or divestment.

Diversification: The holding of stocks in a range of firms in a portfolio to spread the risk.

Dividend: The company profits distributed to ordinary shareholders. It is usually expressed either as a percentage of the normal value of the ordinary share, or as an absolute amount per share. A dividend is only the same as a yield if the shares stand at their nominal value. Some shareholders may not have bought their shares at par value and might have paid more for them.

Debt Servicing: The cost of meeting interest payments and principal payments on a loan along with any administration charges.

Demographic Transition: A population cycle that is associated with the economic development of a country. In underdeveloped countries (i.e. subsistence agrarian economies), birth rates and death rates are both high, so there is very little change in the overall population. With economic development (i.e. Industrialization), Income Per Head begins to rise and there is a fall in the death rate (through better nutrition, sanitation, medical care, etc.), which brings about a period of rapid population growth.

Depression: A business phase with a severe decline in economic activity (Actual Gross National Product). Real output and Investment are at very low levels and there is a high rate caused mainly by a fall in aggregate demand and can be reversed provided the authorities apply expansionary fiscal policy and monetary policy.

Deregulation: The removal of controls over economic activity that have been imposed by the government. It may be initiated either because the controls are no longer seen as necessary or because they are overly restrictive, preventing companies from taking advantage of business opportunities.

Devaluation: An administrated reduction in the exchange rate of a currency against other currencies under a Fixed Exchange - Rate System.

Developed Country: An economically advanced country whose economy is characterized by large
industrial and service sectors, high levels of gross national product and Income Per Head.

Direct Tax: A tax levied by the government on the income and wealth received by individuals and business to raise revenue. Examples of direct taxes in India are Income Tax, Corporate Tax and Wealth Tax. Direct taxes are incurred on income received, unlike indirect taxes such as value-added taxes, which are incurred when income is spent. Direct taxes are progressive, insofar as the amount paid varies according to the income and wealth of the taxpayer. By contrast, Indirect Tax is regressive, insofar as the same amount is paid by each tax-paying consumer regardless of his income.

Dow-Jones Index: A US share price index that monitors and records the share price movements of all companies listed on the New York Stock Exchange, with the exception of high-tech companies listed separately on the NASDAQ stock exchange.

Dumping: The export of a good at a price below that in the domestic market. Dumping may occur as a short-term response to a domestic recession (i.e. surplus output is sold abroad at a cut-price simply to off-load it) or as a longer-term strategic means of penetrating export markets (once a foothold has been gained, prices would then be increased to generate profits). Either way, dumping is viewed as 'unfair' trade and is outlawed by the trade rules of the World Trade organization. Many countries, including our own, impose anti-dumping duties on such unfair exports to make them costlier, so as to protect their own domestic industry.

Downsizing: Large-scale shedding of employees by major corporations, sometimes also used to refer to the disposal of subsidiaries and other unwanted activities. Downsizing is generally a response to reduce costs and may in some cases be a delayed reaction to technological change which allows output to be maintained with fewer employees. In a dynamic and changing economy some firms will be reducing and other gaining employment, but redundancies by large firms attract more attention than widespread employment gains among smaller firms.

Duopoly: Two sellers only of a good or service in a market. A feature of this situation is that any decision by one seller, such as the raising or lowering of his price, will stimulate a response from the other which, in turn, will affect the market response to the first seller's initial responses, price equilibrium may exist at any point between that of a monopolist and that of perfect competition.

Economies of Scale: Factors which cause the average cost of producing a commodity to fall as output of the commodity rises. For instance, a firm if it doubled its output, would enjoy economies of scale.

Emerging Markets: I. Markets in securities in newly industrialized countries and in countries in Central and Eastern Europe and elsewhere, in transition from planned economies to free-market economies and in developing countries with capital markets at an early stage of development.

Equity Shares: It is also known as ordinary shares. It is a part of the Share Capital of the Company. Shares having a claim to participate in the whole range of annual profits remaining with the Company after it has satisfied all charges and met any fixed preferential dividends and having a right to participate in surplus assets in winding up.

Engel's Law: A law that with given tastes or preferences, the proportion of income spent on food diminishes as incomes increases.

Employee Stock Option Plan (ESOP): A scheme whereby employees acquire shares in the company in which they are employed. Employees can, of course, purchase shares in their company from the open market or companies can simply choose to donate shares to them. However, in recent years many companies have set up employee stock option plans that formally transfer the company's shares to employees.

Expenditure Tax: A form of indirect tax that is included into the selling price of a product and is paid by the consumer. In raising revenue and in applying Fiscal Policy, governments have two broad choices; the use of taxes on expenditure and those on income. Taxes on income, such as Income Tax, deduct tax at source, whereas taxes on expenditure are levied at the point of sale. Direct taxes tend to be Progressive Taxes in so far as the amount of tax paid is related to a person's income, whereas expenditure taxes are regressive taxes in so far as consumers pay tax in proportion to their spending regardless of income.

Export-Led Growth: An expansion of the economy with exports serving as a leading sector. Rising exports inject additional income into the domestic economy and increase total demand for domestic output. Equally importantly, the increase in exports enables a higher level of import absorption to be accommodated so that there is no balance of payments constraint on the achievement of sustained economic growth.

Entrepreneur: An economic agent who perceives market opportunities and assembles the factors of production to exploit them in a firm. The essence of the entrepreneur, therefore, is that he is alert to gaps in the market, and is able to raise resources to exploit the market. If successful he will make a super-normal profit that will later reduce to normal profits as new competitors are attracted into the market. In this conception, the pure function of the entrepreneur is as fourth factor of production.

Face Value: The price at which a share will be redeemed, which might for a silver or gold coin, be less than its market value.

Factor Cost: The value of goods and services produced, measured in terms of the cost of the inputs (materials, labour etc) used to produce them, but excluding any indirect taxes/ subsidies. For example, a product costing Rs.10 to produce and with a Rs.1 indirect tax levied on it would have a market price of Rs.11 and a factor cost of Rs.10.

Fiscal Drag: The effect of inflation upon effective tax rates, or sometimes, the effect of growth in income tax systems, increases in earnings may push taxpayers into high tax brackets. With the decline in inflation rates, the term fiscal drag has loosely been used to refer to the fact that even in an indexed tax system if earnings grow more quickly than prices (and indeed, they typically do), then the government again ends up with extra revenues without having to raise tax rates in explicit policy changes.

Floating Exchange-Rate System: A mechanism for coordinating Exchange Rates between countries' currencies that involves the value of each country's currency in terms of other currencies being determined by the forces of demand and supply. Over time, the exchange rate of a particular currency may rise or fall depending, respectively, on the strength or weakness of the country's underlying Balance of Payments position and exposure to speculative activity.

Foreign Direct Investment (FDI): Investment by a multinational company in establishing production, distribution or marketing facilities abroad. Sometimes foreign direct investment takes the form of greenfield investment, with new factories, warehouses or offices being constructed overseas and new staff recruited. Alternatively, foreign direct investment can take the form of takeovers and mergers with other companies located abroad. Foreign direct investment differs from overseas portfolio investment by financial institutions, which generally involves the purchase of small shareholding in a large number of foreign companies.

Free Trade: The international trade that takes place without barriers, such as tariffs, quotas and foreign exchange controls, being placed on the free movement of goods and services between countries. The aim of free trade is to secure the benefits of international specialization. Free trade as a policy objective of the international community has been fostered both generally by the World Trade Organization and on a more limited regional basis by the established of various Free Trade Areas, Custom Unions and Common Markets.

Futures Market or Forward Exchange Market: A market that provides for the buying and selling of commodities (rubber, tin, etc.) and foreign currencies for delivery at some future point in time, as opposed to a spot market, which provides for immediate delivery. Forward positions are taken by traders in a particular financial asset or commodity whose price can fluctuate greatly over time, in order to minimize the risk and uncertainty surrounding their business dealings in the immediate future (i.e. 'hedge' against adverse price movements), and by dealers and speculators hoping to earn windfall profits from correctly anticipating price movements.

Fiscal Policy: The budgetary stance of central government. Higher tax rates of reductions in public expenditure will tighten fiscal policy. There is considerable controversy about the appropriate weight of fiscal policy in economic management, relative to monetary policy. Most economists believe that the policy should primarily be directed towards maintaining a prudent level of borrowing, preferably according to certain rules.

Floating Capital: Capital which is not invested in fixed assets, such as machinery but in work in progress, wages paid etc. Synonymous with working capital.

Free-Market Economy: Strictly, an economic system in which the allocation of resources is determined solely by supply and demand in free markets, though there are some limitations on market freedom in all countries. Moreover, in some countries, governments intervene in free markets to promote competition that might otherwise disappear. Usually used synonymously with capitalism.

Free-Trade Zone: A customs-defined area in which goods or services may be processed or transacted without attracting taxes or duties or being subjected to certain government regulations. A special case is the freeport, into which goods are imported free of customs tariffs or taxes.

Frictional Unemployment: Frictional unemployment arises because of time lags in the functioning of labour markets which are inevitable in a free-market economy; there are search delays involved, for example in moving from one job to another. Frictional unemployment is conceptually distinct from structural unemployment, which results in heavy local concentration of unemployment, and of course, from unemployment arising from a deficiency of demand.

Futures: Contracts made in a 'future market' for the purchase or sale of commodities or financial assets, on a specified future date. Futures are negotiable instruments, that is they may be bought and sold. Many commodity exchanges e.g. wool, cotton and wheat, have established futures markets which permit manufacturers and traders to hedge against changes in price of the raw materials they use or deal in.

Gilt-Edged Securities: Fixed interest government securities traded on the stock exchange. They are called gilt-edged because it is certain that interest will be paid and that they will be redeemed (where appropriate) on the due date.

Gross Domestic Product (GDP): A measure of the total flow of goods and services produced by the economy over a specified time period, normally a year or a quarter. It is obtained by valuing outputs of goods and services at market prices, and then aggregating. Note that all intermediate goods are excluded, and only goods used for final consumption or investment goods or changes in stocks are included. The word 'gross' means that no deduction for the value of expenditure on capital goods for replacement purposes is made.

Gross National Product (GNP): Gross Domestic Product plus the income from investment abroad minus income earned in the domestic market going to foreigners abroad.

Giffen Goods: A good for which quantity demanded increases as its price increases, rather than falls, as predicted by the general theory of demand. It applies only in the highly exceptional case of a good that accounts for such a high proportion of household budgets that an increase in price produces a large negative income effect, which completely overcomes the normal substitution effect.

Globalization: The tendency for markets to become global, rather than national, as barriers to international trade (e.g. tariffs) are reduced and international transport and communications improve; and the tendency for large multinational companies to grow to service global markets.

Great Depression: The Depression that was experienced by many countries in the decade 1929-39. The Great Depression was associated with very high unemployment levels and low production and investment levels in the US and Europe, and with falling levels of international trade.

Greenfield Investment: The establishment of a new manufacturing plant, workshop, office, etc., by a firm.

Greenfield Location: A geographical area, usually unused or agricultural land (i.e. greenfield), developed to accommodate new industries.

Gresham's Law: The economic hypothesis that 'bad' money forces 'good' money out of circulation. The principle applies only to economies whose domestic money system is based upon metal coinage that embodies a proportion of intrinsically valuable metals such as silver and gold. Where governments issue new coins embodying a lower proportion of valuable metals, people are tempted to hoard the older coins for the commodity value of their metal content so that the 'good' money ceases to circulate as currency.

Hard Currency: A currency traded in a foreign-exchange market for which demand is persistently high relative to the supply e.g. the US dollar in the Indian context.

Hedge: Action taken by a buyer or seller to protect his business or assets against a change in prices. A flour miller who has a contract to supply flour at a fixed price in two months' time can hedge against the possibility of a rise in the price of wheat in two months' time by buying the necessary wheat now and selling a two months' future in wheat for the same quantity. If the price of wheat should fall, then the loss he will have sustained by buying it now will be offset by the gain he can make by buying in the wheat at the future price and supplying the futures contract at higher than this price, and vice versa.

Inflation: Persistent increase in the general level of prices. It can be seen as a devaluing of the worth of money.

Import Substitution: A strategy aimed at reducing imports to encourage domestic substitutes. Import substitution is pursued in particular by developing countries as a means of promoting domestic industrialization and conserving scarce foreign currency resources.

Indicative Planning: A method of controlling the economy that involves the setting of long-term objectives and the mapping out of programmes of action designed to fulfill these objectives. Unlike a centrally planned economy, indicative planning works through the market rather than replaces it. To this end, the planning process specifically brings together both sides of industry (the trade unions and management) and the government.

Indirect Tax: A tax levied by the government that forms part of the purchase price of goods and services. Examples of indirect taxes are Value Added Tax, Excise Duty, and Sales Tax. Indirect taxes are referred to as 'expenditure' taxes since they are incurred when income is spent, unlike Direct Taxes, such as Income Tax, which are incurred when 'income' is received.

Intangible Assets: Non-physical assets such as goodwill, patents and trade marks which have a money value.

Intellectual Property Rights: The legal ownership by a person or business of a Copyright, Design, Patent, and Trade Mark attached to a particular product or process which protects the owner against unauthorized copying or imitation.

International Monetary Fund (IMF): Multination institution set up in 1947 (following the Bretton Woods Conference, 1944) to supervise the operation of a new international monetary regime. The IMF is based in Washington DC and currently has a membership of 181 countries. The Fund seeks to maintain cooperative and orderly currency arrangements between member countries with the aim of promoting increased International Trade and Balance of Payments Equilibrium.

Infrastructure: That particular sector of the economy which is essential to, but does not contribute anything directly to the process of economic growth e.g. roads, airports, sewage and water systems, railways, the telephone and other public utilities. Also called social overhead capital, infrastructure is basic to economic development and improvements as it can be used to help attract industry to a disadvantaged area.

Inter-Bank Market: The money market in which banks borrow or lend among themselve for fixed periods either to accommodate short-term liquidity problems or for lending on. The interest rate at which funds on loan are offered to first-class banks is called the inter-bank offered rate (IBOR) or, in London, the London Inter-Bank Offered Rate (LIBOR).

Joint Venture: A business arrangement in which two companies invest in a project over which both have partial control. It is a common way for companies to collaborate - especially on risky high-technology ventures - without engaging in full-scale merger.

Joint Stock Company: A company in which a number of people contribute funds to finance a Firm in return for Shares in the company. Joint-stock companies are able to raise funds by issuing shares to large numbers of Shareholders and thus are able to raise more capital to finance their operations than could a sole proprietor or even a partnership. The directors must report to the shareholders at an Annual General Meeting where shareholders can, in principle, vote to remove existing directors if they are dissatisfied with their performance.

Laissez-Faire: The principle of the non-intervention of government in economic affairs. This idea was introduced by Adam Smith in his classic Wealth of Nations.

Labour Intensive Firm/Industry: A firm that produces its output of goods or services using proportionately large inputs of labour and relatively small amounts of capital. Clothing manufacture, plumbing and hairdressing are examples of labour-intensive industries.

Limited Liability: A liability that limits the maximum loss that a shareholder is liable for in the event of company failure to share capital that he or she originally subscribed.

Listed Securities: It means the shares of the Company listed with one or more Stock Exchange for trading after complying with the listing requirements.

Listed Company: A Public Limited Company, which satisfies certain listing conditions and signs a listing agreement with Stock Exchange for trading in its securities.

Merger or Amalgamation: The combining together of two or more firms. Unlike a takeover, which involves one firm mounting a 'hostile' takeover bid for the other firm without the agreement of the victim firm's management, a merger is usually concluded by mutual agreement.

Money Supply: The amount of money in circulation in an economy. Money supply can be specified in a variety of ways and the total value of money in circulation depends the definition of money supply. Narrow definitions of money supply include only assets withpossessing ready liquidity. 'Broad' definitions include other assets, which are less liquid but are important in underpinning spending. The size of the money supply is an important determinant of the level of spending in the economy and its control is a particular concern of monetary policy.

Moratorium: A temporary ban on repayment of debt or interest, for a specified time. For example, the freezing of debt repayment extended by advanced country governments and private banks to a developing country that is experiencing acute balance of payments difficulties.

Most-Favoured Nation: An underlying principle of the World Trade Organization (WTO) whereby each country undertakes to apply the same rate of Tariff to all its trade partners. This general principle of non-discrimination evolved out of earlier WTO endorsement of bilateral trade treaties, whereby if country A negotiated a tariff cut with country B, and subsequently country B negotiated an even more favourable tariff cut with country C, then the tariff rate applying in the second case would also be extended to A.



Multilateral Trade: International trade among all countries engaged in the export and import of goods or services.

Merit Goods: A commodity the consumption of which is regarded as socially desirable irrespective of consumers' preference. Governments are readily prepared to suspend consumers' sovereignty by subsidizing the provision of certain goods and services, for example education.

NASDAQ (National Association of Security Dealers' Automated Quotation): The exchange in New York that specializes in high-tech companies such as Microsoft, Dell and Amazon. The NASDAQ share price index monitors and records the share price movements of the companies listed in the exchange.

No-Delivery Period: Whenever a book closure or a record date is announced by a Company, the Exchange sets up a No-Delivery period for that security. During this period trading is permitted in that security. However, the trades are settled only after the no-delivery period is over. This is done to ensure that investor's entitlement for the corporate benefit is clearly determined.

Opportunity Cost: The value of that which must be given up to acquire or achieve something. Economists attempt to take a comprehensive view of the cost of an activity.

Ordinary Shares or Equity: A stock issued to those individuals and institutions providing long-term finance for companies. Ordinary shareholders are entitled to any net profits made by their company after all expenses, in the form of dividends. In the event of the company being wound up, they are entitled to any remaining assets of the business after all debts and the claims of preference shareholders have been discharged. They can vote at company Annual General Meetings

Outsourcing: The buying of components, finished products and services from outside the firm rather than self-supply from within the firm. It may be cost-effective sometimes to use outside suppliers or because outside suppliers are more technically competent or can supply a greater range of items. On the debit side, however, reliance on outside suppliers may make the firm vulnerable to disruptions in supplies, particularly missed delivery dates, problems with the quality of bought-in components, and 'unreasonable' terms and conditions imposed by powerful suppliers.

Oversubscription: A situation in which the number of shares applied for in a new share issue exceeds the numbers to be issued. This requires the issuer to devise some formula for allocating the shares. By contrast, under subscription occurs when the number of shares applied for falls short of the number on offer, requiring the issuing house that has underwritten the shares to buy the surplus shares itself.

Overdraft: A loan facility on a customer's current account at a bank permitting him to overdraw up to certain agreed limit for an agreed period. Interest is payable on the amount of the loan facility actually taken up, and it may, therefore, be a relatively inexpensive way of financing a fluctuating requirement.

Paid-Up Capital: That part of the issued capital of a company that has been paid up by the shareholders.

Paper Profit: An unrealized money increase in the value of an asset. An individual, for example, will have made a paper profit on his house if it is worth more now that it was when he bought it.

Per Capita Income: Income per head, normally defined as the national income divided by the total population. International comparisons of per capita income at current exchange rates need to be interpreted with caution.

Parkinson's Law: An observation by Professor C. Northcote Parkinson suggesting that work expands according to the time available in which to do it.

Par Value: The initial face value or nominal price of an ordinary share (as opposed to its market price). For example, a company may issue ordinary shares with a par value of say, Rs. 10 though its market price on the stock exchange may be higher or lower than this par value, depending upon current demand and supply for it.

Patent: The grant of temporary monopoly rights and control over new products, processes and techniques to their inventors by the government. Patent protection is seen as a way to foster technological progress by providing an opportunity for inventors and innovators to recoup development expenses and secure a profit reward for risk-taking. To minimize the danger of monopolistic exploitation, patents are granted for limited time periods only.

Payback Period: The period it takes for an investment to generate returns to recover in full original capital outlay. For example, a machine that costs Rs.1, 000 and generates a net cash inflow of Rs. 250 per year would have a payback period of four years.

Preference Share: A stock issued to those individuals and institutions that provide long-term finance for companies. Preference shares pay a fixed rate of dividend and are generally given priority over ordinary shares in receiving dividend. In the event of the company being wound up, they also have first claim on any remaining Assets of the business after all debts have been discharged. Generally, preference shareholders have no voting rights at company Annual General Meetings.

Progressive Taxation: A system in which tax is levied at an increasing rate as taxation rises. This form of taxation takes a greater proportion of tax from the high-income taxpayer. The greater the individual's earnings, the greater the rate of tax that is levied.

Pump Priming: Spending by the government on public works, etc. aimed at increasing demand to stimulate economic activity and raise national income. Increased government spending will, through multiplier effects, enlarge spending in other sectors of the economy, serving to reduce unemployment and increasing output.

Purchasing Power: The extent to which a given monetary unit can buy goods and services. The greater the amount of goods and service purchased with, say, Rs.10, the greater is its purchasing power. Purchasing power is directly linked to the Retail Price Index and can be used to compare the material wealth of an average individual from a previous time period to the present.

Planned Economy: An economy in which state authorities rather than market forces directly determine prices, output and production. Although planned economies can take a variety of forms, their most important features usually include:

(a) production targets for different sectors, of the economy, that determine the supply of different targets for different sectors of the economy, that determine the supply of different commodities;
(b) rationing of certain commodities to determine demand for them;
(c) price-and wage-fixing by state bodies;
Price-Earnings (P/E) Ratio: The quoted price of an ordinary share divided by the most recent year's earnings per share. The P/E ratio is thus the reciprocal of the earnings yield and a measure of the price that has to be paid for a given income from an equity share.

Real Exchange Rate: The exchange rate of a currency expressed in constant price terms to make allowance for the effects of inflation. For example, where a country experiences a higher rate of domestic inflation than its trade competitors, then its exports will become more expensive than those of competitors' exports and its imports cheaper than domestic products, unless its exchange rate depreciates to offset fully the inflation differential. In situations where exchange rates are fixed by international agreement or determined by market forces that do not reflect relative inflation rates, then nominal exchange rates can differ significantly from real exchange rate. A country's real exchange rate is the more important measure of that country's international competitiveness.

Recession: A phase of the business cycle characterized by a modest downturn in economic activity. Real output and investment fall, resulting in rising unemployment. A recession is usually caused by a fall in aggregate demand, and provided that the authorities evoke expansionary fiscal policy and monetary policy, it can be reversed.

Rediscounting: The purchase and sale of bills of exchange, treasury bills and bonds between their issues and redemption dates. For example, if a bond with a nominal value of Rs.1000 redeemable in one year's time is sold initially for Rs.900 (giving a Rs.100 discount on its formal redemption value), then it might be resold or rediscounted for Rs.950 after six months.

Reflation: An increase in the level of National Income and output. Reflation is often deliberately brought about by the authorities to secure full employment and to increase the rate of economic growth. Instruments of reflationary policy include fiscal measures (for example, tax cuts) and monetary measures (for example, lower interest rates).

Repo Rate of Interest: The Interest Rate charged by the Central Bank of a country on treasury bills to buyers (mainly the Discount Market Houses) when they repurchase new bills to replace maturating bills.

Recession: An imprecise term given to a sharp slowdown in the rate of economic growth or a modest decline in economic activity, as distinct from a slump or depression which is a more severe and prolonged downturn. Recessions are a feature of the business cycle. Two successive declines in seasonally adjusted, quarterly, real gross domestic product would constitute a recession.

Repo: Sale and repurchase agreement under which funds are borrowed through the sale of short-term securities on condition that the instruments are repurchased at a given date. Used between central banks and the money market as part of open-market operations. First developed in the United States, repos are also widely used as a borrowing method by large corporations, banks and non-banking institutions.

Share Buyback: The purchase by a company of its own shares, thereby reducing the amount of its issued capital share. Buybacks are undertaken to return 'surplus' cash reserves to shareholders; more particularly, they are undertaken to increase earnings per share and dividend per share and thus (hopefully) lead to rise in the company's share price.

Shell Company: A company that is not actively trading but that is still listed on the stock exchange. Such a company can be purchased in a reverse takeover by a company wishing to obtain a stock-exchange listing.

Statutory Liquidity Ratio: The proportion of total time and demand liabilities of a bank which are held in the form of cash and liquid assets. A relaxation in SLR has the impact of broadening the money supply, thereby making more credit available, while a rise in it denotes that now lesser funds are available for credit.

Sinking Fund: A fund into which periodic payments are made that, with Compound Interest, will ultimately be sufficient to meet a known future capital commitment or discharge a Liability. Such a fund may be used to finance the replacement of Fixed Assets at the end of their useful life or to purchase back company loan stock or debentures upon maturity.

Social Responsibility: A business philosophy that stresses the need for firms to behave as good corporate citizens, not merely obeying the law but furthering the interests of the stakeholders - shareholders, employees, customers, suppliers and the community.

Soft Loan: A loan with an interest rate substantially below that on a loan for a similar purpose and risk status. They are often given as a form of economic aid to developing countries by developed countries and international institutions and are used as a form of export subsidy. In addition, soft loans may be used to influence industrial location under a country's regional policy.

Secondary Market: A market in which assets are resold and purchased, as distinct from a primary market in which assets are sold for the first time. The stock exchange is a secondary market in which financial securities are traded, although it is also a primary market where these securities are issued for the first time.

Trade Deficit: The amount by which merchandise imports exceed merchandise exports.

Transaction: Any agreement between two or more parties that established a legal obligation. The act of carrying out such an obligation. All activities that affect a deposit account that are performed at the request of the account holder.

Travelers Check: A type of check designed especially for business or vacation travelers. The traveler pays for the checks in advance. Thus, the check is an order from the issuing company to pay on demand.

Underwriter: An analyst who reviews the supportive documentation to determine the risk associated with the loan request. The person who gives final loan approval.

Withdrawal: A removal of funds from a savings or checking account by the accounts owner.
Advertisements

Friends: (0)
Reply With Quote
Re: Glossary of Economic Terms
Old
 (2 (permalink))
Jitendra Mazee
jitendra05 is on a distinguished road
 
jitendra05
Student of Bachelor of Engineering at RGTU Bhopal
Bhopal, Madhya Pradesh
Management Paradise Guru
 
Institute: RGTU Bhopal
Status: Offline
Posts: 27,848
Join Date: Jan 2016
Location: Bhopal, Madhya Pradesh
Re: Glossary of Economic Terms - May 2nd, 2016

Quote:
Originally Posted by joel.francis.735 View Post
Glossary of Economic Terms

Arbitrage: If someone takes advantage of different prices of the same security traded in two or more stock exchanges (by buying in one and selling in the other), it is called arbitrage.

Actuary: A statistician who calculates insurance risk and premiums.

Annual General Meeting: The yearly meeting of shareholders that Joint-Stock Companies are required by law to convene, to allow shareholders to discuss their company's Annual Report and Accounts, elect the Board of Directors and approve the dividend suggested by directors.

Annuity: A series of equal payments at fixed intervals from an original lump sum investment. Where an annuity has a fixed time span, it is termed an annuity certain, and the periodic receipts comprise both a phased repayment of principal (the original lump sum payment) and interest, such that at the end of the fixed term, there is a zero balance on the account. An annuity in perpetuity does not have a fixed time span but continues indefinitely and receipts can therefore come only from interest earned. Annuities can be obtained from pension funds or life insurance schemes.

Anti-Competitive Practice: A practice followed by a firm that restricts, distorts or eliminates competition to the disadvantage of other suppliers and consumers. Examples of restrictive practices include Exclusive Dealing, Refusal To Supply, Tie-In Sales, etc.

Appreciation: An increase in the value of a currency against other currencies under a Floating Exchange Rate System. An appreciation of a currency's value makes imports cheaper and exports more expensive, thereby encouraging additional imports and curbing exports and so helping in the removal of a Balance of Payments surplus and the excessive accumulation of international reserves.

Appreciation: An increase in the price of an asset is also called capital appreciation. Assets held for long periods, such as factory building, offices or houses are most likely to appreciate in value because of the effects of inflation and increasing site values, though the value of short term assets like stocks can also appreciate.

Articles of Association: The legal constitution of a Joint-Stock Company, which governs the internal relationship between the company and its members or shareholders. The articles govern the rights and duties of the membership and administration of the company e.g. directors' powers, meetings, the dividend and voting rights assigned to separate classes of shareholders, etc.

Administered Prices: Prices which are set by management decision rather than by negotiation between buyer and seller. True market prices are to be found only in the stock exchange and other places where prices change constantly. Most retail and industrial prices are set by management, though they will be altered in response to competition.

Anti-Trust (US): Legislation to control monopoly and restrictive practices in favour of competition. It applies not only to group of firms but also to single companies.

Authorized Capital: The share capital fixed in the Memorandum of Association and the Articles of Association of a company as required by law. Also known as nominal capital or registered capital.

Average Cost: Total production costs per unit of output. It is calculated by adding total fixed costs to total variable costs and dividing by the number of units produced. The effect of indivisibilities is that average costs fall as output expands, spreading the fixed cost over more units.

Average Cost Pricing: The pricing of goods or services so as just to cover the average cost of production. The firm engaging in this will make neither a profit nor loss.

Bad Money Drives Out Good: The idea that an injection of low-quality coinage into a monetary system will dissuade holders of high-quality coins from parting with cash. Before paper money (banknote) became universally accepted as a means for settling debts, precious metals were the most common forms of money. Gold and silver coins were struck bearing a face value equal to the value of the metal content. Debasement of the coinage occurred when the face value of their metal content went down as opposed to their denominated worth. The holders of the correctly valued coinage became unwilling to exchange for the debased coinage because they would obtain less metal in exchange than if they bought direct. The result was that the 'good', undebased coinage did not circulate. The process is referred to as Gresham's law.

Bank Rate: The interest rate at which the Central Bank of a country (Reserve Bank of India in case of India) lends to the banking system through rediscounting eligible bills of exchange and other commercial papers. Short-term interest rates are geared to the bank rate through the banking system.

Bad Delivery: The delivery of a share relating to the transaction is considered "BAD" when there are some defects in the share certificate or the transfer deed. SEBI has formulated uniform guidelines for good and bad delivery of documents. The bad delivery may pertain to the transfer deed being torn, mutilate, overwritten, defaced, etc.

Book Value: The book value of a stock is determined from a Company's records, by adding all assets then deducting all debts and other liabilities plus the liquidation price of any preferred issue. The sum is divided by the number of common shares. Book value of the assets of a company or a share security may have little or no significant relationship to market value.

Bonus: A free allotment of shares made in proportion to existing shares out of accumulated reserves. A bonus share does not constitute additional wealth to the shareholders. It merely signifies recapitalisation of reserves into equity capital. However, the expectation of bonus shares has a bullish impact on market sentiment and causes share prices to go up.

Balance of Payments: A tabulation of the credit and debit transactions of a country with foreign countries and international institutions during a specific period. Transactions are divided into two broad groups - current account and capital account. The current account is made up of trade in goods (so-called visible trade) and in services and the profits and interest earned from overseas assets, net of those paid abroad (invisible trade). It is the current account that is generally referred to in the discussion on the balance of payments. The capital account is made up of such items as the inward and outward flow of money for investment and international grants and loans.

Balanced Budget: A situation wherein the government's planned expenditure equals its expected income. In public finance, it is a situation where current income from taxation and other receipts of central government are sufficient to meet payments for goods and services, transfer payments and debt interest. The Indian budget is often in deficit on both current account and capital account and these deficits are financed by net borrowing and changes in the money supply. The importance of the budget balance and how it is financed is that it may affect levels of demand and prices in the economy.

Banker's Draft: A cheque drawn by a bank as opposed to a bank's customer. Banker's drafts are drawn at the customer's request and that customer's account is debited. They are regarded as cash, since they cannot be returned unpaid and are used when a creditor is not willing to accept a personal cheque in payment.

Bear: A speculator who sells stocks or shares that he may or may not possess because he fears a fall in prices and, therefore, that he will be able to buy them (back) later on at a profit; the antonym of bull. A bear who sells securities that he does not possess is described as having 'sold short'. If he does possess the securities he sells, he is described as a 'covered' or 'protected' bear. A 'bear market' is one in which prices are falling.

Bill of Exchange: A term used in international trade by which the drawer makes an unconditional undertaking to pay to the drawee a sum of money at a given date, usually three months ahead. In principle a bill of exchange is similar to a post-dated cheque, and it can be endorsed for payment to the bearer or any named person other than the drawee. A bill of exchange has to be 'accepted' (endorsed) by the drawee before it becomes negotiable. This function is normally performed by an accepting house, but bills may also be accepted by a bank (it is then known as a bank bill) or by a trader (trade bill). Once accepted, the drawee does not have to wait for the bill to mature before getting his money; he can sell it on the money market for a small discount.

Bad Debt: An accounting term for money owed that is unlikely to be paid because, for example, a customer has become insolvent. Such bad debts are written off against the profits of the trading period as a business cost.

Balance of Trade: A statement of a country's trade in goods (visible) with the rest of the world over a particular period of time. The term specifically excludes trade in services (invisibles) and concentrates on the foreign currency earnings and payments associated with trade in finished manufactures, intermediate products and raw materials, which can be seen and recorded by a country's customs authorities as they cross national boundaries.

Balance Sheet: An accounting statement of a firm's assets and liabilities on the last day of a trading period. The balance sheet shows the assets owned by the firm and sets against these the balancing obligations or claims of those groups of people who provided the funds to acquire the assets. Assets take the form of Fixed Assets and Current Assets, while obligations take the form of Shareholders' Capital Employed, Long-Term Loans and Current Liabilities.

Bearer Bonds: Financial securities that are not registered in the name of a particular holder but where possession serves as proof of ownership. Such securities are popular in the American financial system but fairly rare in India, where the names of shareholders are recorded in a company's share register.

Benchmarking: The process of measuring a firm's performance and comparing this measured performance with that of other firms. Benchmarking can help a firm discover where its performance is deficient and can suggest means of improving competitive performance.

Bill of Exchange: A financial security representing an amount of credit extended by one business to another for a short period of time (usually three months). The lender draws up a bill of exchange for a specified sum of money payable at a given future date and the borrower signifies his agreement to pay the amount indicated by signing (accepting) the bill. Most bills are 'discounted' (i.e. bought from the drawer) by the Discount Market for an amount less than the face value of the bill (the difference between the two constitutes the interest charged).

Birth Rate: The number of people born in a population per thousand per year. The difference between this rate and the death rate is used to calculate the rate of growth of the population over time.

Bond: A financial security issued by businesses and by the government as a means of borrowing long-term funds. Bonds are typically issued for periods of several years; they are repayable on maturity and bear a fixed interest rate.

Break Even: The rate of output and sales at which a supplier generates just enough revenue to cover his fixed and variable costs, earning neither a profit nor a loss. If the selling price of a product exceeds its unit Variable Cost, then each unit of product sold will earn a contribution towards Fixed Costs and Profits. Once sufficient units are being sold so that their total contributions cover the supplier's fixed costs, then the company breaks even. If less than the break-even sales volume is achieved, then total contributions will cover the fixed costs and leave a surplus that constitutes profit.

Buffer Stock: A commodity (copper, wheat, etc.) held by a trade body or government to regulate its price. An official price of that commodity is established, and if the open market price falls below this because there is excess supply at the fixed price, than the authorities will buy the surplus and add it to the buffer stock to force the price back up. By contrast, if there is an excess demand at the fixed price, then the authorities will sell some of their buffer stock to bring the price down. Thus, the price of the commodity can be stabilized over time, avoiding erratic, short-term fluctuations in price.

Buyer's Market: A short-run market situation wherein there is excess supply of goods or services at current prices, which brings price down to the advantage of the buyer.

Blue Chip: A first class equity share, which (the hope is), carries little risk of sharp declines in earning in economic recessions. In India, HLL, Infosys and Ranbaxy equities, for example, are commonly regarded as blue chips.

Bond: A fixed-interest security issued by central or local governments, companies, banks or other institutions. Bonds are usually a long-term security but do not always carry fixed interest and may be irredeemable and may be secured/ unsecured. There is no specific stock exchange for these bonds. The term bond has also been given to types of non-fixed-interest security, such as property bonds, which provide the holder with a yield of funds invested in property, or 'managed bonds', in which the bond includes debentures.

Bretton Woods: An international conference held at Bretton Woods, USA, in July 1944 to discuss alternative proposals relating to post-war governments. The agreement resulting from this conference led to the establishment of the International Monetary Fund and the International Bank For Reconstruction and Development (The World Bank), which are also known as the Brettonwoods Sisters.

Budget: An estimate of income and expenditure for a future period as a opposed to an account, which records financial transactions. Budgets are an essential element in the planning and control of the financial affairs of a nation and of business, and are made necessary essentially because income and expenditure do not occur simultaneously.

Capital Adequacy: A requirement on financial intermediaries to maintain a minimum proportion of liquid assets. Various bodies impose minimum capital requirements upon banks, investment banks and investment trusts. For banks these requirements may be used to control monetary aggregates but increasingly they are aimed at preventing failure and instability in the financial system (prudential norms).

Capital Formation: Net investments in fixed assets, i.e., additions to the stock of real capital. Gross fixed capital formation includes depreciation where as net capital formation excludes it.

Current Account: Current account is that portion of balance of payments, which portrays the market value of a country's visible (e.g. commodity trade) and invisible (e.g. shopping services) exports and imports with the rest of the world.

Current Account Balance: Current Account Balance is the difference between (a) exports of goods and services plus inflows of unrequired official and private transfers, and (b) imports of goods and services plus unrequired transfers to the rest of the world included in this figure and all interest payment on external public and publicly guaranteed debt.

Capital Gains: A realized increase in the value of a capital asset, as when a share is sold for more than the price at which it was purchased. Strictly speaking, the term refers to capital appreciation outside the normal courses of business. In India capital gains are subject to Capital Gains Tax (CGT). The tax does not cover gains arising from the sale of personal belongings, including cars or principal dwelling houses, but it does cover gains from the sale of stock exchange securities.

Capital Market: The market for long-term funds as distinct from the money market, which deals in short-term funds. There is no clear-cut distinction between the two markets, although in principle capital-market loans are used by industry and commerce mainly for fixed investment. The capital market is an increasingly international one and in any country is not one institution but all those institutions that match the supply and demand for long-term capital and claims on capital, e.g. the stock exchange, banks and insurance companies. The capital market is not concerned solely with the issue of new claims of capital (the primary or secondary market). The marketability of securities is an important element in the efficient working of the capital market, since investors would be much more reluctant to make loans to industry if their claims could not easily be disposed of.

Capitalism: A socio-economic system in which individuals are free to own the means of production and maximize profits and in which resource allocation is determined by the price system. Marx argued that capitalism would be overthrown because it inevitably led to the exploitation of labour.

Cartel: An association of producers to regulate prices by restricting output and competition. They tend to be unstable because a single member can profit by undercutting the other, while price-fixing stimulates the development of substitutes. The most prominent example of an international cartel (oligopoly) is the Organization of Petroleum Exporting Countries (OPEC). In India, cement manufacturing, steel and iron manufacturing can be cited as examples of cartels or oligopolies.

Central Bank: A banker's bank and lender of last resort e.g. RBI. All developed and most developing countries have a central bank responsible for exercising control on the credit system, sometimes under instruction from government and, increasingly often, under its own authority. Central banks typically execute policy through their lead role in setting short-term interest rates, which they control by establishing the rate at which loans of last resort will be made. Some central banks also use other devices to control money supply, such as special deposits. With monetary policy plays an important part in determining aggregate demand, the stability of the business cycle and the rate of inflation, central banks have found themselves in an increasingly central role in economic management.

Closed Economy: An economic system with little or no external trade, as opposed to an open one, in which a high proportion of output is absorbed by exports and similarly domestic expenditure by imports.

Closing Prices: Price of a commodity e.g. securities on the stock exchange, at the end of a day's trading in a market.

Commodity Exchange: A market in which commodities are bought and sold. It is not necessary for the commodities to be physically exchanged, only rights to ownership need to be exchanged.

Capital: The contribution to productive activity made by investment in physical capital (for example, factories, offices, machinery, tools) and in human capital (for example, general education, vocational training). Capital is one of the three main factors of production, the other two being labour and natural resources. Physical (and human) capital make a significant contribution towards economic growth.

Capital Account: The section of the National Income Accounts that records investment expenditure by government on infrastructure such as roads, hospitals and schools; and investment expenditure by the private sector on plant and machinery.

Capital Goods: The long-lasting durable goods, such as machine tools and furnaces, that are used as factor inputs in the production of other products, as opposed to being sold directly to consumers.

Capital-Intensive Firm/Industry: A firm or industry that produces its output of goods or services using proportionately large inputs of capital equipment and relatively small amounts of labour. The proportions of capital and labour that a firm uses in production depend mainly on the relative prices of labour and capital inputs and their relative productivities. This in turn depends upon the degree of standardization of the product. Where standardized products are sold in large quantities, it is possible to employ large-scale capital-intensive production methods that the facilitate economies of scale. Aluminium smelting, oil refining and steel works are examples of capital-intensive industries.

Capital-Output Ratio: An index of how much additional capital is required to produce each extra unit of Output, or the extra output produced by each unit of added capital. The capital output ratio indicates how efficient new investment is in contributing to Economic Growth. Assuming, for example, a 4:1 capital-output ratio, each four units of extra investment enables national output to grow by one unit. If the capital-output ratio is 2:1, however, then each two units of extra investment expand national income by one unit. Consequently, the lesser the ratio, the better the economic efficiency.

Cash Reserve Ratio: The proportion of a commercial bank's total assets that it keeps in the form of highly liquid assets to meet day-to-day currency withdrawals by its customers and other financial commitments. Deposited with the RBI by every commercial bank, this ratio is subject to periodic changes as per conditions prevailing in the money market. Of late, the ratio is being continuously brought down so as to create more lendable funds with the commercial banks. The CRR is a method of general credit control in the economy, used to tighten or ease the conditions of money supply in the economy.

Cheap Money: A government policy whereby the Central Bank is authorized to purchase government bonds in the open market to facilitate an increase in the money supply.

Cheque: A means of transferring or withdrawing money from a Bank's current or savings account. In this case, the drawer of a cheque gives a written instruction to his bank to transfer funds to some other person's or company's bank. In the latter case money may be withdrawn in cash by a person or company writing out a cheque payable to themselves. Cheques may be open, in which case they may be used to draw cash, or 'crossed' with two parallel lines, in which case they cannot be presented for cash but must be paid into an account.

Clearing House System: A centralized mechanism for settling indebtedness between financial institutions involved in money transmission and dealers in commodities and financial securities. For example, in the case of Indian commercial banking, when a customer of bank A draws a cheque in favour of a customer of bank B, and the second customer pays in the cheque to bank B, then bank A is indebted to bank B for the amount of that cheque. There will be many thousands of similar transactions going on
day by day, creating indebtedness between all banks. The Clearing House brings together all these cheque, cross-cancels them and determines at the end of each day any net indebtedness between the banks which is then settled by transferring balances held by the Commercial Banks at the local clearing house.

Collateral Security: The assets pledged by a borrower as security for a loan, e.g., the title deed of a house. If the borrower defaults, the lender can claim these assets in lieu of the sum owed.

Communism: A political and economic doctrine which advocates that the state should own all property and organize all the functions of production and exchange, including labour. Karl Marx succinctly stated his idea of communism as 'from each according to his ability, to each according to his needs'. Communism involves a centrally planned economy where strategic decisions concerning production and distribution are taken by government as opposed to being determined by the price system, as in a market-based private enterprise economy. China still organizes its economy along communist lines, but in recent years Russia and other former Soviet Union countries and various East European countries have moved away from communism to more market-based economies.

Consumer Durables: Consumer Goods, such as houses, cars, televisions, that are 'consumed' over relatively long periods of time rather than immediately.

Convertibility: The extent to which one foreign currency can be exchanged for some other foreign currency. International trade and investment opportunities are maximized when the currencies used to finance them are fully convertible, i.e. free of foreign exchange control restrictions.

Core Business: The particular products supplied by a firm, which constitute the heart of its business. These are generally products in which the firm has a competitive advantage.

Core Competence: A key resource, processor system of a firm, which lets it gain a competitive advantage over rivals.

Corporate Tax: A direct tax by the government on the profits of businesses. The rate of corporate tax charged is important to a firm as it determines the amount of after-tax profit it has available to pay dividends or to reinvest.

Cost Benefit Analysis: A technique for enumerating and evaluating the total social costs and total social benefits associated with an economic project. Cost benefit analysis is generally used by public agencies when evaluating large-scale public Investment projects, such as major new motorways or rail lines, in order to assess the welfare or net social benefits that will accrue to the nation from these projects. This generally involves the sponsoring bodies taking a broader and longer-term view of a project than would a commercial organization concentrating on project profitability alone.

Cost of Capital: The payment made by a firm for using long-term capital used in business. The average cost of capital to a firm that uses several sources of long-term funds (loans, share capital) to finance its investments will depend upon the individual cost of each separate source (for example, interest on loans) weighted in accordance with the proportions of each source used.

Credit Card: A plastic card or token used to finance the purchase of products by gaining point-of-sale credit. Credit cards are issued by commercial banks, hotel chains and larger retailers.

Cross-Subsidization: The practice of offering internal subsidies to certain products within the firm financed from the profits made by other products. Cross-subsidization is often used by diversified and vertically integrated firms to finance new product development; diversification into new areas; or to facilitate price cuts to match intense competition in certain markets.

Current Assets: Assets, such as stocks, money owed by debtors, and cash, that are held for short-term conversion within a firm as raw materials are bought, made up, sold as finished goods and eventually paid for.

Current Liabilities: All obligations to pay out cash at some date in the near future, including amounts that a firm owes to trade creditors and bank loans/overdrafts.

Customs Duty: A tax levied on imported products. Unlike tariffs, customs duties are used primarily as a means of raising revenue for the government rather than as a means of protecting domestic producers from foreign competition.

Complementary Goods: Pairs of goods for which consumption is interdependent, for example cars and petrol or cups and saucers, are known as complementary goods and changes in the demand for one will have a complementary effect upon the demand for the other. Complements have a negative cross-price elasticity of demand: if the price of one rises, the demand for both may fall.

Consumer Good: An economic good purchased by households for final consumption. Consumer goods include, e.g., chocolate or draught beer consumed immediately as well as durable goods which, yield services over a period of time, for example a washing machine. It is the use to which it is put which determines whether a good is a consumer good, not the characteristics of the good itself. Electricity or a computer, bought for the home is a consumer good, but the same thing bought for a factory is a producer good.

Cost-Push Inflation: Inflation induced by a rise in the production cost. Such cost increases may arise abroad and be transmitted through higher prices of imported raw material. The rapid escalation in oil prices in the 1970s accelerated price inflation in the period, although the rate of inflation had begun to rise before this. Cost increases may also arise within the domestic economy from firms attempting to increase profits and/or employees to increase their earnings. Success in achieving increases depends on their degree of market dominance and, therefore, bargaining power. Any money gains greater than productivity will tend to result in price increases.

Countervailing Duty: An additional import duty imposed on a commodity to offset a reduction of its price as a result of an export subsidy in the country of origin.

Cross Subsidy: Financing a loss-making line of business with profits made elsewhere. This may be motivated by private business concerns (to help establish new lines of business, for example), or by public policy concern (the provision of rural bus routes at the expense of urban ones).

Deficit Expenditure: The amount by which Government expenditure exceeds the tax collections.

Devaluation: Devaluation is the lowering of the official exchange rate between one country's currency and those of the rest of the world.

Dividend: That part of a company's profit, which Directors decide to distribute to the shareholders. It is generally expressed as a percentage of the nominal value of the capital to which it relates.

Development Banks: Development Banks are specialised public and private financial intermediaries providing medium and long-term credit for development project e.g. IDBI, IFCI etc.

Development Plan: Development Plan is the documentation by a government planning agency of the current national economic conditions, proposed public expenditures, likely development in the private sector, a macroeconomic projection of the economy and a review of Government policies. Many governments publish five year development plans to announce their economic objectives to their citizens and others.

Debt Servicing Ratio: Debt Services Ratio of interest and principal payment due in a year to export receipts for the year.

Deficit Financing: The use of borrowing to finance an excess of expenditure over income. Most often, it refers to governments, who often spend more than they can raise in taxation. The term is normally used in economics to refer to a planned budget deficit incurred in the interests of expanding aggregate demand by relaxing fiscal policy and thus injecting purchasing power into the economy, a policy advocated by Keynes to increase employment in the 1930s.

Deflation: A sustained reduction in the general price levels. Deflation is often accompanied by declines in output and employment and is distinct from 'disinflation', which refers to a reduction in the rate of inflation. Deflation can be brought about by either internal or external forces in an open economy.

Deflation: A deliberate policy of reducing aggregate demand and output to reduce inflation rate and the quantity of imports and lower the exchange rates, thus improving export performance and the BoP. Aggregate demand may be reduced by fiscal policy (increasing taxes or reducing government expenditure) or money supply.

Demand: The desire and willingness to buy a particular good or service supported by the necessary money to buy it.

Demand-Pull Inflation: Inflation produced by a persisting excess of aggregate demand over aggregate supply. The excess demand probably persists because there is a growth in the quantity of money either through the creation of money by government to finance the budgetary gap between its expenditure and income or because the quantity of money is allowed to expand to accommodate the rise in prices.

Diminishing Marginal Utility: The psychological law that as extra units of a commodity are consumed by an individual, the satisfaction from each unit will fall. For example, although for every extra Cadbury's bar someone eats he derives extra pleasure, the more Cadbury's that are eaten, the less the pleasure gained from each incremental one. Eventually, as sickness strikes, subsequently consumed Cadbury's bars will yield disutility.

Diminishing Returns, Law of: As extra units of one factor of production are employed, with all others constant, the output from each additional unit will eventually fall. In effect, the marginal product of factors declines when they are employed in increasing quantities. For example, a farm owner with one field might find that one man could produce two tons of grain, two men five tons of grain-more than twice as much, but three men only seven tons of grain. The extra production gained from adding a worker started at two, rose to three, then fell back to two.

Direct Investment: Investment in the foreign operations of a company through acquisition of a foreign operation, or establishment of a new ('greenfield') site. It is often referred to as Foreign Direct Investment (FDI). Direct investment implies control of managerial and perhaps technical input and is generally preferred by the host country to portfolio investment. This investment has been a major source of finance for the developing countries at a time when foreign aid has fallen.

Disguised Unemployment: A situation in which more people are available for work than is shown in the unemployment statistics. Married women, some students or prematurely retired persons may register for work only if they believe opportunities are available to them.

Disinvestment: Negative investment, which occurs where part of the capital stock is diluted by selling it off to the general public/ private companies. India has embarked upon a massive disinvestment exercise in its PSUs and of late, there appears to be a ring of sincerity to the government's efforts to get rid of unprofitable PSUs and focus more on economic facilitation functions.

Diversification: Extending the range of goods and services in a firm or geographic region. The motives will include declining profitability or growth in traditional markets, surplus capital or management resources and a desire to spread risks and reduce dependency upon cyclical activities. Diversification has accounted for a significant proportion of the growth of multinational corporations, though more recently competitive pressures have encouraged large corporations to return to core businesses. This process has been called downsizing or divestment.

Diversification: The holding of stocks in a range of firms in a portfolio to spread the risk.

Dividend: The company profits distributed to ordinary shareholders. It is usually expressed either as a percentage of the normal value of the ordinary share, or as an absolute amount per share. A dividend is only the same as a yield if the shares stand at their nominal value. Some shareholders may not have bought their shares at par value and might have paid more for them.

Debt Servicing: The cost of meeting interest payments and principal payments on a loan along with any administration charges.

Demographic Transition: A population cycle that is associated with the economic development of a country. In underdeveloped countries (i.e. subsistence agrarian economies), birth rates and death rates are both high, so there is very little change in the overall population. With economic development (i.e. Industrialization), Income Per Head begins to rise and there is a fall in the death rate (through better nutrition, sanitation, medical care, etc.), which brings about a period of rapid population growth.

Depression: A business phase with a severe decline in economic activity (Actual Gross National Product). Real output and Investment are at very low levels and there is a high rate caused mainly by a fall in aggregate demand and can be reversed provided the authorities apply expansionary fiscal policy and monetary policy.

Deregulation: The removal of controls over economic activity that have been imposed by the government. It may be initiated either because the controls are no longer seen as necessary or because they are overly restrictive, preventing companies from taking advantage of business opportunities.

Devaluation: An administrated reduction in the exchange rate of a currency against other currencies under a Fixed Exchange - Rate System.

Developed Country: An economically advanced country whose economy is characterized by large
industrial and service sectors, high levels of gross national product and Income Per Head.

Direct Tax: A tax levied by the government on the income and wealth received by individuals and business to raise revenue. Examples of direct taxes in India are Income Tax, Corporate Tax and Wealth Tax. Direct taxes are incurred on income received, unlike indirect taxes such as value-added taxes, which are incurred when income is spent. Direct taxes are progressive, insofar as the amount paid varies according to the income and wealth of the taxpayer. By contrast, Indirect Tax is regressive, insofar as the same amount is paid by each tax-paying consumer regardless of his income.

Dow-Jones Index: A US share price index that monitors and records the share price movements of all companies listed on the New York Stock Exchange, with the exception of high-tech companies listed separately on the NASDAQ stock exchange.

Dumping: The export of a good at a price below that in the domestic market. Dumping may occur as a short-term response to a domestic recession (i.e. surplus output is sold abroad at a cut-price simply to off-load it) or as a longer-term strategic means of penetrating export markets (once a foothold has been gained, prices would then be increased to generate profits). Either way, dumping is viewed as 'unfair' trade and is outlawed by the trade rules of the World Trade organization. Many countries, including our own, impose anti-dumping duties on such unfair exports to make them costlier, so as to protect their own domestic industry.

Downsizing: Large-scale shedding of employees by major corporations, sometimes also used to refer to the disposal of subsidiaries and other unwanted activities. Downsizing is generally a response to reduce costs and may in some cases be a delayed reaction to technological change which allows output to be maintained with fewer employees. In a dynamic and changing economy some firms will be reducing and other gaining employment, but redundancies by large firms attract more attention than widespread employment gains among smaller firms.

Duopoly: Two sellers only of a good or service in a market. A feature of this situation is that any decision by one seller, such as the raising or lowering of his price, will stimulate a response from the other which, in turn, will affect the market response to the first seller's initial responses, price equilibrium may exist at any point between that of a monopolist and that of perfect competition.

Economies of Scale: Factors which cause the average cost of producing a commodity to fall as output of the commodity rises. For instance, a firm if it doubled its output, would enjoy economies of scale.

Emerging Markets: I. Markets in securities in newly industrialized countries and in countries in Central and Eastern Europe and elsewhere, in transition from planned economies to free-market economies and in developing countries with capital markets at an early stage of development.

Equity Shares: It is also known as ordinary shares. It is a part of the Share Capital of the Company. Shares having a claim to participate in the whole range of annual profits remaining with the Company after it has satisfied all charges and met any fixed preferential dividends and having a right to participate in surplus assets in winding up.

Engel's Law: A law that with given tastes or preferences, the proportion of income spent on food diminishes as incomes increases.

Employee Stock Option Plan (ESOP): A scheme whereby employees acquire shares in the company in which they are employed. Employees can, of course, purchase shares in their company from the open market or companies can simply choose to donate shares to them. However, in recent years many companies have set up employee stock option plans that formally transfer the company's shares to employees.

Expenditure Tax: A form of indirect tax that is included into the selling price of a product and is paid by the consumer. In raising revenue and in applying Fiscal Policy, governments have two broad choices; the use of taxes on expenditure and those on income. Taxes on income, such as Income Tax, deduct tax at source, whereas taxes on expenditure are levied at the point of sale. Direct taxes tend to be Progressive Taxes in so far as the amount of tax paid is related to a person's income, whereas expenditure taxes are regressive taxes in so far as consumers pay tax in proportion to their spending regardless of income.

Export-Led Growth: An expansion of the economy with exports serving as a leading sector. Rising exports inject additional income into the domestic economy and increase total demand for domestic output. Equally importantly, the increase in exports enables a higher level of import absorption to be accommodated so that there is no balance of payments constraint on the achievement of sustained economic growth.

Entrepreneur: An economic agent who perceives market opportunities and assembles the factors of production to exploit them in a firm. The essence of the entrepreneur, therefore, is that he is alert to gaps in the market, and is able to raise resources to exploit the market. If successful he will make a super-normal profit that will later reduce to normal profits as new competitors are attracted into the market. In this conception, the pure function of the entrepreneur is as fourth factor of production.

Face Value: The price at which a share will be redeemed, which might for a silver or gold coin, be less than its market value.

Factor Cost: The value of goods and services produced, measured in terms of the cost of the inputs (materials, labour etc) used to produce them, but excluding any indirect taxes/ subsidies. For example, a product costing Rs.10 to produce and with a Rs.1 indirect tax levied on it would have a market price of Rs.11 and a factor cost of Rs.10.

Fiscal Drag: The effect of inflation upon effective tax rates, or sometimes, the effect of growth in income tax systems, increases in earnings may push taxpayers into high tax brackets. With the decline in inflation rates, the term fiscal drag has loosely been used to refer to the fact that even in an indexed tax system if earnings grow more quickly than prices (and indeed, they typically do), then the government again ends up with extra revenues without having to raise tax rates in explicit policy changes.

Floating Exchange-Rate System: A mechanism for coordinating Exchange Rates between countries' currencies that involves the value of each country's currency in terms of other currencies being determined by the forces of demand and supply. Over time, the exchange rate of a particular currency may rise or fall depending, respectively, on the strength or weakness of the country's underlying Balance of Payments position and exposure to speculative activity.

Foreign Direct Investment (FDI): Investment by a multinational company in establishing production, distribution or marketing facilities abroad. Sometimes foreign direct investment takes the form of greenfield investment, with new factories, warehouses or offices being constructed overseas and new staff recruited. Alternatively, foreign direct investment can take the form of takeovers and mergers with other companies located abroad. Foreign direct investment differs from overseas portfolio investment by financial institutions, which generally involves the purchase of small shareholding in a large number of foreign companies.

Free Trade: The international trade that takes place without barriers, such as tariffs, quotas and foreign exchange controls, being placed on the free movement of goods and services between countries. The aim of free trade is to secure the benefits of international specialization. Free trade as a policy objective of the international community has been fostered both generally by the World Trade Organization and on a more limited regional basis by the established of various Free Trade Areas, Custom Unions and Common Markets.

Futures Market or Forward Exchange Market: A market that provides for the buying and selling of commodities (rubber, tin, etc.) and foreign currencies for delivery at some future point in time, as opposed to a spot market, which provides for immediate delivery. Forward positions are taken by traders in a particular financial asset or commodity whose price can fluctuate greatly over time, in order to minimize the risk and uncertainty surrounding their business dealings in the immediate future (i.e. 'hedge' against adverse price movements), and by dealers and speculators hoping to earn windfall profits from correctly anticipating price movements.

Fiscal Policy: The budgetary stance of central government. Higher tax rates of reductions in public expenditure will tighten fiscal policy. There is considerable controversy about the appropriate weight of fiscal policy in economic management, relative to monetary policy. Most economists believe that the policy should primarily be directed towards maintaining a prudent level of borrowing, preferably according to certain rules.

Floating Capital: Capital which is not invested in fixed assets, such as machinery but in work in progress, wages paid etc. Synonymous with working capital.

Free-Market Economy: Strictly, an economic system in which the allocation of resources is determined solely by supply and demand in free markets, though there are some limitations on market freedom in all countries. Moreover, in some countries, governments intervene in free markets to promote competition that might otherwise disappear. Usually used synonymously with capitalism.

Free-Trade Zone: A customs-defined area in which goods or services may be processed or transacted without attracting taxes or duties or being subjected to certain government regulations. A special case is the freeport, into which goods are imported free of customs tariffs or taxes.

Frictional Unemployment: Frictional unemployment arises because of time lags in the functioning of labour markets which are inevitable in a free-market economy; there are search delays involved, for example in moving from one job to another. Frictional unemployment is conceptually distinct from structural unemployment, which results in heavy local concentration of unemployment, and of course, from unemployment arising from a deficiency of demand.

Futures: Contracts made in a 'future market' for the purchase or sale of commodities or financial assets, on a specified future date. Futures are negotiable instruments, that is they may be bought and sold. Many commodity exchanges e.g. wool, cotton and wheat, have established futures markets which permit manufacturers and traders to hedge against changes in price of the raw materials they use or deal in.

Gilt-Edged Securities: Fixed interest government securities traded on the stock exchange. They are called gilt-edged because it is certain that interest will be paid and that they will be redeemed (where appropriate) on the due date.

Gross Domestic Product (GDP): A measure of the total flow of goods and services produced by the economy over a specified time period, normally a year or a quarter. It is obtained by valuing outputs of goods and services at market prices, and then aggregating. Note that all intermediate goods are excluded, and only goods used for final consumption or investment goods or changes in stocks are included. The word 'gross' means that no deduction for the value of expenditure on capital goods for replacement purposes is made.

Gross National Product (GNP): Gross Domestic Product plus the income from investment abroad minus income earned in the domestic market going to foreigners abroad.

Giffen Goods: A good for which quantity demanded increases as its price increases, rather than falls, as predicted by the general theory of demand. It applies only in the highly exceptional case of a good that accounts for such a high proportion of household budgets that an increase in price produces a large negative income effect, which completely overcomes the normal substitution effect.

Globalization: The tendency for markets to become global, rather than national, as barriers to international trade (e.g. tariffs) are reduced and international transport and communications improve; and the tendency for large multinational companies to grow to service global markets.

Great Depression: The Depression that was experienced by many countries in the decade 1929-39. The Great Depression was associated with very high unemployment levels and low production and investment levels in the US and Europe, and with falling levels of international trade.

Greenfield Investment: The establishment of a new manufacturing plant, workshop, office, etc., by a firm.

Greenfield Location: A geographical area, usually unused or agricultural land (i.e. greenfield), developed to accommodate new industries.

Gresham's Law: The economic hypothesis that 'bad' money forces 'good' money out of circulation. The principle applies only to economies whose domestic money system is based upon metal coinage that embodies a proportion of intrinsically valuable metals such as silver and gold. Where governments issue new coins embodying a lower proportion of valuable metals, people are tempted to hoard the older coins for the commodity value of their metal content so that the 'good' money ceases to circulate as currency.

Hard Currency: A currency traded in a foreign-exchange market for which demand is persistently high relative to the supply e.g. the US dollar in the Indian context.

Hedge: Action taken by a buyer or seller to protect his business or assets against a change in prices. A flour miller who has a contract to supply flour at a fixed price in two months' time can hedge against the possibility of a rise in the price of wheat in two months' time by buying the necessary wheat now and selling a two months' future in wheat for the same quantity. If the price of wheat should fall, then the loss he will have sustained by buying it now will be offset by the gain he can make by buying in the wheat at the future price and supplying the futures contract at higher than this price, and vice versa.

Inflation: Persistent increase in the general level of prices. It can be seen as a devaluing of the worth of money.

Import Substitution: A strategy aimed at reducing imports to encourage domestic substitutes. Import substitution is pursued in particular by developing countries as a means of promoting domestic industrialization and conserving scarce foreign currency resources.

Indicative Planning: A method of controlling the economy that involves the setting of long-term objectives and the mapping out of programmes of action designed to fulfill these objectives. Unlike a centrally planned economy, indicative planning works through the market rather than replaces it. To this end, the planning process specifically brings together both sides of industry (the trade unions and management) and the government.

Indirect Tax: A tax levied by the government that forms part of the purchase price of goods and services. Examples of indirect taxes are Value Added Tax, Excise Duty, and Sales Tax. Indirect taxes are referred to as 'expenditure' taxes since they are incurred when income is spent, unlike Direct Taxes, such as Income Tax, which are incurred when 'income' is received.

Intangible Assets: Non-physical assets such as goodwill, patents and trade marks which have a money value.

Intellectual Property Rights: The legal ownership by a person or business of a Copyright, Design, Patent, and Trade Mark attached to a particular product or process which protects the owner against unauthorized copying or imitation.

International Monetary Fund (IMF): Multination institution set up in 1947 (following the Bretton Woods Conference, 1944) to supervise the operation of a new international monetary regime. The IMF is based in Washington DC and currently has a membership of 181 countries. The Fund seeks to maintain cooperative and orderly currency arrangements between member countries with the aim of promoting increased International Trade and Balance of Payments Equilibrium.

Infrastructure: That particular sector of the economy which is essential to, but does not contribute anything directly to the process of economic growth e.g. roads, airports, sewage and water systems, railways, the telephone and other public utilities. Also called social overhead capital, infrastructure is basic to economic development and improvements as it can be used to help attract industry to a disadvantaged area.

Inter-Bank Market: The money market in which banks borrow or lend among themselve for fixed periods either to accommodate short-term liquidity problems or for lending on. The interest rate at which funds on loan are offered to first-class banks is called the inter-bank offered rate (IBOR) or, in London, the London Inter-Bank Offered Rate (LIBOR).

Joint Venture: A business arrangement in which two companies invest in a project over which both have partial control. It is a common way for companies to collaborate - especially on risky high-technology ventures - without engaging in full-scale merger.

Joint Stock Company: A company in which a number of people contribute funds to finance a Firm in return for Shares in the company. Joint-stock companies are able to raise funds by issuing shares to large numbers of Shareholders and thus are able to raise more capital to finance their operations than could a sole proprietor or even a partnership. The directors must report to the shareholders at an Annual General Meeting where shareholders can, in principle, vote to remove existing directors if they are dissatisfied with their performance.

Laissez-Faire: The principle of the non-intervention of government in economic affairs. This idea was introduced by Adam Smith in his classic Wealth of Nations.

Labour Intensive Firm/Industry: A firm that produces its output of goods or services using proportionately large inputs of labour and relatively small amounts of capital. Clothing manufacture, plumbing and hairdressing are examples of labour-intensive industries.

Limited Liability: A liability that limits the maximum loss that a shareholder is liable for in the event of company failure to share capital that he or she originally subscribed.

Listed Securities: It means the shares of the Company listed with one or more Stock Exchange for trading after complying with the listing requirements.

Listed Company: A Public Limited Company, which satisfies certain listing conditions and signs a listing agreement with Stock Exchange for trading in its securities.

Merger or Amalgamation: The combining together of two or more firms. Unlike a takeover, which involves one firm mounting a 'hostile' takeover bid for the other firm without the agreement of the victim firm's management, a merger is usually concluded by mutual agreement.

Money Supply: The amount of money in circulation in an economy. Money supply can be specified in a variety of ways and the total value of money in circulation depends the definition of money supply. Narrow definitions of money supply include only assets withpossessing ready liquidity. 'Broad' definitions include other assets, which are less liquid but are important in underpinning spending. The size of the money supply is an important determinant of the level of spending in the economy and its control is a particular concern of monetary policy.

Moratorium: A temporary ban on repayment of debt or interest, for a specified time. For example, the freezing of debt repayment extended by advanced country governments and private banks to a developing country that is experiencing acute balance of payments difficulties.

Most-Favoured Nation: An underlying principle of the World Trade Organization (WTO) whereby each country undertakes to apply the same rate of Tariff to all its trade partners. This general principle of non-discrimination evolved out of earlier WTO endorsement of bilateral trade treaties, whereby if country A negotiated a tariff cut with country B, and subsequently country B negotiated an even more favourable tariff cut with country C, then the tariff rate applying in the second case would also be extended to A.



Multilateral Trade: International trade among all countries engaged in the export and import of goods or services.

Merit Goods: A commodity the consumption of which is regarded as socially desirable irrespective of consumers' preference. Governments are readily prepared to suspend consumers' sovereignty by subsidizing the provision of certain goods and services, for example education.

NASDAQ (National Association of Security Dealers' Automated Quotation): The exchange in New York that specializes in high-tech companies such as Microsoft, Dell and Amazon. The NASDAQ share price index monitors and records the share price movements of the companies listed in the exchange.

No-Delivery Period: Whenever a book closure or a record date is announced by a Company, the Exchange sets up a No-Delivery period for that security. During this period trading is permitted in that security. However, the trades are settled only after the no-delivery period is over. This is done to ensure that investor's entitlement for the corporate benefit is clearly determined.

Opportunity Cost: The value of that which must be given up to acquire or achieve something. Economists attempt to take a comprehensive view of the cost of an activity.

Ordinary Shares or Equity: A stock issued to those individuals and institutions providing long-term finance for companies. Ordinary shareholders are entitled to any net profits made by their company after all expenses, in the form of dividends. In the event of the company being wound up, they are entitled to any remaining assets of the business after all debts and the claims of preference shareholders have been discharged. They can vote at company Annual General Meetings

Outsourcing: The buying of components, finished products and services from outside the firm rather than self-supply from within the firm. It may be cost-effective sometimes to use outside suppliers or because outside suppliers are more technically competent or can supply a greater range of items. On the debit side, however, reliance on outside suppliers may make the firm vulnerable to disruptions in supplies, particularly missed delivery dates, problems with the quality of bought-in components, and 'unreasonable' terms and conditions imposed by powerful suppliers.

Oversubscription: A situation in which the number of shares applied for in a new share issue exceeds the numbers to be issued. This requires the issuer to devise some formula for allocating the shares. By contrast, under subscription occurs when the number of shares applied for falls short of the number on offer, requiring the issuing house that has underwritten the shares to buy the surplus shares itself.

Overdraft: A loan facility on a customer's current account at a bank permitting him to overdraw up to certain agreed limit for an agreed period. Interest is payable on the amount of the loan facility actually taken up, and it may, therefore, be a relatively inexpensive way of financing a fluctuating requirement.

Paid-Up Capital: That part of the issued capital of a company that has been paid up by the shareholders.

Paper Profit: An unrealized money increase in the value of an asset. An individual, for example, will have made a paper profit on his house if it is worth more now that it was when he bought it.

Per Capita Income: Income per head, normally defined as the national income divided by the total population. International comparisons of per capita income at current exchange rates need to be interpreted with caution.

Parkinson's Law: An observation by Professor C. Northcote Parkinson suggesting that work expands according to the time available in which to do it.

Par Value: The initial face value or nominal price of an ordinary share (as opposed to its market price). For example, a company may issue ordinary shares with a par value of say, Rs. 10 though its market price on the stock exchange may be higher or lower than this par value, depending upon current demand and supply for it.

Patent: The grant of temporary monopoly rights and control over new products, processes and techniques to their inventors by the government. Patent protection is seen as a way to foster technological progress by providing an opportunity for inventors and innovators to recoup development expenses and secure a profit reward for risk-taking. To minimize the danger of monopolistic exploitation, patents are granted for limited time periods only.

Payback Period: The period it takes for an investment to generate returns to recover in full original capital outlay. For example, a machine that costs Rs.1, 000 and generates a net cash inflow of Rs. 250 per year would have a payback period of four years.

Preference Share: A stock issued to those individuals and institutions that provide long-term finance for companies. Preference shares pay a fixed rate of dividend and are generally given priority over ordinary shares in receiving dividend. In the event of the company being wound up, they also have first claim on any remaining Assets of the business after all debts have been discharged. Generally, preference shareholders have no voting rights at company Annual General Meetings.

Progressive Taxation: A system in which tax is levied at an increasing rate as taxation rises. This form of taxation takes a greater proportion of tax from the high-income taxpayer. The greater the individual's earnings, the greater the rate of tax that is levied.

Pump Priming: Spending by the government on public works, etc. aimed at increasing demand to stimulate economic activity and raise national income. Increased government spending will, through multiplier effects, enlarge spending in other sectors of the economy, serving to reduce unemployment and increasing output.

Purchasing Power: The extent to which a given monetary unit can buy goods and services. The greater the amount of goods and service purchased with, say, Rs.10, the greater is its purchasing power. Purchasing power is directly linked to the Retail Price Index and can be used to compare the material wealth of an average individual from a previous time period to the present.

Planned Economy: An economy in which state authorities rather than market forces directly determine prices, output and production. Although planned economies can take a variety of forms, their most important features usually include:

(a) production targets for different sectors, of the economy, that determine the supply of different targets for different sectors of the economy, that determine the supply of different commodities;
(b) rationing of certain commodities to determine demand for them;
(c) price-and wage-fixing by state bodies;
Price-Earnings (P/E) Ratio: The quoted price of an ordinary share divided by the most recent year's earnings per share. The P/E ratio is thus the reciprocal of the earnings yield and a measure of the price that has to be paid for a given income from an equity share.

Real Exchange Rate: The exchange rate of a currency expressed in constant price terms to make allowance for the effects of inflation. For example, where a country experiences a higher rate of domestic inflation than its trade competitors, then its exports will become more expensive than those of competitors' exports and its imports cheaper than domestic products, unless its exchange rate depreciates to offset fully the inflation differential. In situations where exchange rates are fixed by international agreement or determined by market forces that do not reflect relative inflation rates, then nominal exchange rates can differ significantly from real exchange rate. A country's real exchange rate is the more important measure of that country's international competitiveness.

Recession: A phase of the business cycle characterized by a modest downturn in economic activity. Real output and investment fall, resulting in rising unemployment. A recession is usually caused by a fall in aggregate demand, and provided that the authorities evoke expansionary fiscal policy and monetary policy, it can be reversed.

Rediscounting: The purchase and sale of bills of exchange, treasury bills and bonds between their issues and redemption dates. For example, if a bond with a nominal value of Rs.1000 redeemable in one year's time is sold initially for Rs.900 (giving a Rs.100 discount on its formal redemption value), then it might be resold or rediscounted for Rs.950 after six months.

Reflation: An increase in the level of National Income and output. Reflation is often deliberately brought about by the authorities to secure full employment and to increase the rate of economic growth. Instruments of reflationary policy include fiscal measures (for example, tax cuts) and monetary measures (for example, lower interest rates).

Repo Rate of Interest: The Interest Rate charged by the Central Bank of a country on treasury bills to buyers (mainly the Discount Market Houses) when they repurchase new bills to replace maturating bills.

Recession: An imprecise term given to a sharp slowdown in the rate of economic growth or a modest decline in economic activity, as distinct from a slump or depression which is a more severe and prolonged downturn. Recessions are a feature of the business cycle. Two successive declines in seasonally adjusted, quarterly, real gross domestic product would constitute a recession.

Repo: Sale and repurchase agreement under which funds are borrowed through the sale of short-term securities on condition that the instruments are repurchased at a given date. Used between central banks and the money market as part of open-market operations. First developed in the United States, repos are also widely used as a borrowing method by large corporations, banks and non-banking institutions.

Share Buyback: The purchase by a company of its own shares, thereby reducing the amount of its issued capital share. Buybacks are undertaken to return 'surplus' cash reserves to shareholders; more particularly, they are undertaken to increase earnings per share and dividend per share and thus (hopefully) lead to rise in the company's share price.

Shell Company: A company that is not actively trading but that is still listed on the stock exchange. Such a company can be purchased in a reverse takeover by a company wishing to obtain a stock-exchange listing.

Statutory Liquidity Ratio: The proportion of total time and demand liabilities of a bank which are held in the form of cash and liquid assets. A relaxation in SLR has the impact of broadening the money supply, thereby making more credit available, while a rise in it denotes that now lesser funds are available for credit.

Sinking Fund: A fund into which periodic payments are made that, with Compound Interest, will ultimately be sufficient to meet a known future capital commitment or discharge a Liability. Such a fund may be used to finance the replacement of Fixed Assets at the end of their useful life or to purchase back company loan stock or debentures upon maturity.

Social Responsibility: A business philosophy that stresses the need for firms to behave as good corporate citizens, not merely obeying the law but furthering the interests of the stakeholders - shareholders, employees, customers, suppliers and the community.

Soft Loan: A loan with an interest rate substantially below that on a loan for a similar purpose and risk status. They are often given as a form of economic aid to developing countries by developed countries and international institutions and are used as a form of export subsidy. In addition, soft loans may be used to influence industrial location under a country's regional policy.

Secondary Market: A market in which assets are resold and purchased, as distinct from a primary market in which assets are sold for the first time. The stock exchange is a secondary market in which financial securities are traded, although it is also a primary market where these securities are issued for the first time.

Trade Deficit: The amount by which merchandise imports exceed merchandise exports.

Transaction: Any agreement between two or more parties that established a legal obligation. The act of carrying out such an obligation. All activities that affect a deposit account that are performed at the request of the account holder.

Travelers Check: A type of check designed especially for business or vacation travelers. The traveler pays for the checks in advance. Thus, the check is an order from the issuing company to pay on demand.

Underwriter: An analyst who reviews the supportive documentation to determine the risk associated with the loan request. The person who gives final loan approval.

Withdrawal: A removal of funds from a savings or checking account by the accounts owner.
Hey friend, thanks for sharing such a nice information and glossary of economics and it is going to help many economics students. Well, i am also uploading a document where you can find more detailed information on mentioned topic.
Attached Files
File Type: pdf Glossary of Economic Terms.pdf (117.7 KB, 0 views)
Friends: (0)
Reply With Quote
The Following User Says Thank You to For This Useful Post:
Reply

Bookmarks

Tags
economic, glossary, terms
Related to Glossary of Economic Terms
 

Similar Threads

Thread Thread Starter Forum Replies Last Post
Quotable Quotes on India vengabeats Articles !! 2 July 12th, 2013 06:07 PM
Leaders Space:::: nick18_in Articles !! 28 October 27th, 2010 09:25 PM
 


Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is On
Trackbacks are On
Pingbacks are On
Refbacks are Off


ManagementParadise.com is not responsible for the views and opinion of the posters. The posters and only posters shall be liable for any copyright infringement.



Search Engine Optimization by vBSEO ©2011, Crawlability, Inc.