BUSINESS TERMS AND GLOSSARY

Abatement Cost: Means the cost of abating a nuisance like pollution or congestion.
Abc method: Abc is a method of stock control in which each item is designated by the letter A ,B or C
depending upon its value relative to the total expenditure of production materials..A goods are lowvolume ,high cost items and C goods are the numerous low cost items. Also called split inventory
methods ,it is a simple and effective method of inventory gradation.
Absolute Cost Advantage: If country A can produce more of a commodity with the same amount of
real resources than Country B (i.e at a lower absolute unit cost ) ,Country A is said to have absolute
cost advantage over country B.
Accession Tax: In many countries it is a tax which is levied on gift and inherited property. Such
receipts have not been usually classified as income but as they confer speeding power they are
arguably a legitimate subject of taxation.
Accounting Equation: A statement of equality between debits and credits ,signifying A=L+C where A
=Assets,L=Liabilities and C= Capital.
Acid Test Ratio: The ratio of current liabilities to current assets excluding stocks.It is considered to be
a more accurate indicator of a companys health than the current ratio.
Act of God: A sudden or violent act of nature which is neither caused by ,nor can be prevented by
human intervention and cannot reasonably be expected to have been foreseen. Contracts are
frequently not enforceable where failure to perform is an Act of God;also known as force majeure.
Active Market: A market in which there is a lot of buying and selling .It generally indicates investor
confidence and high liquidity conditions. The market could be of stocks,metals ,grains etc
Active Partner: A part owner in a business partnership who is actively involved in the normal working
operations of the business.Also called general partner. One who doesent paricipate is a sleeping
partner.
Active Shares: Shares in which there are frequent and day to day dealings ,as distinguished from
partly active shares in which dealings are not so frequent. Most shares of leading companies would be
active, particularly those which are sensitive to economic and political events and are ,therefore subject
to sudden price movements. Some market analysts would define active shares as those which are
bought and sold at least three times a week. Easy to buy or sell.
Ad Valerom:This means according to value .Here duty assessement is based on the vaalue of the
tem.
American Depository Receipts: This refers to a receipt for the equivalent shares of an Indian
Company held by the custodian in India on behalf of the U.S. shareholder .Instead of buying such
shares of Indian companiess ,Americans hold ADRs in the USA.
American Stock Exchange(Amex):At 86 Trinity Place ,New York ,the second largest stock exchange
,in America.Till 1921,it was known as the Curb(=Brit Kerb) Exchange.
Appreciation:An increse in the value of an asset over its purchase price or book value.(Also the

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process of valuing an asset)

Arbitrage: Profiting from differences in price of the same share traded on two or more stock
exchanges. An arbitrageur makes money by buying in the lower market and immediately thereafter or
simultaneously sells it in the higher market .Buying shares in companies whose share price is likely to
rise because of possible takeover deals.The moving of funds from one market to another to benefit
from price differentials..Thwe price differential must be large enough to cover any transaction costs.
Arbitrage ensures that currency exchange rates are in harmony throughout the world ,since otherwise
there would be wholesale movements odf capital between the worlds financial centres.
Assesed Value: It is the value established by a government for real estate or other property as a
basis for levying taxes.
Asset: Any business resource both tangible or intangible acquired at a monetary cost and which is
expected tro be of benefit to the business for a period of time such as ,buildings , machinery etc
.Intangibles include goodwill etc.Any resource of a deceased or insolvent person from which claims may
be met.
Asset Liability Management: Relates to mange the maturity of deposits with the length of their
commitments to avoid interest rate risks.
Asset Value or Net Asset Value(NAV):Terms used by mutual funds, and other investment trusts to
indicate the net tangible asset value of each share. It is calculated by taking the total value of an
investment portfolio on market rates on a certain date and dividing it by the number of outstanding
shares.The net asset value of a mutual fund share indicates how well or badly the fund managers have
played the stock market.
Audit: The systematic examination of the records,books of account and financial documents of a
business in order to determine the accuracy of the recording of transactions and to verify the
statements and reports prepared during the period under review.This facilitates honest and proper tax
payments.
Average Propensity to Consume(APC): For the economy this is the total value of expenditure on
consumption , goods and services divided by the value of national income.
Backward Integration: The merger of one firm with another that is nearer the beginning of the
manufacturing process. Examples are a brewery with a hop grower or a publishing company with a
paper manufacturer. Backward integration may ensure constant supplies in a time of crisis but cannot
add to the organization's monopoly power.
Backward Linkage:Refers to the relationship between an industry or a firm and the suppliers of its
inputs.A change in the output of the industry or firm and the suppliers of its inputs. A change in the
output of the industry will get transmitted backwards to the supplier of its inputs by change in demand
for the inputs.
Balance of Payments(BoP):A comprehensive set of accounts recording as country's transactions with
other countries and with international organisations.It can be divided into two parts : the current
account and the capital account .The current account is composed of visible trade (the import and
export of tangible goods such as raw materials and machinery)and invisible trade .Services such as
banking , insurance and tourism).The capital account deals with the flow of funds out of and into the
country through investment abroad and internal; investment by foreign countries and organizations .If

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the balance of payments is persistently deficit or in suu8rplus the exchange rate of the counrtry's
currency is liable to fail or rise accordingly.
Balance Sheet:Statement of the financial position of a company on a particular date ,showing the
nature and amount of a company's assets and liabilities on a particular date , usually the end of the
accounting year.The assets include fixed assets , current assets (which include inventories,sundry
debtors,cash and bank balances)and loans and advances .The liabilities include shareholders
fund(equity capital plus reserves ).Loan funds (secured and unsecured loans ) and current liabilities.
and provisions.The assets and liabilities must balance.
Balance of Trade: The difference between the value of a country's exports and imports ,including
both goods and services but excluding the movement of capital and currency.
Bandwagon Effect:Refers to the effect whereby as the price of a good falls and demand by some
sections or individuals in the community expand other individuals or sections 'imitate' the reaction and
expand their demand also.
Bank Rate:The rate at which the Central Bank of any country is willing to discount first class bills.
Bank Reserve: The stock of money a bank must set aside to meet the demands of depositors.
Basis Point: 100 basis points make 1% of yield.
Batch Production: It is the type of production in which identical articles manufactured or processed in
groups rather than singly.Thus, shoes are generally produced in batches.
Bear:A stock market operator who expects share prices to fall and keeps selling (to pick up the
shares later at a lower price for actual delivery) ,causing selling pressure and lowering the prices
further.Term derived from the attacking posture of the bear,pushing downwards.
Bear Hammering:Persistent selling pressure by bears ,bringing the price down.
Bear Market: Prolonged period of falling share prices dominated by selling pressure in the market
place ,brought about by Bears , or adverse economic or political factors e.g. a chance in the industrial
policy of the government, imposition of the price control ,drought or flood ,free imports etc, or the
change in the government ,income tax raids etc.
Below Par: A price lower than the face value of a share .Thus face value of Rs. 10 or Rs. 100 ,is
selling below par for Rs. 6.50 or Rs. 87.
Bench Mark: A known point of reference against which characteristics may be measured ,especially
used for testing computer programs and equipment .A selected job against which others may be
assessed.
Beta:The measure of systematic or undiversifiable risk of a stock .
Beta Shares:Listed,but infrequently traded ,shares of companies with a generally low equity capital.
Bill of Exchange:A written instruction by one person (the drawer ) to another (the drawee) to pay a
named amount on the demand or on a future date.

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Black Economy:An illicit system of trade running in parallel with normal trade but operated in order
to avoid the payment of taxes, for example by not issuing invoices ,payment normally being in cash.
Black Market: A situation in which there is an illegal selling o goods at prices above a legal maximum
set by the government.
Bliss Point:A consumer equillibrium in which the consumer experiences the total satisfaction with
respect to the goods consumed and which point of satisfaction has been within his budget
constraint.Such a point can only take place if the consumer is not acting in accordance with the axiom
of dominance- i.e. if he does not always prefer more and more of all goods.In such circunmstances the
relevant indifference curves cease to have their usual (convex) shape and become complete circles.
Blue Chip:Shares of particularly well-known and established companies which have shown consistent
growth over the years,have bright future prospects and are expected to continue sustained growth in
the future.From casino gambling ,where the blue chip is usually the one with the highest value.
Bond:An instrument of loan raised by the government or a company ,against a specified interest rate
and a promised date of payment. Company bonds are called Debentures ,which are secured by
mortgage against company assets as distinguished from the fixed deposits accepted by companies
,which are unsecured.
Bonus Issue:When a company's Free Reserves are high ,it may choose to capitalize part of it by
issuing bond shares to existing shareholders in proportion to their holdings ,to convert the reserves into
equity. Bonus shares are issued free of cost , but since that number of shareholders ownership of the
company . After an issue of bonus shares the price of a company's share drops ,more or less in
proportion to the issue. However , since the /dividend rate is often maintained ,the shareholder gets a
larger yield on the increased holding and when the share price appreciates ,he makes further gains.
Bonus Shares: Issue of additional free(script) shares to existing shareholders in proportion to their
holdings when a company has built up considerable capital reserves.
Book Value:It refers to net amount shown for asset on the balance sheet .
Brain Drain:The emigration of highly educated and skilled profession and technical manpower from
the developing to the developed countries.
Brainstorming:A process in which a group of people ,frequently from different disciplines ,meet and
discuss problems ,hoping to solve these problems through insights gained in their exchange of ideas.
Brand: A name, term , sign ,symbol or design or combination of them which is intended to identify
the goods or services of one seller and to differentiate them from those of competitors.
Breach of Contract:The failure to -perform the terms of contract .The injured party has various
possible courses of action including suing for damage and applying to a court of law to secure the
performance of the contract.
Break- Even point: That level of activity of business at which neither profits/accrues or losses is
incurred total cost equating with the total revenue.Also called break -even performance.
Break -Even sales:It is the sales with no profit or loss .Also called break - even point .

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Brokerage: The payment charged by the broker for their services in arranging a contract .It is usually
expressed as a percentage of the monetary value of the contract.
Budget: A forecast of the government's expenditure and revenue for the forthcoming year together
with an announcement of its proposed changes oin taxation.The budget is the government's main
instrument of economic policy.Thus, we may witness a populist (soft) budget in an election year and a
hard budget in the immediate post-election period. A financial statement which evaluates the level of
activity planned by a business for a future time period.
Budget Deficit:When the expenditure of the government exceeds the revenue ,the balance between
the two is the budget deficit.
Budget Surplus:Budget in which total revenue exceeds total expenditure.
Buffer Stocks:Stocks of commodities held by countries or international organisations to moderate the
commodities price fluctuations.
Bull:A stock market operator who believes that share prices are going to rise ,and keeps buying to
sell later at profit.From the attacking posture of the bull ,giving an upward thrust.The bull's action
causes buying pressure in the market place and pushes up share prices. Harshad Mehta was a big bull
of Indian bourses.
Bull Market:Prolonged rise in the price of shares ,sustained by buying pressure of actual investors or
Bulls.News of favourable economic growth ,decontrol,political developments ,lifting of price controls
,budgetary concessions,etc. can trigger off a bull market.
Bullion:Gold and Silver ,usually in bar form which is regarded as a commercial commodity at
recognised degree of purity.
Buyback:A company's purchase of its own securities by an open offer to its shareholders ,often at a
price above the market price of the security.
Buyer's Market:A situation in which potential buyers of the commodity have an advantage over the
sellers ,because of overproduction etc.and are accordingly able to dictate terms such as a lowering of
the price,favourable credit arrangements and quicker delivery dates.One of the primary aims of the
present Indian economic reforms process is to create a buyer's market for most commodities in India.
Caeteris Paribus:A latin expression widely used in economic meaning "all else being equal" i.e. all
other variables are held constant.
Call Money: is a loan that is made for a very short period of a few days only or for duration of a
week.It carries low rate of interest.In case of a stock exchange market ,the duration of the call money
may be for a fortnight.
Capital Appreciation:Increase in the capital value of shares as their price increases over a period the
most important reason for investing in shares.Historically,the price of shares has always moved
upwards barring periodic corrections.
Capital Asset Price Model:It is a theory about how assets are valued.Its main feature is the distinction
between unique (or specific) risk which can be diversified by shareholders holding atleast a dozen

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portfolio of shares,and non-diversifiable market risk.

Capital Budget:A plan of proposed acquisition and replacement of long-term assets and their
financing.
Capital Gains Tax: A tax paid on the gains arising from the disposal (whether by sale,exchange ,etc.)
of assets.
Capital Market: Sources from which long-term capital is raised for the setting up and sustained
growth of companies.The stock exchange is a part of the capital market, not only because it readily
provides money for new or existing ventures but also because it helps investors to trade in their shares
and maintains the liquidity of investments. Investment in further public and rights issues ,convertible
and non-convertible debentures ,Therefore,becomes an attractive propositions and companies are able
to raise the resources they need.The capital market is distinct from the money market -banks and
lending institutions which provide short - term finance.
Capitalism:An economic system in which there is minimal government interference in production and
in which the means of production ,distribution and exchange are largely in private hands .The US is
commonly acknowledged champion of capitalism. According to Karl Marx,,capitalism is the stage in
political development following feudalism and to be succeeded in turn by socialism and finally by
communism.However,communism based on Marx's theory has failed miserably in its strongest
citadel(erstwhile USSR) and itself and it is largely acknowledged now that capitalism is a better way of
managing an economy.No economic system is perfect and a system can only be called better than
others to manage a particular economic structure.
Carat: A measurement of purity of Gold. A maximum of 24 carats indicates pure Gold.A unit of weight
which is used in diamond transactions.It is equal to 0.2 grams.
Cartel:An informal; association of companies which pursues policies designed to reduce or eliminate
competition between members through the establishment of Price, Production and Marketing controls.
Cartels thus hurt consumer interests badly by unilaterally increasing prices . Cartels may be national or
international ,government - owned or privately controlled.One international cartel is OPEC.A notorious
Indian cartel is the cement industry cartel.
Cash Cow:A share which yields a consistently high rate of dividends. Also ,a currently profitable
business,but none which does not have a very bright
growth prospects and is therefore used to fund other enterprises.
Cash Crops: Crops produced entirely for the market (e.g. Coffee,
Tea,cocoa,cotton,rubber,pyrethrum,jute,wheat ).
Cash Dividend:It indicates the usual type of dividend paid to stockholders.
Cash Flow:The cash receipts minus cash disimbursement from a given operation or asset for a given
period.
Cash Ratio:Refers to the ratio which banks maintain between their holdings of cash and their deposit
liabilities , and sometimes referred to as the cash reserve ratio.
Cash to Current Liabilities Ratio: It is a computation that measures a company's ability to satisfy short
term financial obligations immediately.

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Ceiling: Refers to the limit upward growth of output in trade cycle theory.The ceiling will be reached
when all factors of production have been utilised at their full capacity output levels.
Census: A count ,usually providing a social,demographic or economic information,of the total
population of the group studied.
Centralized Planning: The determination by the state of what shall be produced and how factors of
production shall be allocated among different uses.Centaral Planning is done at the "centre" and then
distributed to various sections in the economy.
Cheque: A written order of a banker authorizing him to pay a specified sum of money to a person
named in the order or to his order or to a bearer from funds deposited with the banker.
Chinese Wall: Water tight compartments in business houses which keeps the information of each
department confidential,so that those inside the company may not take advantage of or abuse such
inside information,for example by Insider Trading.
Clay-Clay: Refers to an aspect of the production function in the growth theory which does not permit
the capital labour ratio to be varied either before or after investment is carried out.
Closed Economy: An economy in which there are no foreign trade transactions or any other form of
economic contacts with the rest of the world.
Collateral: This describes an asset given as as a security for a loan.
Commodities Market: Market for trading bulk and basic goods like grain, edible oil, rubber, cotton,
yarn, jute, etc. An alternative form of investment fairly popular in the west, but only in its infancy in
India less liquid than shares.
Communism: An economic and social system which according to Karl Marx , is a classless society and
in which people work according to the principle:"From each according to his ability to each according to
his needs".Socialism is said to be the preparatory stage to the attainment of a communist society.
Companies Act 1956:Comprehensive legislation on the structure ,financing and operations of Indian
companies;their capital structure ;share capital;issue of shares at a premium, or in rare cases at a
discount; forefeiture of shares; right shares ;bonus shares; transfer of shares;listing requirement of
shares;rights of share-holders;dividends; reserves and liquidation of a company. The Act has been
amended from time.
Comparative Cost Methods: Refers to a method of comparing the profitability of alternative projects.
The method takes into consideration the initial cost of alternative projects only;it is possible to use this
method only where the output and profit of each competing scheme is the same.
Composite Break even point: This term is used to designate break-even sells when a company sells
more than one product or service.
Consumerism: A widespread movement which is concerned with the quality and safety of consumer
goods, with harmful advertising ,and the conduct of business in a manner harmful to the consumer.
Consumer Price Index(CPI):It means the ratio of the cost of specific consumer items in any one year

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to the cost of those items in the base year.

Contraband: Goods which are brought into a country illegally, without paying customs duty.
Cost of Capital: It is calculated as a weighted average of the costs of debt and equity funds.
Cost - of -Living Index: Refers to the index which measures the cost of living by comparing the prices
of a range of consumer goods against the prices of an earlier date,and expresses the difference as a
percentage.
Countervailing Duty: A duty imposed on imports as a response to similar duties imposed by other
countries or to ward off unfair competition.
Credit: It is the ability to buy an item or to borrow money in return for a promise to pay later.
Credit Instrument: A written document serving as either a promise or order to transfer funds from
one person/institution to another.
Credit Rating: The amount which a credit agency states a borrower is capable of repaying. Credit
Rating can be done for stocks, bonds or nations themselves. Some global credit rating agencies are
Standard & Poors (S&P),Moody's etc .CRISIL is the Indian agency rating bonds etc.
Crisil or Credit Rating Information Services of India Limited: Jointly sponsored by the Unit Trust of
India and the Industrial Credit and Investment Corporation of India(ICICI),CRISIL has been functioning
since January 1988.It rates the safety and timely payment of interest on debt securities like debentures
and fixed deposits of public and private sector companies.The rating subjected to periodic review , is
given in alphabetical symbols preceded by D for Debentures and F for fixed deposits.A rating of AAA
signifies highest safety ,AA high safety ,A an adequate safety ,B inadequate safety ,C high risk ,D
default.
Critical Path Method(CPM) :It means a technique in Program Evaluation and Review Technique(pert)
that uses a single time estimate for each activity.
Custom Union: Refers to a grouping of countries within which trade restrictions get abolished but
which is having a concerted commercial policy towards non-members and a common external tariff rate
may be varying between commodities.
Cybernetics: An inter-disciplinary science drawing on the fields of biology ,economics ,
management,etc to produce theories relating to the control and management of complex human
organizations and machine systems.
Cyclical Shares: Shares which rise and fall in price with the state of the national economy of such
industres such as construction ,automobiles,cement,engineering; or those affected by international
economy ,such as shipping, aviation and tourism ; also shares which are affected by international
economy,such as shipping aviation and tourism;also shares which are affected by natural
phenomenon;like fertilizers and tea.Non-cyclical shares would be drugs ,insurance,basic foodstuffs and
many consumer products.
Dalal Sreet: Popular names of the Bombay Stock Exchange ,which is located there .The B.S.E. is also
referred to as Jeejebhoy Towers .The same name stock exchange exists in Vadodara.

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Debentures: An instrument of debt called as bond ,called bond in the United States .A debentor
holder is a creditor to the company which the loans fund for a period of 7-10 years against a fixed rate
of interest.After the stipulated loan period the debentures are reedemed ,i.e. the loan is paid back
sometimes with a very small premium .Debentures are generally secured against the company's assets
.Convertible debentures can be either fully or partly converted into a certain number of shares ,usually
at a premium ,after a stated period of time.Convertible debentures may carry a lower rate of interest
than non-convertible debentures which are redeemed after the stated period.A very conservative
investment;there Is a little risk but also a little prospect of appreciation.
Debt-Equity Ratio :Also called financial Leverage ratio in he US. There are three methods of calulating
this ratio:
1) The total liabilities of a company divided by the shareholder's equity
2) The total long-term debt divided by shareholder's equity
3) The total long-term debt plus the par value of preference shares divided by the par value of equity
shares.
All the three ratios measure a company's solvency.
Debt Equity Swaps: Mechanism used by indebted LDCs to reduce real value of external debt by
exchanging equity in domestic companies (stocks) or fixed interest obligations of the government
(bonds) for private foreign debts at large discounts.
Debt Service Ratio: The interest and principal payments due in a year to export receipts for that year.
Decentralized Planning: Regionalized or sectoral planning as opposed to planning at the enter.
Defalcation:It means that unlawful and fraudulent misappropriation f property or funds under one's
control by breach of trust (e.g. embezzlement).
Deffered Liability:It is a debt where the payment this postponed beyond the present dte.
Deferred Revenue Expenditure:It is one which has both capital and revenue expenditures
Deficit:An excess of liabilities over assets or of expenditure over revenue.
Deficit Expenditure:Amount by which planned government expenditure exceeds realized tax revenues
.Deficit expenditure is normally financed by borrowed funds and its major object is to simulate
economic activity by increasing aggregate demand.
Deflation:It means the general decrease in prices.
Deflationary Gap:Shortfall in aggregate demand from the level of full employment aggregate supply.
Delinquency:This denotes failure to make a payment on a debt when due.
Demand Law :The principle which states that the quantity demanded of a commodity varied inversely
with its price ,all other determinants of demand remaining constant.
Demographic Transition:The phasing out of population growth rates from a virtually stagnant growth
stage characterized by high birth and low death rates,to a stable low growth stage in which birth and
death rates are low.

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Depreciation:
1)The reduction in the value of an asset through wear and tear ,obsolescence,etc.
2)An accounting device by means of which the value of an asset is converted into an expense for each
of the accountig periods during which the asset is expected to contribute value.
Devaluation:The reduction in the value of a currency in terms of other currencies ,usually affected by
a change in the official rate of exchange.A policy of devaluation may be employed by a government in
order to rectify a severe imbalance in the balance of payments.Deregulation of currency helps the
nation increase its exports because of the increase in cost competitiveness of its exports.
Dilution:It refers to a process which decreases a shareholder's equity interest,wh4en a company
issues additional shares to other shareholders.
Diminishing Returns: Manufacturing situation which exists when production expands at a rate which is
less than proportionate to the rate of increased use of the factors of production .This usually occurs in
conditions of maximum capacity or excessive use of facilities ,producing breakdowns, wastage etc.
Direct Allocation Methods: This is a method of allocating costs of each service department directly to
production departments.
Direct Labour Costs:The labour costs which can be identified with ,and allocated to,cost centres or
cost units.
Direct Mail Advertising:An advertising technique whereby the advertising message is sent by post to a
wide range of potential customers.
Direct Write-Off Method:It Is the way of charging debt expense when an account receivable is actually
deemed uncollectible.
Disinvestment: Specially, in the Indian context ,it refers to the process of offloading of shares in a
firm by a party .The government of India has partially disinvested its holding in several Public Sector
Undertakings (PSUs) with the ultimate aim of privatising them to increase accountability and
productivity.
Diversification:Expansion of a firm into an unrelated industry .Reasons for diversification include Riskspreading ,the avoidance of seasonal trade fluctuations,or ensuring increase of growth
rate.Diversification unlike vertical integration with which it otherwise has similarities ,cannot increase
monopoly power.
Dividend:Payment made to shareholders , usually once or twice a year out of a company's profits
after tax .Dividend payments do not distribute the entire net profit of a company ,a part or substantial
part of which is held back as reserves for the company's expansion .Dividend is declared on the face
value or par value of a share and not on its market price .There is no legal compulsion on the company
to pay a certain minimum dividend on equity shares.
Dividends in Arrears: These refer to the amount of dividends on Cumulative Preferred Stock from past
periods that have not been paid.
Division of Labour:A method of organising the production process which involves the specialization in
separate operations by different individuals.This assists the expansion of output through the
development of operator skills and dexterity ,the minimizing of delays involved in transferring to other

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operations and the potential for mechanical assistance arising from the simplification of work .Such
concentrated monotonous work arising from specialization may m, however, ,have adverse
psychological effects on operatives.
Double-entry book-keeping:It is the record of transactions that require entries in at least two
accounts.
Dry goods:Goods such as textiles,drapery etc.,as opposed to perishables ,such as grocery articles .
Dual Economy:Refers to a term descriptive of an economy undergoing important developments in say
both primary and secondary industry.In the case of Japan,dualism refers mainly to the concomitance
,in the same areas of a country and often within the same industry sector,of very advanced large-scale
firm and small low-productivity establishments (not frequently employed as subcontractors by the
larger companies).
Dual Price System:Government operated pricing mechanism whereby producers of ,say, a staple crop
are paid a different price from the one consumers(mostly urban consumers) are charged.In short ,any
two price systems ,one for the sellers and the other for the buyers .
Dummy Variable:Refers to a binary on-off variable which is designed to take account of exogenous
shifts (shift dummy) or changes of slope in an econometric relationship. For example, dummies can be
used to account for seasonal influence in the data. For example,dummies can be used to account for
the seasonal influences in the data.
Dumping:The practise of selling a product in different markets at different prices. The term is more
generally used to describe the practise of selling goods abroad at prices below the cost of production or
below the competitive price level in order to achieve some income. Dumping is one of the few practises
which ,it vis generally agreed ,may be protected against by the imposition of import duties.
Duopsony:Refers to market situation in whi8ch there have been only two buyers of a particular good
or service.
Earnings per share(EPS):The profit accruing to stockholders for each share held.
Easy Money Policy:A government economic policy which encourages the expansion of the economy by
making money more easily available for investment.
Economic Cycle: The period during which an economy expands ,then slows down and then expands
again.
Economic Growth Rate:This refers to the rate of change in the gross national product. economic
growth rate refers to nominal economic growth rate adjusted for inflation.
Economic Order Quantity:That quantity of material or items which id the most economic to order and
to stock ,taking into account all relevant factors .Thus , it would reflect quantity discounts tied up
capital cost ,spoilage,,transport cost etc.
Economic Order Quantity(EOQ) Model :?(2(Annual Demand) (Order Cost)/Carrying cost per unit)
Economic Planning:A deliberate and concsious attempt by the state to formulate decisions on how the
factors of production shall be allocated among different uses or industries thereby determining how

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much of total goods and services shall be produced in the ensuing period(s).
Economic Sanctions:Restrictions of trade within a country imposed by another government with the
aim of changing that country's political system or of restricting that country's activities on the
international scene.
Economics:The scientific study of human behaviour relating to the allocation of resources in order to
satisfy personal and national requirements.
Economic Value Added(EVA):This is a very near measure of economic profit and it is calculated by
deducting from operating profit a charge representing interest on all capital employed.
Elasticity of Demand:The extent of a response of a demand for a product to a
change in its price.It may be expressed mathematically by dividing the percentage change in the
demand by such factors as the availability of substitutes and the nature of profit i.e. a necessity or a
luxury
Externalities: External benefits for which no payment has to be made and which are external; to a
household or a firm.
External Economics (and Diseconomies) of Scale: Economies that are available to a firm on account of
concentration of industry at one place ;economies of localization in the form of cheaper transport
,development of labour market ,availability of cheap finance etc. Diseconomies may result from
opposite tendencies raising the prices of inputs.
Ex officio membership: Membership of a committee which derives not from election but from the
position which the person holds within an organization.
Excise Duty:A tax levied on domestically produced goods at the production stage such as beer,spirits
and tobacco ,or raised as fees for the license permitting the manufacture of such goods. Excise duties
are collected and administered by local authorities and the Customs and the Excise authorities.
Exchange Rate Party:The fixed rate price relationship at which two currencies are convertible.Parity is
determined by government policy and maintained by various measures, including ,for example ,the
operation of the exchange equalization account.
Excess Reserves:Reserves in excess of the bank's legal reserves ;this determines bank's additional
lending power.
EuroDollars:Dollar funds held in European commercial banks.The funds provide a short -term
international loan finance and supplement the currency reserves of the European central banks.
Estimated Liability :The obligation or service that actually exists but the amount requires estimation.
Ergonomics:The scientific study of people at work. It attempts to obtain greater efficiency from both
men and machines through improvement in the design of machines ,in work routines and in the
working environment.
Equity shareholders: They are the owners of the company ,sharing its risks ,profits and losses .They
have a residual claim on the earnings and assets of a company .They are paid their share of company's
profit after all their claims are met,and in the event of liquidation of the company they share whatever

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is left of the company after all its creditors have been paid.They enjoy limited liability , i.e ,liability only
to the extent of their shareholding.
Equity Beta:A coefficient that describes the sensitivity of an equity shares return to that of the whole
market.
Equitites:Shares in companies ,as distinguished from other kinds of investment such as Gold, real
estate ,debentures fixed deposits ,units in mutual funds ,government bonds ,etc.
Equillibrium Wage Rate: The wage rate that equates the demand for and supply of labor i.e. the wage
at which all the people who want to work at that wage are able to find jobs and also at which
employers are able to find jobs and also at which employers are able to find out all the workers they
desire to employ .In other words , it is the wage rate that clears the labor market.
Equillibrium Price: The price at which quantity demanded equals quantity supplied. In a free market
the price is set by a reference to the interactions of the forces of demand and supply .In this situation
there is no impetus for the supplier to alter his output or for the consumers to change their buying
habits .
Equation Method: This method is used to find the break - even point or Target - Income volume in
Cost - Volume Profit (CVP) analysis or break-even analysis.
Enterpreneurship (or Enterprise):As factor of production in modern economies , the organizer of
production ,raising the capital required ,organizing management of the business, making essential
business decisions,bearing risks and repeating the gains of success and loss of failure.Joseph
Schumpeter considers innovation as the essential function of an entrepreneur in the capitalist system.
The Entity Theory:The view in which the business or other organization has a separate accountability
of its own.
Engel's Law:Ernest Engel ,the 19th century German Statistician who analysed the budget data of
working families and established the relationship between the family's income and expenditure on
different items. According to the law, when a family's income increases the percentage of its income
spent on food decreases.
Face Value:It is the amount of debt obligation (e.g. note,bond,mortgage) or equity security that is
stated in the instrument.
Factor-Price Distortions:Situations in which factors of production are paid prices that do not reflect
their true scarcity values (i.e. their competitive market prices) because of institutional arrangements
whi8ch tamper with the free working of market forces of supply and demand.In many LDCs the prices
paid for capital and intermediate producer goods are artificially low because of special capital
deprecation allowances,tax rebates ,investment subsidies ,etc.,while labour is paid a wage above its
competitive market value partly because of trade union and political pressures.Factor - price distortions
techniques of production.
Fair Market Value: The amount that could be received on the sale of an asset when willing and
financially capable buyers and sellers exist.
"False -Pardigm" Model of Underdevelopment:The proposition that Third World countries have failed
to develop because their development strategies (usually given to them by Western economists) have

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been based on an "incorrect " model of development ,one that ,for example ,overstressed capital
accumulation without giving due consideration to needed social and institutional change.
Feasibility Study: An investigation of a proposed or existing plan or project in order to determine its
technical and financial viability.
Financial Accounting(FIs) :Government and public corporations like the Life Insurance Corporation of
India ,the Unit Trust of India ,and other mutual funds with large chunks of shares when prices are
falling,generally Providing support to the market. They also support ,to a considerable extent ,new
public issues , and playing an important role in the Primary Market as well. The presence of the
financial institutions in the stock market , and their large-scale participation of its activities ,has been
responsible for the market behaving in a fairly steady fashion.
Financial Liberalization :Eliminating various forms of government intervention in financial markets
,thus allowing supply and demand to determine the level of interest rates.
Financial Risk:This refers to the extra sensitivity of a stream of equity earnings due to debt in the
capital structure .
Finished Goods Inventory: It represents a current asset in the balance sheet.
First In ,First Out(FIFO):Pit is a method of inventory valuation that assumes that merchandise is sold
in the order of its receipt.
First -Line Management: Managers who have immediate contact with the workforce .
Fiscal Policy: A policy under which the government uses its expenditure and revenue programmes to
products effects to avoid undesirable effects on the national income, production and employment.
Fixed Assets: Those resources which are expected to be of continued value to a business over a
number of years.The cost of such businesses over the number of years .The cost of such assets
(buildings,plants ,etc.) is generally written off against the profits of the years during which benefit is
derived from them.
Fixed Deposit: Refers to a deposit account which pays an unchanged rate of interest over a stated
period.
Fixed Input Coeffecients:A phenomenon in the economics of production in which any level of output
requires a fixed ratio of factor input -e.g. ,3 units of labour are always required to produce 10 units of
output so that in order .To produce 50 units of output, 15 units of labour will be required.The labour
(input) coeffecient (L/O) in this case would be 0.3 (3/10).
Fixed Exchange Rate: It is the difference between actual fixed overhead incurred applied to
production.
Flagship: Most important item in a company's product line .A Flagship company is the most important
company in a conglomerate . e.g. Tisco n the Tata Group.
Flexitime: A system where workers can start or stop at different times in the morning and evening
,provided that a certain number of hours are worked per day or per week.Flexitime systems are useful
in that they may allow workers to allow workers with young families to take - up full time employment.

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They also help to stagger peak periods of rush -hour travelling.

Float:
1.To launch a company ,scheme or enterprise
2.To sell an issue of shares or bonds upon the formation of a company .
3. Uncollected cheques in process of transfer between banks.
4. A reserve, especially of cash.
Floating Charge: A restriction of the disposal of the current assets on the business , arising from a
loan or debenture on which the assets are pledged as security.In case of a winding-up the loan creditor
has a prior claim to these assets.
Floating Exchange Rates:The rate at which domestic currency may be exchanged for foreign currency
or Gold, being determined by the interactions of the forces of demand and supply for the currencies of
.A government may , however , operate to prevent wide daily fluctuations in the exchange rate. Also
called free exchange rates.
Floating Policy: An insurance policy covering goods of differing values and in the varying locations
,such as the stock within a manufacturer's premises, whose value cannot be accurately calculated
beforehand. At the end of the year ,disparity between the cost of the floating policy and what should
have been is made up.
Foreign Exchange Rate:Price of domestic currency in terms of foreign currency.
Foreign Currency Reserves:The reserves held by one country in currencies of other countries ,used to
support its own currency and pay foreign debts.
Foreign Exchange:The process of trading one currency for another.This takes place on the
international market rates where trading sets the exchange rates of the currencies. Foreign currency is
required by individuals ,businesses and governments to finance the purchase of goods And services and
to make loans to other countries.
Fortune-500:An annual listing by Fortune magazine of the 500 largest U.S./non U.S. industrial
corporations by their assets,net income, equity capital , EPS etc.A Fortune 500 company signifies a
major company.So ,too, Forbes 500 ,the 500 largest public companies.
Forward Exchange:A system from protecting from fluctuations in exchange rates, whereby a definite
quotation in the present is obtained for the purchase or sale of a foreign currency at a future date. This
can be a fixed date or an option date which is generally at any time up to a normal maximum period of
three months from taking the option to completion of the contract.
Free Economy: An economic system in which productive activity and trade are conducted without
interference from external influences such as government regulations .No economy in the world is
100% free.
Free Trade Area: A trading arrangement entered into by a number of countries whereby tariffs and
trade restrictions between the participants are eliminated, each country retaining its independent trade
arrangements
with other countries outside the trade area.
Futures:Securities or goods bought or sold for future delivery. There may be no intention to take

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them up but to rely upon price changes in order to sell at a profit before delivery.
Future Contract:It is an agreement to buy or sell a given amount of a commodity or financial
instrument specified price at a specified future date.
Future Value:It is an amount to which an investment will grow at a future time if it earns a specified
interest that is compounded anually.
Golden Handshake: Compensation paid to an executive of a company and especially on his
retirement.
Gold Reserves:That part of a country's reserves which is represented by the holding of the Gold.
Greenfield site:A site for a factory or other business premises ,situated in the country and not
surrounded by other buildings.
Green Revolution:The revolution in grain production associated with the scientific discovery of new
hybrid seed varieties of wheat, rice and corn which have resulted in high farm yields in many LCDs
Greenshoe:This is a clause in an underwriting agreement wherein the event of oversubscription ,the
issuer will authorize additional shares for distribution by the underwriter.
Gross Domestic Product:The value goods and services produced in an economy by aggregating
incomes of employmenmt,profits,dividends,etc.(i.e. factor cost which is equivalent to market values
less purchase tax plus subsidies).It is equivalent to gross national product less than the value of the
net property abroad.
Gross Domestic Investment: Consists of the outlays for additions to the fixed assets of both the
private and public sectors plus the net value of the inventory changes.
Gross Domestic Savings:It is calculated as the difference between gross domestic investment and the
deficit on current account of goods and services (excluding net current transfers).It comprises both
public and private savings.
Gross Income: It is the amount of money earned from the sale of goods minus the cost of the goods
sold.
Gross National Expenditure: Total expenditure by the four sectors of an economy-households
,governments,business and foreigners - on a nation's output of goods and services ;equals by definition
the Gross National Product.
Gross National Income:Gross National Product from the income side : consists of national income at
factor cost - wages+ rent + interest + profit + indirect taxes and capital consumption.
Gross National Product:The total monetary value of all the goods and services produced by a country
in a year ,expressed either at factor cost or at market prices.
Hammering:Concerted selling of shares by operators to bring the price down ,often short selling
heavily.Term associated with bears.

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Hard Currency:A currency which has a stable o0r upwardly mobile exchange rate.Consequently,it is
an acceptable medium for international trade.
Import Duty:A tax levied on goods entering a country.The rate of tax maybe ad valerom (i.e.
according to the value of the goods) or specific (i.e. a specific rate for a particular type of good
).Imports which are subsequently reexported may have any duty paid refunded.
Import Licence:A government license which permits the unrestricted entry of goods published in the
negative list of Trade Policy.
Import Quota:An official maximum quantity placed upon the import of a specific type of good.The
maximum may be related to the importation of a good from a particular country or the total imports of
a particular good.
Income per capita:Total GNP of a country divided by the total population.Per capita income is often
used as an economic indicators of the levels of living and development.It however can be a "biased"
index because it takes no account of income distribution and the ownership of the assets which are
employed to generate that part of income.
Income Tax:A tax which is levied on personal income.The bases of asesement vary from and
collection vary for different types of incomes and are detailed in the various tax schedules.
Income Tax Returns :A completed form which officially declares income to the tax authorities .
Incorporated Company:A company registered with the Registrar of the Companies ,having completed
formalities associated with registrations.Incorporations secures the priveleges and imposes the
obligation which are specified in the Company Acts such as the privelege of limited liability ,the
obligation to present annual accounts,etc.
Index: A measurement of the trend of share prices. It is not just an average of share prices , but
weighted to reflect a dual script. Thus , a 25% price fluctuation in a scrip with a small shareholding
may have a much less impact on the market han a 3% fluctuation in a widely held scrip.The index thus
gives an idea of the value change in share prices rather than just price change.The most widely known
share price indices are the Dow Jones Industrial Aveage Standard & Poor's 500 in New York,the
Financial Times Stock Exchange 100 Index or FT-SE (affectinately called 'Footsie') in London, and the
Economic Times ,Financial Express ,Business Standard and Bombay Stock Exchange Sensitive Index
(SENsex)in India.
Indirect Taxation:A form of taxation which is levied and collected from someone other than the final
recipients of the goods in question .The tax is legally passed on by the payer to the final consumer by
the way of the payer to the final consumer by the way of an inflated sales price.An example is value
added tax.
Inflanationary Gaps:An aggregate expenditure that exceeds the maximum attainable level of output
with the result that there occurs upward pressure on prices.
Infrastructure:It reflects the basic backbone of any economic system .It is the capital which has been
invested within an economy, which is peripheral to economic activity ,e.g. a transport network ,or
which contributes to the social well-being of the community e.g. health and education services .Other
examples:oil,power coal ,cement,telecommunication ,etc.A fundamental difference between the
developed nations like the US and developing nations like India is related to the quality of

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infrastructure.Infrastructure requires development requires massive resources which the governments

of developing nations find hard to mobiliseHence private sector participation becomes crucial.
Insurance:A contract whereby one Party , the Insurer, in consideration of the certain sum ,the
premium ,identifies the other party ,.the insured against loss resulting from the occurrence of certain
events. The contract is always for a determinable period ,either of fixed duration or on the occurrence
of some specified event.
International Labour Office :An inter - government organisation which was establishe din 1919 by the
Treaty of Versailles and finally became a specialised agency of the United Nations in 1946.The aim of
organization is to promote international organisation regarding policies designed to achieve full
employment , improve working conditions, extend social security and raise general living standards.
International Monetary Fund: An organisation established as a result of the
Bretton Woods Agreement ,1945 ,creating a fund of Gold and domestic currencies subscribed by
member
countries. The general objectives of the fund are to promote International Monetary Cooperation and
thereby
to encourage international trade .Member countries may purchase currencies from the fund in order to
finance a short-term balance of payments deficit .However if a country borrows deeply from the IMF
,the
loan may be conditional on the country following the fund's advice.
International Poverty Line:An arbitrary international real income measure usually expressed in
constant dollars (e.g. $200),used as a basis for estimating the proportion of the world's population that
exists at bare levels of subsistence-i.e. those whose fall incomes fall below this certain level of poverty
line.
Joint Venture:A partnership formed for a particular purpose as a specific adventure ,speculation ,etc.
popularly called a JV.
Kiting: An accomodation bill, a cheque drawn by someone who knows there is no money in the bank
account he is drawing on.
Land Reform: Deliberate attempt to reorganize and transform existing agrarian systems with the
intention of improving the distribution of agricultural incomes and thus the fostering rural development.
Last In First Out(LIFO):It refers to an inventory method in which it is assumed that goods are sold in
the reverse order of their acquisition.
Laws of Supply and Demand:The general rule that the amount of the product which is available is
regulated by the needs of potential cusdtomers.
Levy:It means imposition or collection ,usually by legal or governmental authority,upon assessement
of a specified amount.
Limited Company:Although a limited company has quite a few characterstics,the 'limited' refers to the
liability of the members ,which is confined to the face value of the shares they have bought.A company
is a legal entity i.e. it can enter into contracts as a person ,independent of its members. Most large
companies , public or private ,are limited by shares ,the number or which is stated in its memorandum
of association .A public limited company needs a certificate of incorporation from the Registrar of

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Companies.
Liquidation:
1.The conversion of assets ,e.g. stock,debtors into cash
2.The settlement of a debt.
3. The bankruptcy proceedings of a limited company.
Listed company:A company whose shares can be bought and sold on the Stock Exchange which
publishes the share price.
Listed Shares:Shares which are registered by a stock exchange for trading advantages.They are
traded in the Stock Exchange which is a
Fair market place.They are liquid .The price is determined fairly. There is a continuous reporting of their
prices.Full information is companies.There are strict regulations for the protection of those who buy and
sell
shares on the stock exchange.
Literacy:The ability to read and write .Literacy rates (Percentage of population aged and able to read
and write) are often used as one of the many social and economic indicators of the state of
development within a country.
Loan Capital:It means short - term long -term liabilities that have a due date and an interest payment
clause.
Macroeconomics:The study of aggregate economic behaviour.Topics covered by it include the overall
level of investment ,the amount of consumption , taxation , etc.
Malnutrition:A state of ill-health resulting from an inadequate or improper
Diet usually measured in terms of average daily protein consumption.
Manpower:In ordinary language ,manpower means the organisation of work force for its utilization in
different sectors of the economy.
Margin of Error:
1. The number of mistakes which are acceptable in a document or a product.
2. The amount by which a forecast or budget may differ from the
actual result.
Market Capitalisation : Refers to the value of a company the price of its shares on the stock exchange
by the number of shares issued.
Market Economy: A free private enterprise economy governed by consumer sovereignity, a price
system,
and the force of supply and demand.
Market Mechanism:The system whereby prices of commodities or services freely rise or fall when the
buyer's demand for them rises or fall when the buyer's demand for them rises or falls or the sellers
supply of them decreases or increases.
Market Price: The price which prevails in the market at any particular time.

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Market Research: The price which prevails in the market at any particular time.
Market Research: The determination of the prospective demand for a product through the testing of
consumer reactions to products,questions about preferences and application of statistical techniques in
order to evaluate responses.
Merger: The amalgamation of two or more business into a single entity. It is formally achieved ;(a)by
the dissolution of both companies and the creation of a new company with the combined assets of the
previous companies;(b)by the formation of a holding company - the existing companies continue but
with a controlling portion of the share capital being taken up by the holding company.Example:Merger
of TOMCO with HLL.
Microeconomics:That branch of economics concerned with individual decisions units-firms and
households and the way in which their decisions interact to determine relative prices of goods and
factors of production and how to determine relative prices of goods and factors of production and how
much of these will be bought and sold.The market is the central concept in microeconomics.
Mixed Economy: An economy in which activity is organised by a combination of individual ,business
and state enterprises.Most countries have mixed economies , although the ratio of public to private
industries differs greatly.India is a classic example of a mixed economy which is now slowly converting
to a capitalist form.
Money Market:Financial Institutions collectively ,including discount houses,commercial banks and
discount houses,commercial banks and accepting houses ,which transacts business relating to shortterm finance
e.g. bills of exchange ,treasury , bills etc.The market also incorporates the foreign exchange market
with
transactions in international currencies.
Monopoly Price:Price determined in a monopolistic market ; it is a point where MC=MR,where
MR<AR.Monopoly Price is generally ,though not always, higher than the competitive price determined
by equality between MC and AR.
Mortgage: An interest in property which is transferred by the borrower of money (mortgator) to the
lender (mortgage) as security for the loan.Failure to repay the loan may result in mortgage suing for
repayment or foreclosing ,subject to the mortgator's equity of redemption.
Mutual Funds:These are operated by investment companies and banks, which raise money from
shareholders and invest in large variety of securities like shares ,debentures, bonds and money market
instruments set up for a limited period or with no winding up date. The investors thus have the
advantage of owning a truly diversified portfolio which offers attractive annual dividends and a
reasonable price appreciation, considering that the risk factor is minimal. Mutual Funds may be
aggressive in their investment or conservative.The investor has to consider his investment objectives
and choose amongst them.
National Debt:The total debt owed by the government to the general public comprising both long and
short - term loans.
National Expenditure:Total expenditure on final goods and services in an economy over a given time
period.National Expenditure (E) includes consumption expenditure(C) , investment expenditure
(I),government expenditure(G),and expenditure on imports by foreigners (X) less expenditure on

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imports by domestic residents M.Thus, E=C+I+G+(X-M).

National Income:The sum of the value of goods and services available to an economy through its
economic activity in a given time period .The income may be evaluated(a)by adding the income
generated by economic activity e.g. wages,salaries,dividends,profits and net income from abroad;(b)by
adding the prices of goods and services less indirect prices plus subsidies ,together with government
expenditure.Both methods produce similar totals and the movement in the total is indicative of the
economic process over time ,once allowance is made for price inflation population growth ,etc.Growth
of national income need not be synonymous with improvement in loving standards.
Nationalization:The acquisition of the state of the ownership and operation of a property , industry ,
or company.For example: the nationalisation of Indian Banks by Indira Gandhi.
Net National Product:Total market value of goods and services in an economy in a year ,for
consumption or for investment (adding to its capital stock) ; obtained by reducing GNP by depreciation.
New York Stock Exchange :At 11 Wall Street, New York ,Established 1792,the oldest and largest ,and
the best - known among the stock exchanges of the world. Around 2300 shares are listed there ,and
approximately 60% of the U.S. stock trading is the done at NYSE.
Non Executive Director: A director who attends board meetings and gives advice, but does not hold
an executive position with the company.Non - executive directors can be seen as more impartial than
working directors, and are possibly able to represent the interest of the shareholders.
Non Tariff Trade Barrier: Barriers to free trade that take forms other than tariff such as quotas
,sanitary requirements for imported meats and dairy products.
Odd Lot: In the stock market shares are generally bought and sold in Market lots ,which are easy to
trade. Any number of shares less than the market lot is an odd lot. Also ,if the market lot of a share is
100,a single share certificate of a different denomination whether smaller or bigger is an odd lot. Odd
lots , typically , arise from Bonus or Right Issues.Apart for the difficulty in buying or selling . Apart from
the difficulty in buying or selling odd lots,there is another disadvantage : you may have to sell an odd
lot at a price 10% -15% lower than the price quoted for the market lot.
OPEC(Organization of Petroleum Exporting Countries):An organization consisting of the 13 major oil
exporting countries of the Third World that acts as a "cartel" or "oligopoly" to promote their joint
national interests .Members include Saudi Arabia , Nigeria,Venezuela,Libya,Kuwait,United Arab
Emirates,Iran ,Iraq-Equador,Qatar,Gabon and Indonesia.
Open Economy:An economy that encourages foreign trade and has extensive financial and non
financial contracts with the rest of the world, e.g., in areas such as education.culture ,technology.
Open-Ended Investment Company:A publicly held investment company with a diversified portfolio of
investments, which can sell more and more shares and become larger. Its shares are issued at prices
fixed from time to time and can be redeemed at prices announced by it.The Unit Trust of India is an
open-ended investment company.
Open Market Operation:The purchase or sale of securities by the Central Bank to influence the supply
of funds in capital market ,and so interest rates and the volume of credit.
Operating Income:It refers to revenue less cost of goods ,sold and related operating expenses

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applicable to the normal business activities of the entity.

Operational profit or loss:The profit or loss made by a company in its normal trading , not including
property or asset sales , etc.
Operational Research:The application of scientific principles and methods to the problems of business
strategy by the systematic study of all available resources. With the increasing complexity of business
problems and the need to quantify diverse scientific approaches ,applied mathematics has become an
integral part of operational research.
Optimization Principle:A principle which states that in order to minimize costs in production or
maximize "satisfaction" in consumption ,scarce resources should be used in the economically most
efficient manner while goods and services should be consumed so that the last unit of expenditure
yields the same marginal utility for all individuals.
Overdraft:An amount due to the bank by a customer, generally limited to a specific amount in excess
of moneys deposited to the customer's account. Interest is calculated on the fluctuating daily levels.
Overvalued Exchange Rates: An exchange rate that is "officially" set at a level higher than its real or
:"shadow" value e.g. ,forty rupees per dollar instead of ,say , forty five rupees per dollar.Overvalued
rates cheapen the rate cost of imports while raising the real cost of exports..They often lead to a need
for exchange control.
Oversubscribed Issue:When there are more shares applied for than are to be issued in such cases a
minimum number of shares ,say 100 shares ,is alloted to lucky applicants whose names may come up
in the drawing of lots,where the lots depend upon the number of shares applied for , i.e. the larger the
application , the better the odds.In a bull market good public issues tend to get oversubscribed ,the
record being held by Tata Timken, oversubscribed 4071.43 times. Only 1 in 200 applications for 100
shares succeded. It is interesting to note that while in India it is a matter of pride to have an
oversubscribed issue, in the western nations it is considered to be a lost opportunity and a failure to
guage the actual market response.
Package Deal:A transaction in which several different goods or services are bought for an inclusive
price.The outcome of negotiations in which parties have made concessions on various issues decided
together.
Paid up Capital:Capital acquired by selling shares to investors as distinguished from capital
accumulated from earnings or from secured or unsecured loans.
Paper Currency:Bank notes which form part of a nation's legal tender. The notes have no immediate
value,their value as a medium of exchange depending on their acceptability to the public.Indian paper
currency notes are printed at Nasik,Dewas,Salboni,and Mysore.
Par Value:The face value or nominal valuwe of a sjhare
Pareto Principle:The principle which states that a relative number of individuals have an influence
which is greater than their proportionate number.This may be seen in a sales analysis ,where a small
number of customers may account for a large proportion of total sales.This law is general true for any
system.
Paris Club:An association of countries which forms the developed nation's pressure group.The group

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comprises of the United States , the United Kingdom , Germany,France,Italy,Japan,Canada ,the

Netherlands ,Belgium and Sweden.
Parkinson's Law:"Work expands to fill the time available for its completion".A semi-serious proposition
made by Professor (C)Northkote Parkinson.A derivative of this is that expenditure rises to equal
income.
Parri Passu(Latin with equal step):It describes the equal relationship which
may exist between person, articles etc of similar nature.The most common example is that the holders
of the same type of share have an equal right
to dividend payments or to reimbursment if the company is wound up.
Patent: A legal property right granted by the state , giving the creator of an invention for a limited
number of years ,usually 16 .An invention or process which has been patented.
Patent Rights:The rights which a patent holder holds under a registered patent.
Payback Period:It indicates the length of time required to recover the initialk amount of a capital
investment.
Payroll:A list of employees to be paid ,giving wages or salary payable ,detailing deductions and
showing the net amounts payable.The aggregate expenditure on wages and/or salaries incurred by a
business for a given period.
Pension Fund:A fund maintained by a company ,trade union or another
Organization to provide pensions for employees or members upon retirement.Conrtributions from the
organization's and the employee/member are invested ,with interest accumulated into the fund The
fund may be self-administered by organization as a trust or managed by outside experts, such as a life
assurance company. Pension funds are now one of the main purchasers of stocks and shares.With
other institutional investors they greatly overshadow in importance the private investor.
Per Capita Food Production:Total food production divided by the total population.
Per Capita Income:The income earned per individual,calculated by taking the total income of a group
and dividing it by the number of individuals in the group.
Performance Audit:It refers to appraisal of how a particular activity is carrying out the company's
policies and procedures.
Peter Principle:The principle, noted in many cases ,that employees and directors are promoted until
they occupy positions for which they are incompetent.
Pivotal Shares:Although all shares are exposed to Systematic Risks , the effects of such risks on
pivotal shares greatly influence the stock market.Shares of some blue chip companies act as a pivot on
which the market is balanced .If they turn bearish the market follow;if they turn bullish , the market
looks up .Shares of TISCO,TELCO,ACC, Century ,HLL,etc belong to this class.If , however any of these
ids affected by unsystematic risk,such as a labour strike or price control or decontrol , the share's rise
or fall is not going to affect the market.
Planned Economy:An economy in which the government sets production output targets ,prices ,
wages ,etc rather than allowing them to be determined through the operation of the price mechanism.

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The best examples of planned economies is the lack of free trade.

Planning Model:A mathematical model (e.g. an input/output or "macro" planning model) designed to
simulate quantitatively the major features of the economic structure of a particular country .Planning
models provide the analytical and qualitative basis for most national and regional Development plans.
Political Economy:The attempt to merge economic analysis with practical politics i.e. to view economic
activity in its political context .Much of "classical" economics was political economy and today "political
economy" is increasingly being recognized as necessary for any realistic examination of development
problems.
Portfoilio:A list of investment in stocks,shares,etc that a person or institution has made.
Post Balance Street Review:These audit procedures are applicable to the
Interval of time between the date of the financial statements and the completion date of the audit
fieldwork.
Poverty Line:A line to measure poverty among individuals /families ,differs from country to country.
Preference Shares:So called because these have preference over equity shares in the matter of
distribution of post-tax profit, and have prior claim on the assets of the company in the event of
liquidation. In terms of risks ,these are less risky than equities but more risky than secured debentures
which precede them in the distribution of the company's funds,and in the event of liquidation,which are
paid off before preference shares.Preference shares are entitled to a fixed dividend ,and cumulative
preference shares retain their retrospective claim on dividend when the company is not in a position to
declare any dividend. Sometimes these shares are convertible into equity shares after a stated number
of years ,thus enjoying assured earnings when the company ids getting established.,and high earnings
when it has established itself.When preference shares are redeemable ,the company pays off the
shareholder on a certain date, or issues equity shares of the value but when they are irredeemable ,the
shareholder gets the fixed dividend in perpetuity or as long as the company lasts.
Premium:The periodic payment for an insurance policy.A sum in excess of nominal value paid in order
to secure a share ,asset etc.A lump sum payable on the acquisition of a lease.The difference between
the spot price paid for a currency or commodity and the price for forward settlement.
Premium Issue:The issue of shares at a price above the face value of a share.The sum charged above
the face value is the premium.The premium is supposed to be determine by the following factors ; the
current book value of the share;the EPS,and the average market price over the last three years.Usually
issued by successful companies whose share values are high on the stock exchange.
Price Discrimination:Charging of different prices for the same goods from different customers ,or for
different uses or for different units of the commodity from the same consumer;possible under market
situations other than perfect competition.
Price Line(Budget Line):In indifference curve analysis of demand , a line showing all the possible
combinations of two commodities that a consumer can buy at a particular time ,given the prices of the
two commodities and the money income(or budgets) of the consumers.
Primary Market:A market for new issue of shares,debentures aned bonds, where investors apply to
the issuer for allotement and pay applications
money to the issuer's account. Distinguished from the secondary market where , investors buy listed

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shares on the stock exchange through brokers.

Price War:Price-cutting by two or more competitors in an attempt by each to gain a larger share of
the market and/or eliminate its rival.
Prime Lending Rate :It means the interest rate charged by banks to their most financially sound
customers.
Premogenoiture:The legal principle of a inheritance by which an estate passes to the eldest child
,specifically the eldest son.
Principle of Economy:The proposition in perfect competition that for a given level of resources
(inputs), producers will tend to minimize costs for a given level of output or maximize output for a
given cost.The need to "economize" arises because resources are "scarce" and are therefore not free.
Production Line:A system of manufacture, where each item ,such as a car , moves slowly through the
factory ,new sections being added to it as it goes along .
Production Mix Variance: It is the cost variance that arises if the actual production mix deviates from
the standard or budgeted mix.
Profit and Loss (P&L) Account:It is an accounting statement summarizing the business operations of
usually a usually a year ,profit or loss.
Profit before Interest or Tax or PAT:This is arrived at by deducting the
Expenditure(cost of materials ,manufacturing expenses ,overheads, interests ,deprecation ) from
income(net sales plus other income) and providing for taxation and investment allowance reserve on
the amount .However,what remains is not entirely distributed among shareholders.A portion of this
large amount if the company is growth oriented is transferred to general reserve.
Profit Maximization:Making as large as possible the profits of a firm or farm as large as
possible.Producers often desire to find the level of output which results in maximum profits,at least
according to a fundamental assumption of Western Economic Theory.
Profit Centre:Departments or segments of an organization which are responsible for producing profits
on their own.A diversified company may have separate profit centres in each of its industries.
Project Evaluation:The process of determining the financial results arising from a proposed
investment .The evaluation covers the establishing of criteria against which the investment may be
judged, the relevant data for the project(s) and the calculation of the results.
Project Finance:It is used to describe a method of financing a project whose repayments are aligned
to a project's operating results.
Promisory Notes:The formal unconditional; promise in writing to pay on demand or at a future date a
definite sum of money.
Public Limited Company:A Limited Liability company whose shares can be bought by the public on the
stock exchange.In Britian such companies have plc after their names .
Public Sector:That portion of an economy whose activities (economic and non economic ) are under

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the control and direction of the State.The State owns all the resources in this sector and uses them to
achieve whatever goals it may have e.g. to promote the economic welfare of the ruling elite or to
maximize the well-being of society as a whole.
Purchasing Power:The money available to a group or sector of the population for the purchase of
goods.
Quality Control:The functions of , and procedures relating to , the testing and acceptance of all
materials and components at all stages of manufacture from raw materials to finished product.
Quality Control Chart:A graph which plots the fluctuations of a variable within prescribed limits.Time
is plotted on the horizontal axis, whole the central vertical axis plots the average value of the variable.
Accompanying it on either side are the prescribed upper and lower limits of the variable (usually three
standard deviations from the average ).If these limits are exceeded then the variable is out of control.
Rate of Return
(1) Profit arising out of an investment expressed as a percentage of the sum invested.
(2) The annual profit of an enterprise , expressed as a percentage of capital employed during the year.
Rating:
1) An evaluation of the creditworthiness of an individual or a business.
2) An evaluation of general value of a share.
(3) An assessment of workers performance used to establish the standard time allowed for
performance of the job.
Recession:A reduction in the level and volume of economic activity ocassioned by the loss business
confidence,lack of investment ,etc.The size of duration the cut-back depends upon the effeciency of
governments fiscal and monetary measures designed to arrest the downward movement.
Redemption:Buying back a loan instrument by paying off the lender .In the case of debentures or
preference shares redemption means paying back the investor,either in cash ,or through equity shares.
Red Tape: Excessive official paperwork which delays business development.
Redundancy:The disappearance of a job generally as a result of reduction in demand or the
introduction of equipment which reduces manpower needs.
Regressive Tax:If the ratio of taxes to income increase as income tends to decrease,the tax is called
"regressive" i.e. relatively poor people will pay a larger proportion of their income in taxes than
relatively rich people.A regressive tax therefore tends to worsen the lot of the poor.
Renunciation:Giving up the right to subscribe to alloted shares in a Right Issue or selling such rights
for a consideration.A shareholder who does that is the renouncer ,and the person who has got the
rights from him is the renouncee.Prices of the renounced rights are sometimes quoted on the Stock
Exchange.Even with the price of renunciation added , such rights shares are usually cheaper than their
ruling market price.
Research and Development(R&D):A scientific investigation with a view toward improving the existing
quality of human life products,profits , factors of production or just plain knowledge.There are two
categories of R&D)"basic" R&D (without a specific commercial objective ) and (b)"applied" R&D (with a

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commercial objective.)
? Reserves:Setting aside of a part of a company's earnings for expansion ,
modernization , payment of future dividends , bonus to shareholders,redemption of debentures and
preference shares,and to meet any contingencies.
Reserve Price:The price of an article offered for sale especially at an auction ,below which the seller
refuses to accept any offer.The price need not be specified but there must be a reference in any
literature mentioning the article and at the sale itself to the fact that a reserve price has been placed
on the article.
Rights Issue:Issue of shares at par or at a premium by an existing company to its shareholders in a
certain proportion (and additional shares ,if available) to their holdings ,as a matter of their rights to
receive preferential treatment.An existing shareholder besides subscribing to such an issue ,can let his
rights lapse,or renounce his rights in favour of another person (free for a consideration )
By signing the renunciation form .The renouncer may or may not have the right to apply for shares
additional for his entitlement ,depending upon the terms the company attaches to the renunciation of
rights.
Risk and Return:An important concept in investment ,which must take into account risk aversion
,which is a common human tendency.In investment generally speaking the less the risk ,the lower the
return.The absolute risk is the insolvency of the borrower or the company whose shares have been
bought .Government bonds are free from insolvency risk ;their returns are also the lowest.Debentures
and fixed deposits with companies are not risk free ,although their returns are higher .Equity shares
carry the highest risk ,their returns can also be high , both from cash dividends ,bonus shares and from
appreciation of their price.
Royalty:The sum paid for the right to exploit the property rights held by another.Thus , royalties may
be payable for exploitation of mines,the use of patents or the publication of books.The royalty as
generally based upon the extent of such exploitation .,e.g.Quantitative use or the income yielded from
such use.
Salary Structuring:The concept of ensuring that salaries are consistent within a company and
competitive with salaries elsewhere in the same industry or in the same geographical location.
Savings:That portion of disposable income not spent on consumption by households plus profits
retained by firms .Savings are normally assumed to be positively related to the level of
income(personal; or national).
Savings Ratio:We expressed as a proportion of disposable income over some period of time .It shows
the fraction of national income saved over any period .The savings ratio is sometimes used
synonymously with the average propensity to save.
Security:A security is a document that gives its owner specific claim of ownership of particular
assets.The two main types of securities are bonds and debentures and shares.The bond or debenture
holder gets an assured interest only for the periods of holding ,while the shareholder is part owner of
the company and has invested in its future,with a corresponding share in its profit or loss.
Sensex:It is the sensitive index of the Bombay Stock Exchange.It reflects the weighted average price
of 30 most volatile A Groups shares in the BSE.Widely criticized to be an unrepresentative but highly

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influental index.

Service Industry:A section of the economy which produces a service rather than a manufactured endproduct. Insurance,banking and tourism are all service industries.
Share:A share in ownership of a company.If a company has issued 1,000,000 shares and a person
owns 1,000 of them, he owns 0.1% of the company.His share of the company can be reduced if the
company makes a further public or rights issue and he can't pick up enough shares to maintain the
percentage of his holding.
Shareholder;A person or a legal entity who owns equity or preference shares of a company.The proof
of his ownership is the share certificate ,which he may hold in multiple numbers ,each certificate
comprising a certain quantity of shares.
Sinking Fund:A sum of money set aside by a firm for the purpose of paying off a specific debt which
may arise in future.
Small Scale Industry:An industry whose firms or farms operate with small sized plants,low
employment and hence small output capacity .Economies of scale do not normally exist for such firms
but they often tend to utilise their limited physical , human and financial capital more effeciently than
large size firms or farms.
Soft Currency:A currency which has an unstable value in international exchange ,with a tendency to
decline in the value in the long run. This results from internal economic weakness and an externally
adverse balance of payments.
Solvency:The position of being able to meet one's debts as they fall due for payment.
Speculation:An activity in which a person assumes high risks ,often without regard for the safety of
his invested principal to achieve large capital gains.The time span in which the gain is sought to be
made ids usually very short. The shorter the term ,the more speculative than the investment is.
Split Pricing:Refers to the practise of selling a product uniform in quality and other characterstics at
different prices, because it has been branded or packed differently,or distributed through different
channels or both.
Standard off Living:The material , physical and cultural well being of an individual ,group or
community.Monetary incomes are an important indicator of well-being although comparisons over a
period of time must reflect price changes and movements in purchasing power.An overall measurement
of standard must also include the cultural, natural and social enviornment.
Standardization:The determining and setting of fixed dimensions ,qualities ,performances and
nomenclature in order to facilitate the interchangeability of parts , reduce variability and size of stocks
and reduce production costs.
Stock:It is a evidence of ownership in a company and a claim against a company's assets and
earnings.
Stock Option:It is a right given to the holder to buy a specified number of shares of stock at a certain

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price by a particular date.

Stock Warrant:This is a option to purchase a certain number of shares at a stated price for a specified
time period at a subscription price that is higher
Than the current market price.
Suspense Account:An account to which accountants post item temporarily while a decision is being
made as to final disposition to a payment account.
Swot Analysis:A type of fundamental Analysis of the health of a company by examining its strengths
(S) ,Weaknesses(W),Business Opportunities(T) or dangers it might be exposed to.
Synergy:It refers to the working together of two similar agents to produce an effect greater than the
sum of their individual effect greater than the sum of their individual effect.It is the ideal sought to be
achieved through mergers and acquisitions, whereby the performance of a combined enterprise is
expected to exceed the sum of the separated enterprises.This can happen because the strengths of
either company (one strong in sales,the other in research and development, one strong in reserves the
other with an excellent EPS,etc) tend to make the merger produce more than just double results often
described as 2+2=5.
Takeover:The acquisition of a company by another company or person through purchase of sufficient
shares to gain control.
Tariff:This is a tax on imports or exports ,most often calculated as a percent of the price charged for
the good by the foreign supplier or the domestic supplier.
Tax Avoidance:The legitimate search for and adoption of devices for the purpose of minimizing tax
liability,for example through maximizing allowances by taking out additional life assurance policies.
Tax Haven:Any foreign country residence which enables people to pay bless tax than they would do if
they kept their income in their own country.The Isle the Man ,the Channel Islands ,Switzerland and
Liechtenstein are all tax havens to a lesser or greater extent.
? Tender Offer:It meands bid to buy the stock of a firm at a specified price.
Threshold Effect: Means an increase in the level of taxation which a community is said to be willing to
pay resulting from some crisis or national emergency.
Trade(as an Engine of Growth):Free trade has often been described as an "engine of growth" because
it encourages countries to specialize in activities which they have comparative advantages thereby
increasing their respective production effeciencies and hence their total outputs
of goods and services.
? Trade Barrier:Any impediment to free trade .,tariffs and quotas are both trade barriers.
Trade Cycle:An alternative pattern in economic activity from boom to slump to boom and so on.The
pattern is induced by changes in demand and in investment policies, governmental economic and
political actions and their impact on the outlook and moods of the business world .The pattern is not
very regular but both long(9-11 year ) and short 3 year patterns have been discerned.
Trademark:A distinctive motif ,word ,or signature generally placed on a product ,its package
,advertisements ort literature , indicating a trade connection between the product and some person

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,generally the manufactured or retailer ,having the right to use that mark.Registration of a trademark
bestows the exclusive to its use on the owner .Illegal use of the trademark ids punishable by the law.
Treasury:The government department responsinble for managing the national finances ,i.e. revenue
collection and expenditure,and also for directing and controlling economic activity in accordance with
government policy.
Treasury Bill:A short term obligation of the Central Government , commonly called T-bill.
? Turnover:The volume of sales ,either in value or quantity for a given period. The frequency with
which assets ,such as stocks or personnel, are replaced during a given period.
Underwrite:To undertake or to take up that portion of a company's share issue which is not
subscribed for by the public.This action thereby ensures the floatation of an issue and is rewarded by a
fee. To accept part of a liability of an policy ,esp. in marine and aviation insurance.A banker or a
financial institution which agrees to bury up the unsubscribed portion of a new issue ,should such a
thing happen ,and sells it later to investors at a premium is an underwriter.
Unlisted Share:A share which is not registered with any stock exchange and therefore does not
feature on any stock exchange list.Owners of such shares are deprived of the protection that the holder
of a listed share enjoys from the stock exchange.These shares are also very difficult to sell and carry a
large risk. Usually a more exchange at which the share is listed ,the greater risk the greater liquidity.
Value Added Tax:A method of taxation of goods and services whereby tax is levied on the extra
contribution to the value of a good or service rendered through a business operation.The tax is applied
to the value added ,as calculated by subtracting the invoiced cost of its supplies from the invoice price
charged by the business for the goods or services it produces.It is popularly called VAT.
Venture Capital:Capital for investment in projects which have a high risk potential.
Vicious Circle:A reinforcing situation in which there are factors that tend to perpetuate a certain
undesirable phenomenon e.g. low incomes on poor countries which leads to poor health and low labour
productivity and eventually to the persistence of poverty.
Volatile Shares:Shares which are subject to sharp fluctuations in price,showing a considerable
difference between their highest and lowest recorded prices.
Wall Street:1.The street in New York where the New York Stock Exchange is situated.
2.The US financial world in general.
? Wall Street Journal:Published five days a week by Dow Jones and Corporation ,it is the most
distinguished journal of finance and investment.The WSJ reports not only on U.S.Economy and finance
,it also surveys world economy.
Warranty:It is an agreement by the seller of goods or services to satisfy for a stated period of time
deficiencies in the item's quality or performance.
Welfare State:A country which provides through the Central Government and its agencies minimum
standards of living for the population in terms of income,health,education,housing ertc.
World Bank:A bank established by signatories to the Bretton Woods Agreeement.,1945 , in order to
make long term loans to finance postwar r5econstruction and to finance development expenditure in

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less advanced countries .The Bank is backed by share capital subscriptions from member countries and
by bonds issued in the money markets in addition to government lending.The Bank makes loans to
private undertakings and provides technical services to government .It also undertakes economic
surveys for the long - term planning of resources .In recent years the bank has witnessed a steady
decline in its clout due to the emergence of newly developed economies like the far - east Asian
nations.
X-Efficiency:A situation in which a firm's total costs are not mini8mized because the actual output
from given inputs is less than the maximum feasible level .This outcome is also termed as a situation of
'technical insufficiency'.X-effeciency is a direct function of monopoly of market power in which
competitive pressures are weakened .The term was originally applied to the manager-worker
relationship but can be extended to deal with manager-owner relationship.
X-Theory:A traditional view of human motivation that because often inherent dislike of work and
responsibility people prefer to be directed , coerced and financially induced with a closely controlled
organization structure.
Y-Effeciency:Means the effectiveness with which existing profitable market opportunities are
exploited.
Yield: The actual rate of received or obtainable from an investment, generally as the annual income
calculated as a percentage of the purchase price of the investment.The rate of return for a capital
investment project which equates the net capital expenditure with the discounted value of future net
cash inflow the output of a process..
Y-Theory:A theory of human motivation based on the premise that people are invested in work ,want
responsibility and will direct themselves without the need for coercion by management.

Zero Base Budgeting:It means a planning and budgeting tool that uses Cost-Benefit Analysis of
projects and functions to improve resource allocation in any organization.
Zero Coupon bond: which does not carry any interest and which is issued at a substantial discount on
its face value the return being in the gain the boind makes between the date of purchase and maturity
date.
Zero Growth :Zero Growth in the economy occurs when the economic growth is static and shows no
rise at all
ZPG:It is the abbreviation of zero population growth.It is an American term for a rate of growth giving
a stable population.

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