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ECONOMIC TERMINOLOGY- A - B

PUBLISHED BY: SURENDER KUMAR
OCTOBER 25, 2012

   
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ECONOMIC TERMINOLOGY- A -  B

ACTUARY

A professional trained for assessment and management of risk and premiums for insurance  purposes. Usually employed by insurance companies and insurance regulators.

 

 

ADMINISTERED PRICES

The prices that are set by management decision rather than by market forces. 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 the management, though they will be altered in response to competition. The term administered prices is often used to refer to price-fixing by a  monopoly firm, a  cartel or a government body.

 

 

For example, until recently, the prices of petrol were under this kind of administered pricing mechanism but now, the pricing of petrol has been freed up. In nutshell, the price of petrol now depends on the interplay of pure market forces.

 

 

 

 

AMERICAN DEPOSITORY RECEIPT (ADR)

A document issued by a US bank against shares deposited with it or a bank overseas. The ADR gives title to the underlying shares and is traded as such on stock exchanges.

 

 

 

ANNUITY

A guaranteed series of payments in the future purchased for a lump sum. Annuities are described as 'certain' where payment is specified for a fixed number of years. A 'life' annuity payment continues until the death of the person for whom it was purchased. Annuities may be 'immediate', where thepayment begins on purchase, or 'deferred', where it starts at a future date. Some annuities offer protection against the erosion of the real value of income through  inflation, e.g. by a guaranteed increase of 5 % each year.

 

 


 

APPRECIATION

Rise in the value of  assets; the antonym of depreciation. Appreciation may be a result of inflation, increased scarcity or increases in earning power.

 

 

 

 

ARBITRAGE

The exploitation of differences between the prices of financial  assets or currency or a  commodity within / between markets by buying where prices are low and selling where they are higher. If wheat is cheaper in Punjab than in Goa after allowing for transport and dealing costs, it pays to buy in Panjab and sell in Goa. Similarly, taking a personal loan from a bank to repay one';s credit card dues is an example of interest arbitrage becaudse one can make significant svaings in the process.

 

 

Unlike speculation, arbitrage does not normally involve significant risks, since the buying and selling operations are carried out almost simultaneously and the profit made does not depend upon taking a view on future price changes. By eliminating price differentials, arbitrage contributes to the achievement of equilibrium.   Price discrimination between markets is difficult or impossible to exist where possibilities for arbitrage exist.

 

 

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ARITHMETIC PROGRESSION

An arrangement of numbers in which the differences between all successive numbers are the same, e.g. 2, 4, 6, 8, 10 ..... as opposed to Geometric Progression e.g. 2, 4, 8, 16, 32......



 

 

 

AUTHORISED CAPITAL

The amount of share capital fixed in the Memorandum of Association and the Articles of Association of a company as required by the Companies Act. Also called nominal capital or registered capital.

 



 

BAD MONEY DRIVES OUT GOOD MONEY

The idea that an injection of a low-quality coinage into an economy will discourage holders of high-quality coins from parting with cash. Before paper  money ( bank note) became 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 equivalent to the value of their metal content. Debasement of the coinage occurred when the face value was kept above the value of the metal content. 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, and is an early application of the idea of adverse selection.

 

 



BALANCE OF PAYMENTS

A compilation of the credit and debit transactions of a country with foreign countries and international institutions during a specific period. The entries in the account should, therefore, add up to zero but because of measurement problems they do not do so in practice and a balancing is required. Transactions are divided into two broad groups: (a)  current account, and (b) capital account. The current account is made up of trade in goods (also called merchandise or visible trade), and in services plus the profits and interest earned from overseas assets, minus those paid abroad. It is the current account that is generally referred to in 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.

 

 

The overall deficit or surplus in the balance of payments are balanced by movements in the  gold and foreign exchange reserves or liabilities to non-residents.  A current account surplus can be seen as an accumulation of foreign assets, and is thus equivalent to a form of national saving. It is certainly true that the balance of payments of different countries has tended to reflect savings levels. A deficit in the balance of payments is not always bad any more than a surplus.

 

 

 

 

BALANCE OF TRADE

The difference between a nation's imports of goods and services and its exports of them. It is the most important element of the  balance of payments.

 

 



BANKER'S CHEQUE

A  cheque drawn by a bank as opposed to the one drawn by a bank's customer. Banker's drafts are drawn at the customer's request and his account is debited when it is drawn. They are regarded as cash since they cannot be returned unpaid and are used when a creditor is unwilling to accept a personal cheque.



 

 

 

BANKRUPTCY

A declaration by a court that an individual or company is insolvent, i.e. cannot repay debts on the due dates. A bankruptcy petition may be filed either by the debtor or by his creditors requesting a receiving order. The debtor's assets are then realized and distributed among his creditors. Until he is discharged (i.e. has paid off his debts and been declared a discharged bankrupt in law), a bankrupt person may not get credit without declaring that he is an undischarged bankrupt, nor may he be a director in a limited company without permission from the court.

 

 

 


BARTER

Acquiring goods or services by means of exchange for other goods or services rather than for money. As of date, the system has been replaced by a token currency for economic exchange throughout the world.

 

 

A kind of barter has grown into a serious business activity. Companies specializing in barter deals offer to buy products in exchange for credits that the selling company can use to buy other goods and services (e.g. TV advertising time) specified by the barter company. These comapnies enjoy sufficient financial muscle to be able to obtain large discounts for the goods and services they purchase.


 

 

 

BEHAVIOURAL ECONOMICS

The science of understanding human decision-making more realistically than simply as a rational process. It draws on psychology, and very simply, can be seen as an attempt to describe how people appear to make and justify what seem like judgmental mistakes in traditional economic sense.

 

 

Several examples can be quoted from day to day decision-making under uncertainty. People put an undue stress on clearly visible but unlikely events e.g. winning the lottery, vis a vis an ordinary but  easily predictable result i.e. not winning the lottery. There is a bias towards maintaining the status quo in our decision-making. Thus, for example, employees automatically enrolled in a pension plan are more likely to continue than those not automatically enrolled, even if they can reverse the automatic choices made earlier.

 

 

 

 

BOND

A kind of fixed-interest security issued by central or state governments, municipalities, companies, banks or other institutions. Bonds are usually a form of long-term security but do not always carry fixed interest. They may or not be redeemable before tenure, and may be secured or unsecured.

 

 

 

 

BASE YEAR

The reference date from which an index number of a time series is calculated. For example, the price index of commodities produced in India has the base yera 2004-05. The base year may be changed to reflect any changes over time in the composition of items making up the index. 

 

 

 

BULLS AND BEARS

A bull is a person who buys shares in the expectation that in future, the prices of shares will go up. So he tries to buy as much as possible, setting off a sort of rat race in the stock exchange. Consequently, the share prices go up, because of plentiful demand but limited supply. In such circumstances, the sensitive index of that stock exchange will show an increasing trend and the market will show a bullish trend.

 

 


On the other hand,  a bear is a person who sells off shares in the apprehension that in future, the prices are likely to go down. So he tries to sell as many shares as possible, leading others to follow him. Such a situation will lead to emergence of many sellers but few buyers of those shares, leading to a fall in their prices. Such a trend will bring down the sensitive index and will  give rise to as a bearish trend.

 

 

 

 

BUYER'S MARKET

A market in which prices are falling due to an excess of supply compared with demand. For example, the telecom sector in India offers a buyer's market wherein the buyer has great choice in terms of choosing a service provider given the kind of competition in the sector.


 


 

BOLT 

Stands for Build-Operate-Lease-Transfer System. This is a policy applicable to infrastructure projects under Public-Private Partnership wherein an entrepreneur can build a project, operate, lease and transfer it to the government after a certain specfied period (during which he can charge for the services rendered). Such projects have come up in India in the form of toll plazas, super-express highways, roads, airports under the New Economic Policy.

 

 

 

BLACK MONEY

That part of the national economy which does not find a mention in the accounts books, and on which no income tax is paid to the government. That black money is indeed  a severe economic problem is proved by the fact that it makes up at least 50% of total Gross Domestic Product and several committees have investigated it. No tax is paid on such huge amounts of income and the government is deprived of its due share. It is virtually a parallel economy thriving beyond the pale of any law.

 

 

 

 

BLUE CHIPS

A nickname for equity shares of consistently, highly profitable and dividend-paying companies. The term comes from the game of poker wherein the blue chips have got the highest value. They are relatively safe from the viewpoint of investment. 

 

 

 

 

BLUE COLLAR JOBS

Very simply, factory-based jobs which may employ skilled, semi-skilled or un-skilled manpower. Rising mechanization and automation have greatly reduced the number of such jobs.

 

 

 

 

 

BRAIN DRAIN

The migration of professionally qualified manpower from one country to another country. Mostly, scientists, doctors and engineers generally migrate to more developed countries in search of better opportunities there. Such brain drain deprives the country of its valuable human resources.



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