Absolute Poverty The number of people below a certain minimum level of consumption or income. It is measured with respect to the level of consumption or income that divides the population into poor and non-poor. Such a dividing line is called the poverty line.
Ad Valorem Tax It is an indirect tax expressed as a proportion of price of a commodity. Hence, it is ‘by value’. Value added tax (VAT) is an ad valorem tax.
Administered Prices The prices set by management (government) decision rather than by negotiation between buyer and seller are called administered prices.
Amortisation It is a provision for the repayment of debt by means of accumulating a ‘sinking fund’ through regular payments: Arbitrage It may be defined as an exploitation of differences between the prices of financial assets or currency or commodity within or between markets by buying where prices are low and selling where they are higher.
Assets Reconstruction Companies (ARCs) Those companies which deal with non-performing assets (NPAs) of banks or other financial institutions along with the underlying mortgaged and hypothecated securities. The ARCs acquire ‘bad loan’s’ and try to resolve them.
Authorised capital This is the amount of equity capital, measured at par value, that a company is allowed to raise by issuing shares, as set out in its memorandum of association. A company does not necessarily issue shares to the limit of its authorised capital; its authorised capital might be ‘ 10 million and its paid-up capital ‘ 5 million. On the other hand, by issuing shares at a premium, a company can raise considerably more cash than its authorized capital. The authorised capital may be increased by the vote of a general meeting of the company’s shareholders, provided this is permitted by the articles of association.

Back-to-Back Loan Also known as parallel loan, it is a practice in international banking wherein two companies operating in two different countries borrow capital from each other with an agreement to repay it at a specified future date. The advantage of such loan is that each company gets back the total loan amount on the agreed date of repayment in its domestic currency without any risk of losses due to fluctuations in the exchange rate.
Backwardation This is a stock exchange term. A speculator has to pay backwardation if he/she is unable to deliver the stock on the settling day. It is a percentage paid by a seller of stock exchange deliverable upon the account day of a stock exchange, for the privilege of delaying delivery until the next account day.
Badla The carry-forward refers to a century-old practice which allowed investors to take on bigger positions than they could otherwise afford by buying shares on credit, and postponing payment. The facility accounted for about 90 per cent of the volume at leading exchanges. Under carry-forward trading system (badla), an investor was allowed to buy or sell certain stocks by paying margin money with the balance paid over a certain period of time. Carry-forward trading has been limited only in blue chip stocks falling under forward category. In other the stocks payment was made on weekly basis. In 2001, SEBI banned badla on the Indian stock market.
Balance Sheet Balance sheet is a statement showing the assets and liabilities of a business at a certain date. It helps in estimating the real financial situation of a firm.
Balassa-Samuelson theorem The Balassa-Samuelson theorem is about the way in which increase in productivity can cause inflation. As productivity in tradeables increases, wages increase; so do wages in the non-tradeable sectors. This makes consumer price inflation higher in faster-growing countries.
Balloon Mortgage A mortgage in which one or more large payments may be made as part of the repayment profile. It is also called a non-amortizing mortgage. With a balloon mortgage a lumpsum often has to be repaid at the end of the term to cover the remaining debt. When a debt’s final payment exceeds the previous payments it is called balloon payment.
Bear A bear is a stock exchange speculator who sells stocks or shares that he may or may not possess because he expects a fall in prices and, therefore, that he will be able to buy them back later on at a profit.
Bellwether Security In the United States, a security considered to be a good guide to the direction in which the market is moving.
Bellwether Stock A share on the basis of which future stock movements are predicted. It usually reflects the health of the entire stock market.
Bill of Exchange It is a term used in international trade by which the drawer makes an unconditional undertaking to pay to the drawee a sum of money at a given date. In principle, a bill of exchange is similar to a postdated cheque. A bill of exchange has to be accepted by the drawee before it becomes negotiable.
Blue Chip It is a first class equity share, the purchase of which entails little risks, even when there is sharp deciline in earnings, or economic recession.
Bond It is a form of fixed interest security issued by government, companies, banks or other institutions. Bonds are usually a form of long term security but do not always carry fixed interest. Bonds and stocks are both securities, but the major difference between the two is that stockholders are the owners of the company (i.e., they have an equity stake), whereas bond-holders are lenders to the issuing company. Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely.
Book Value It may be defined as the value of assets in the balance sheet of a firm. This is often the purchase price, and may be less than the market value.
Box In agriculture, a category of domestic support. Green box refers to supports considered not to distort trade and therefore permitted with no limits. Blue box refers to permitted supports linked to production, but subject to production limits, and therefore minimally trade distorting. Amber box refers to supports considered to distort trade and therefore subject to reduction commitments.
Bridge Loan A loan made by a bank for short period to make up a temporary shortage of cash. Bridge loan covers the gap between the buying the new loan and disposing of the old one.
Brokerage It is the commission which a broker earns, it also refers to middleman earning. Both the buyer and seller pay a certain amount to broker for his services.
Brownfield Development A housing or industrial development within an existing urban area.
Brownfield Location An abandoned industrial area where proposals for setting up new industries is taken up.
Bubble A cumulative movement in the price of an asset whose price is high mainly because speculators believe. It will rise still further. Such speculative behaviour can face prices to rise for some period on a path that is eventually realised to be unsustainable; at some point a bubble will burst, but it is difficult to predict when this will happen. The most infamous example of this was the South Sea Bubble of 1720 which led to the collapse of the British share market and the bankruptcy of many investors. A more recent example was the so called ‘dot.com bubble’ of 1999-2000.
Bull A bull is a stock exchange speculator who purchases stocks and shares in the belief that prices will rise and that he will be able to sell them again later at a profit.
Buyer’s Market A market in which prices are failing, primarily due to an excess of supply of the goods and services traded compared with demand.

Camels It is used as an evaluating and rating mechanism for banks of their operation performance. It is an operation performance. It is an abbreviation for capital adequacy, asset quality, management, earnings, liquidity and systems of control.
Capital-output Ratio The ratio derived by dividing the level of output into the stock of capital required to produce it. The incremental capital-output ratio is a change in output divided into a change in capital stock (i.e., investment). The relationship between incremental capital (investment) and output is described by the acceleration principles and the incremental capital-output ratio is the accelerator coefficient. The interdependence of capital and output play an important role in growth theory, in which various assumptions about the ratio are explored.
Carry-over It is the postponement of settlement of account on the stock exchange until the following period involving payment of a rate of interest on the account.
Cartel An association of producers to regulate prices by restricting output and competition.
Chinese wall A notional information barrier between the parts of a business, especially between the market-making part of a stock broking firm and the broking part.
Circuit Breakers Measures put in place by the major stock and derivatives exchanges to prevent very large market movements.
Clean Floating A government policy allowing a country’s currency to fluctuate without direct intervention in the foreign exchange markets.
Clearing House Any institution that settles mutual indebtedness between a number of organizations is called a clearing house.
Cliometrics The new economic history (pioneered by Robert Fogel, and Douglass North) in which quantitative technique including econometrics are used to make interpretations and reconstructions of the past.
Closed Economy It refers to the economy having no foreign trade, i.e., export and import. Such economies depend exclusively on their own internal domestic resources and have no dependence on outside world.
Closed Shop The requirement that all workers of certain grades in a given business or establishment belongs to a recognized trade union. This is desired by unions to increase their income and bargaining power.
Commodity Market and Exchange A market in which commodities are traded. The main terminal markets in commodities are in London, New York, and Chicago, but in some commodities there are markets in the country of origin. Some commodities are dealt with at auctions (e.g., tea). As commodity prices fluctuate widely, commodity exchanges provide users and producers with hedging facilities with outside speculators and investors helping to make an active market, although amateurs are advised not to ‘gamble on commodity exchanges.
Common Market A fully integrated market area. This covers not only complete freedom of internal trade, as in a customs union, but also free mobility of labour and capital.
Consols Government securities that pay interest but have no redemption date. Consols or consolidated stock, also called consolidated annuities, are tradable on the stock exchanges indefinitely.
Consortium A combination of two or more business formed on a temporary basis, often to quote for and carry out a single large project. The purpose of forming a consortium may be to eliminate competition between the members or to pool skills, not all of which may be available to the individual companies.
Consumer Durables These are the products purchased by households. These products are designed to yield benefits spread over a number of years, e.g., vehicles, furniture, refrigerators, etc.
Consumer Good An economic good or commodity purchased by households for final consumption is called consumer good. Consumer goods include immediately consumable goods, such as chocolate, as well as durable goods. It is the use to which it is put that determines whether a good is a consumer good.
Contango In the law of stock exchange this means a percentage paid by a buyer of stock, of which delivery is to be taken on a certain date, for being allowed to delay taking delivery until some other date. In India, contango is known as ‘badla’.
Cost-push Inflation Inflation induced by a rise in the costs of production of goods and services is called costpush inflation.
Counter Trade It is a form of barter in international trade in which the buyer requires the seller to accept goods (of the buyer’s choosing) in lieu of currency.
Countervailing Duty An additional import duty imposed on a commodity to offset a reduction of its price as a result of an export subsidy in the country of origin.
Credit Rationing It takes place when the banks discriminate between the borrowers. Credit rationing empowers the bank to lend to some and refuse to lend to others. This restricts the lending part of banks.
Customs Union A customs union is a trade arrangement between two or more countries in which all barriers, such as tariffs or quotas; to each other’s goods and services are removed. At the same time, a common external tariff is established against non-members. This contrasts with a free-trade area in which each member country retains its own tariffs vis-à-vis non-members.

Dear Money It refers to a period when interest rates are exceptionally high to restrict the money supply.
Debentures Debentures are unsecured, long-term corporate bonds. Even though debenture holders are not protected by collateral, they still have a legal right to repayment. In the event of default, debenture holders are treated like other unsecured creditors. In addition, debenture holders may benefit from indenture restrictions.
Debt A sum of money or other property owed by one person or organisation to another is called debt. Debt comes into existence through the granting of credit or through raising loan capital.
Debt-equity Swaps A mechanism used by the indebted Least Developed Countries (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 debt at large discounts.
Debt-Service Ratio The ratio of interest and principal payments due in a year to export receipts for that year.
Deficit Financing It is deliberate or planned excess of expenditure over income. The term deficit financing also refers to planned budget deficit incurred in the interests of expanding aggregate demand by relaxing fiscal policy and thus injecting purchasing power into the economy. Today deficit financing has become a common economic feature as most governments have started spending more than they raise in taxation.
Deflation A sustained reduction in the general level of prices is called deflation. Deflation is often accompanied by declines in output and employment. It is distinct from disinflation which means a reduction in the rate of inflation.
Demand Curve A graphical representation of the quantities of a commodity or resource that would be bought over a range of prices at a particular time, when all other prices and incomes are held constant. When demand curves of all consumers in the market are aggregated a “market demand” curve is derived showing the total amount of the good that consumers are willing to purchase at each price.
Demand-pull Inflation It is inflation induced by persistence of an excess of aggregate demand in the economy over aggregate supply. The excess demand situation arises when there is a growth in the quantity of money through the creation of money by government to finance the budget deficit; or when quantity of money is allowed to expand to accommodate the rise in prices.
Demat Account A demat account enables an investor to hold securities in electronic form instead of physical paper certificates. The conversion of securities to electronic format from a physical format is called ‘Dematerialisation’, in short, Demat. These securities in electronic format are held on the investor’s behalf by an entity called a Depository. This depository interfaces with investors through its agents called depository participants (DPs). Investors are required to open an account (called the demat account) with DPs to have their securities held in electronic format.
Demerger When a company splits into separate companies it is called demerger.
Depreciation The reduction in value of an asset through wear and tear is called depreciation. Since depreciation can only be accurately measured at the end of the life of an asset, depreciation provisions in the company accounts require an estimate of both the total amount of depreciation and the asset life.
Derivatives A generic term for futures, options and swaps, i.e., instruments derived from conventional direct dealings in securities, currencies and commodities.
Devaluation It is the reduction of the official rate at which one currency is exchanged for another.
Dirty Float A foreign exchange term which denotes the manipulation of the exchange rate by a country to gain advantage in its external transactions under the floating currency system.
Discount Market The market dealing in treasury bills, bills of exchange and short-dated bond and consisting of the banking system, the accepting houses and discount houses is referred to as discount market.
Dissaving Dissaving occurs when expenditure exceeds income. Raising of loans or utilisation of past accumulated savings takes place in such an eventuality.
Dividend The amount of a company’s profits to. be distributed to shareholders is called dividend. Dividend is usually expressed either as percentage of the nominal value of the ordinary share capital, or as an absolute amount per share. Dividends are paid out of profits for the current year. However, if profits are inadequate in a given year, dividends may be paid out of reserves from profits of previous years.
Dividend Warrant It is the cheque by which companies pay dividends to shareholders. Domino Effect The effect of an economic event (usually a crisis-like situation) on other economies or economic conditions.
Dow-Jones Industrial Average A daily index of prices on the principal stock exchange in New York. It is an average of the prices of thirty industrial stocks. Accounting for about 25 per cent of the market capitalization of the shares quoted on the New York Stock Exchange and is calculated and published every day the exchange is open. In its present form the index dates from 1928.
Dragon Markets A colloquial name for those markets and economies in the Pacific Basin that developed rapidly in the 1980s and early 1990s, notably Indonesia, Malaysia, the Philippines, and Thailand.
Dutch Disease A phenomenon by which the profitability of one sector is squeezed as a result of a boom in other traded sectors of national economy.

Eco-mark An eco-mark was introduced to label consumer products that are environment friendly.
E-Commerce The production, distribution, marketing, sale or delivery of goods and services by electronic means (or Internet). Electronic transactions involve three stages namely searching, ordering/ making payment, and delivery of products. Electronic delivery of goods is by far the most challenging aspect from a policy perspective as such trade is compounding rapidly without any global regulatory framework and hardly any national or international legislation. The growth in e-commerce has added a new dimension to trade policy which countries have to take account of by formulating rules to keep abreast of the fast growing technological developments.
Elasticity Elasticity is the proportionate change in the dependent variable divided by the proportionate change in the independent variable at a given value of the independent variable.
Employee Share Ownership Plan (ESOP) A method of providing the employees of a company with shares in the company. The ESOP buys shares in its sponsoring company, usually with assistance from the company concerned. The shares are ultimately made available to employees, usually directors, who satisfy certain performance targets.
Engel’s Law A law of economics (formulated by Ernst Engel) which states that with given tastes and preferences, the proportion of income spent on food diminishes as incomes increase. The law was published in 1857 in one of Engel’s papers when he was the director of the Bureau of Statistics in Prussia.
Entrepot It refers to the centre at which traded goods are received for subsequent distribution.
Environmental Accounting The attempt to apply numerical magnitudes to uncosted environmental factors, and to include these in conventional accounts. The objective is to improve those conventional accounts as a measure of overall well-being.
Environmental Audit Also called green audit, it is an evaluation of the impact of the activities of an organization on the environment. Its purpose is usually to ensure that the organization has clear environmental policies, that is operations comply with the stated environmental policies, and that is policies are subject to regular review. Areas covered by a green audit include every usage, wastage and recycling procedures, conservation of raw materials, and adopting clearer technologies.
Environmental Dumping It is claimed that countries with lax environmental policies have lower costs of production and therefore an unfair trade advantage. It is also known as ecodumping.
Equity fund It is a mutual fund that aims to derive dividend income by investing at least 65 per cent of its liquid assets in equities with highest dividend yield. Or, in other words, in the cheapest shares. This strategy realises profit when the market rallies.
Equity The residual value of a company’s assets after all outside liabilities, excepet to shareholders, have been allowed for is termed equity. In a mortgage or hire purchase contract, equity is the amount left for borrower if the asset concerned is sold and the lender repaid.
Equity-linked saving scheme These are open-ended and diversified equity schemes which offer tax benefits. They carry a certain amount of risk as returns on them is dependent on fortunes of the stock market.
Estate Duty It is a tax payable on a person’s property at his death before it passes into the hands of others. The estate duty differ from an inheritance tax. The latter is payable by the recipient and may vary according to financial circumstances of the inheritor.
Exchange Rate The price rate at which one currency is exchanged for another currency. The actual rate at any one time is determined by supply and demand conditions for the relevant currencies in the market.
Expenditure Tax It is a form of direct taxation on spending.
Exploding Arm These refer to mortgages with initial low, fixed interest rates which subsequently may escalate to higher floating rate.
Export Promotion Capital goods Scheme (EPCG) It is an export promotion scheme under which capital goods can be imported subject to actual user condition against fulfilment of specified export obligation. Under this scheme to windows are available-zero import duty and duty at concessional rate of 10 per cent. If a computer system is imported under this scheme, supporting manufactures and service providers are also eligible to import capital goods. Industry uses this scheme for modernisation and up gradation purposes.

Face Value The face value of a security is the price at which it will be redeemed.
Fiduciary issue Paper money or banknote which is not backed by gold or silver.
Final Goods Final goods are the goods produced for direct consumption. They are different from intermediate goods that are used in the process of production.
Fiscal Drag It is the effect of inflation upon effective tax rates, or sometimes, the effect of growth in nominal gross domestic product (GDP) on tax revenues.
Fiscal Neutrality The idea that the tax system should be designed so that as few as possible distortions are caused to economic behaviour.
Formed Contract It refers to dealing in commodities, currencies, freight, etc., for delivery at some future date at a price agreed at the time the contract is made. This form of trading enables dealers and manufactures to cover their future requirements by hedging their more immediate purchases. Strictly, a forward contract differs from a ‘futures contract’ in that the former cannot be closed out by a matching transaction, whereas a ‘futures contract’ can, and often is. However, this distinction is not always adhered to and the terms are sometimes used synonymously.
Forwardation A situation in a commodity market in which spot goods can be bought more cheaply than goods for forward delivery, enabling a dealer to buy sport goods and carry them forward to deliver them against a forward contract.
Franchising Franchising is a contractual arrangement under which an independent franchisee produces or sells a product or service under the brand name of the franchiser. The franchisee pays a royalty to the franchiser and may purchase supplies from him. The franchisee provides his own capital and is legally an independent enterprise.
Free-on-board (FoB) It is a term which refers to the valuation of goods up to the point of embarking. The FoB compares with CIF (charge in full or cost-insurance-freight), which is the valuation including all transport costs and insurance to destination.
Freeport A seaport or airport which is able to accept cargo without the imposition to any import tariff or some specified taxes.
Free-trade Area It refers to an association of a number of countries between whom all import tariffs and quotas and export subsides and other similar measures to influence trade have been removed. However, each member of the association maintains its own international trade measures with non-member countries.
Free-trade Zone It refers to a customs-defined area in which goods and services may be processed or transacted without attracting taxes or duties or being subjected to certain government regulations.
Fringe Benefit Tax An additional tax imposed by the government on fringe benefits of the employees who are categorized differently under the new provision. Fringe benefits include any privilege, service, facility Or amenity provided (directly or indirectly) by an employer to his/her employees, including facilities provided to former employees.
Futures It refers to contracts made in a ‘future market’ for the purchase or sale of commodities or financial assets, on a specified future date.

Gallup Poll A method devised by an American, Dr Gallup, for assessing public opinion. Questions are asked of a representative cross-section of the population.
Game Theory The branch of economics concerned with representing economic interactions in a highly stylised form, with players, pay-offs and strategies. The theory of games is concerned with the study of the optimal strategies to maximize pay-offs, given the risks involved in judging the responses of adversaries, and also the conditions under which there is a unique solution (i.e., that the optimum strategy for X and that of Y are both possible and not inconsistent). Games may be classified into zero-sum games, in which one player’s gain is another player’s loss; non-zero-sum games, in which one player’s decision may benefit (or hurt) all players; cooperative games, in which collusion between players is possible; and non-cooperative games, when it is not. The application of the theory of games to economics was first introduced by J. von Neumann and 0. Morgenstern in Theory of Games and Economic Behaviour (1944).
Giffen Good A commodity for which demand increases at higher prices and falls at lower prices.
Gini Coefficient It is an aggregate numerical measure of income inequality ranging from zero (perfect equality) to one (perfect inequality). The higher the value of the coefficient, the higher the inequality of income distribution, and the lower it is, the more equitable the distribution of income.
Golden Handcuffs Financial incentives offered to key staff to persuade them to remain with an organisation.
Golden Handshake A provision of an executive’s contract giving entitlement to a large bonus on leaving a firm’s employment.
Golden Hello A substantial payment made to induce, an employee to take up employment.
Golden Parachute A clause in an employment contract, usually of a senior executive, that provides for financial and other benefits if this person in sacked or decides to lea\ie as the result of a takeover or change of ownership.
Golden Rule The idea mat government should borrow each year only to finance investment, not to finance current expenditure. A second version of the rule is: the level of savings and investment via: an economy enjoying balanced growth need to support, in order to maximise the long-term value of consumption per head.
Golden Share A share in a company that controls at least 51 per cent of the voting rights’.
Green Issues Policy issues arising from concerns about the environment.
Greenfield Development A factory erected on a previously undeveloped site, as contrasted with extending or converting an existing plant.
Greenshoe Option An option given by an issuer of securities to an underwriter entitling the latter to buy and sell extra shares in an issue if there is high public demand. The term is named after Green Shoe Manufacturing Company, the first company to provide such an arrangement.
Gresham’s Law Named after Sir Thomas Gresham (1519-79), the law states that if two coins are in circulation whose relative face values differ from their relative bullion content, the ‘dearer’ coin will be extracted from circulation for melting down. Gresham was a leading 16th century businessman and financial adviser to Queen Elizabeth I.
Grey Market Grey Market can be defined as the following: (1) Any market for goods that are in short supply. It differs from a black market in being legal (2) Another version is a market in shares that have not been issued, although they are due to be issued in a short time (3) Still another version is the market for goods or services created by older people with a comfortable disposable income and a willingness to spend.
Growth Turnpike A turnpike is the fastest (though not necessarily direct) route between two points that are quite far from each other. In growth economics, the term ‘turnpike’ is used to trace the quickest way to move from a lower to a higher level of capital accumulation.

Hard Currency It is a currency traded in a foreign exchange market for which demand is persistently high relative to the supply.
Hedge Action taken by a buyer or seller to protect his business or assets against a change in prices.
Hedge Fund A fund that can take both long and short positions, buy and sell undervalued securities, trade options or bonds, and invest in almost any opportunity in any market where it foresees impressive gains at reduced risk. The primary aim of most hedge funds is to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions.
Hidden Tax Also called stealth tax, the incidence of which may be hidden from the person who is suffering it. The term is also applied to various mechanisms by which the government can increase the tax paid by individuals without raising tax rates, notably the abolition or restriction of tax allowances and the adjustment of thresholds.
Hot Money It refers to funds which flow into a country to take advantage of favourable rates of interest in that country. Such funds are good for balance of payments and exchange rate of the recipient country.

Import Duty This is a tax imposed on an ad-valorem basis on imports, i.e., fixed in the form of a percentage on the value of the commodity imported. Income Elasticity of Demand It refers to proportionate change in the quantity of a commodity demanded after a unit proportionate change in the income of consumers with prices held constant.
Index Number It is a weighted average of a number of statistical observations of some economic attribute, as a percentage of a similar weighted average calculated for the attribute at an earlier, or base, period. Prices and production are among the typical economic attributes for which index numbers are calculated.
Inflation Inflation is persistent increase in the general level of prices. It can also be seen as a devaluing of the worth of money. 1-Inflationary Gap. It refers to a situation in which aggregate demand is at an equilibrium level in excess of the full-employment level of output. If it exists, all resources in the economy are fully utilised.
Insider Trading Insider trading is the trading of a corporation’s stock or other securities (e.g., bonds or stock options) by individuals with potential access to non-public information about the company. In most countries, trading by corporate insiders such as officers, key employees, directors, and large shareholders may be legal, if this trading is done in a way that does not take advantage of non-public information.
When corporate insiders trade in their own securities, they must report their trades to the exchange. Illegal insider trading refers to buying or selling a security after receiving ‘tips’ of confidential securities information.
It is illegal when the material information is still non-public trading while having special knowledge is unfair to other investors who do not have access to such knowledge. Illegal insider trading therefore includes tipping others when you have any sort of non-public information.
Examples of insider trading I Corporate officers, directors, and employees who traded the corporation’s securities after learning of significant, confidential corporate developments; I Employees of law, banking, brokerage and printing firms who were given such information to provide services to the corporation whose securities they traded; I Government employees who learned of such information because of their employment by the government; and I Other persons who misappropriated, and took advantage of, confidential information from their employers.
Intermittent Dumping Disposal of occasional surpluses by exporting them at exceptionally low prices without any plans to eliminate competition. It is also known as sporadic dumping. Islamic Banking Islamic banking refers to a banking system based on principles of Islamic law (Sharia). Islamic banking has the same purpose as conventional banking except that it operates in accordance with Fiqh al-Muamalat (Islamic rules on transactions). The basic principle of Islamic banking is the sharing of profit and loss and the prohibition of riba (usury).
Halal is acceptable, and in financial terms it translates into those forms of banking and finance that avoid the religious prohibition against taking interest payments. Haraam, on the other hand, is what is forbidden by Islamic law; in financial terms, it applies chiefly to lending/borrowing money on interest. In Murabaha, funds are used by the bank to buy goods from a supplier and sold to a buyer immediately, and the buyer pays a margin over cost on a deferred payment date. In musharaka transactions, the bank participates with other parties in trade financing, real estate, leasing, and industrial projects, with net profits being shared in proportions as agreed at the beginning. Muqarada is a joint venture by finance providers, again on profit/loss sharing basis. Shirkah is a partnership between a bank and a customer to share the gains and risks of a project. Ijarawaiktina is the technique of leasing large capital items, such as property, plant and machinery, for monthly rental payments; on the expiry of the lease, the lessee buys the equipment. Lending to consumers is managed without interest by levying a service charge on consumers to cover bank expenses. Fees are charged for services offered by the banks where the banks’ own money is not used.
Islamic finance was practiced predominantly in the Muslim world throughout the Middle Ages.
The revival of Islamic banking coincided with the world-wide celebration of the advent of the 15th century of Islamic calender (Hijra) in 1976.
Incidentally, the Dubai Islamic Bank is reported to be the world’s first full-fledged Islamic bank, formed in 1975. India had no full-fledged Islamic bank as of 2007, but there were NBFIs operation along Islamic principles.

Jobber A dealer in shares or commodities who holds a stock of the asset and trades as a principal. Jobbers are contrasted with brokers, who operate in the same markets, but put people who wants to buy and sell in touch with each other, and do not trade for themselves. A more modern name for a jobber is a ‘market-maker’.
Joint Stock Company It refers to a business enterprise in which the capital is divided into small units permitting a number of investors to contribute varying amounts to the total. Profits in such a company are to be divided between stockholders in proportion to the number of shares they own.
Junk Bonds Bonds issued on very doubtful security. The finances of the firm issuing them are regarded as so insecure that there is serious doubt as to whether the interest and redemption payments promised will actually be made. Junk bonds are thus risky to hold.

Laffer Curve Named after American economist Arthur Laffer, the curve is a graphical illustration of the argument at which government tax revenue is maximised. If tax rates are low, revenues will be increased if tax rates are increased; however, if rates are raised beyond the optimum point, the loss of incentive caused by the resultant low net incomes discourages production and tax revenues fall. Laffer argued that the economy could be expanded without government budget deficits. Lower taxes lead to lower prices, higher output and therefore, higher government revenues. However, full empirical justification of Laffer’s argument is yet to be established.
Laissez Faire It is a French word which means ‘non-interference’. This was popularized by classical economists and gave the view that government should not interfere in the economic activities of the individuals.
Liquidity Ratio The proportion of the total assets of a bank which are held in the form of cash and liquid assets is called liquidity ratio. These assets include money lent out to the money market and short-term bonds issued by the government. Liquid ratio is also defined as the ratio of liquid assets to the current liabilities of a business. Also known as the cash ratio, it is a very crude test of solvency.
Lorenz Curve A graph depicting the variance of the size distribution of income from perfect equality.

Marshall Plan The programme of US assistance for an European economic recovery after the Second World War (1939-45) proposed by General George Marshall. The assistance considered of shipments of goods, provision of services and loans which financed public investment projects.
Merchant Banks These are financial intermediaries between entrepreneurs on the one hand and investors (with surplus fonds) on the other. Merchant banks in India Manage and underwrite new issues, undertake syndication of credit, advise corporate clients on raising funds and other financial aspects. Unlike merchant banks abroad, Indian merchant banks do not undertake banking business banks (deposits, lending, foreign exchange services, etc.). Merchant banking has been brought under the regulator framework of SEBI.
Merger It is the fusion of two of more separate companies into one. In current usage, in merger both the merging companies wish to join together on roughly equal terms. Merger is distinct from a take-over which occurs against the wishes of one company. However, merger, take-over, amalgamation, absorption and fusion are sometimes all used as synonyms.
Merit Goods A commodity whose consumption is regarded as socially desirable irrespective of consumers’ preference. Governments are readily prepared to suspended consumers’ sovereignty by subsidizing the provision of certain goods and services, for example, education.
Metzlev Paradox A situation in which the tarrif-imposing country’s terms of trade improve by so much that its domestic relative price of importable in fact falls as compared to the free trade levels.
Money Market Money market refers to the totality of financial institutions which deals with short-term fudns in the economy.
Monopoly Market It is a market in which there is only one supplier. There are three special features of monopoly market: (i) it is motivated by profits; (ii) barriers prevent new firms from entering the industry; and (iii) the actions of the monopolist itself affect the market price of its output.
Monopsony It is the market situation in which there is a single buyer of the product in the market. In other words it can be referred as ‘buyer’s monopoly.
Most-favoured Nation Status A clause in an international trade treaty under which the signatories promise to extend to each other any favourable trading terms offered in agreement with third parties.
Multi-Fibre Arrangement (MFA) An international arrangement within which individual importing and exporting countries agreed that specified textile and clothing goods would be subjected to import quotas. The objective was to protect the textile industries in high-wage countries from being overwhelmed by imports from low-wage countries. The MFA was put in place in 1974, and renewed in 1978, 1982 and 1986. The fourth expired in 1991. Under the terms of the Uruguay round of trade negotiations initiated by the General Agreement on Tariffs and Trade (GATT) the MFA was being phased out. Quotas were to be abolished in stages, between 1995 and 2005.
Mutual Funds These funds mobilize the savings of the general public and invest them in stock market securities. They are fast becoming an important medium of mobilizing the savings of the middle class and small investors by minimizing risk and raising the rate of return through portfolio diversification, having an appropriate mix of securities, watching market developments all the time and turning the portfolio to benefit the maximum from the ever-changing market scene.

Non-economic Variables Elements of interest to economists in their work but which are not given a monetary value or expressed in numerals because of their intangible nature. Example of non-economic variables include values, attitudes, beliefs, norms, and power structure.

Okun’s Law An economist Arthur Okun gave the Okun’s law. He presented the relationship between cyclical movements in Gross National Product (GNP) and unemployment. He noticed that an annual 2.5 percent increase in the rate of real growth above the trend growth results in a one per cent decrease in the rate of unemployment. This is Okun’s law.
Oligopoly A market situation whereby there are a few sellers and many buyers of similar but differentiated products. A good example of international oligopoly is the Organisation of Petroleum Exporting Countries (OPEC).
Open General License (OGL) Under the OGL scheme, import of certain goods is permitted without any license. Negative List: This list contains items that are not allowed to be imported and exported. Restricted List: This list contains items which are allowed to be imported and exported on restricted basis, with the nature of restrictions specified in the Exim policy. Canalised List: This list specifies items which are allowed to be imported and exported through certain specified canalised agencies.

Par Value It is the price at which a share or other security is issued, i.e., the face value of the investment.
Pareto Principle A rule originally applied by the Italian economist Vilfredo Pareto (1848-1923) to income distribution, i.e. 80 per cent of a nation’s income is earned by 20 per cent of the population.
Parkinson’s Laws British writer Cyril Northcote Parkinson’s (1909-93) propositions described in his book Parkinson’s Law. They include such aphorisms as: work expands to fill the time available in which to do it; expenditure rises to meet income; and subordinates multiply at a fixed rate that is independent of the amount of work produced.
Participatory Notes Participatory notes or P-Notes or PNs, are instruments issued by registered foreign institutional investors to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India. Since international access to the Indian capital market is limited to FlIs, the market has found a way to circumvent this by creating the device called participatory notes, which are said to account for a large amount that stands to the credit of Fits.
Hedge funds, which invest through participatory notes, borrow money cheaply from Western markets and invest these funds into stocks in emerging markets. This gives them double benefit: a chance to make a killing in a stock market where stocks are on the rise; and a chance to make the most of the rising value of the local currency. P-Notes are issued to the real investors on the basis of stocks purchased by the HI. The registered HI looks after all the transactions, which appear as proprietary trades in its books. It is not obligatory for the FlIs to disclose their client details to the SERI, unless asked specifically.
Peril Point It indicates a point beyond which tariff reductions would threaten the existence of domestic industry.
Petro-dollars Deposits in banks and financial institutions arising from OPEC trade surpluses.
Phillips Curve It is a graphical representation of the relationship between the percentage change of money wages and the level of unemployment. It is based on the argument put forward by economist Alban William Housego Phillips (1914-75) that lower the unemployment, higher the rate of change of wages.
Pigou Effect The argument that price and wage flexibility could prevent unemployment. If prices and wages fell sufficiently in a slump, full employment would be restored because of the resulting increase in the real money supply.
Plastic Money Credit Cards and Debit Cards by the banks and financial institutions are termed as plastic money and these are alternates of carrying cash for shopping, travelling, etc.
Poll Tax A tax levied equally on each person in the community.
Portfolio Investments The purchase of financial assets without an objective to gain control. Usually arranged through banks and other financial institutions.
Poverty Trap Is a situation when a person does not gain from moving from unemployment to employment or to a better paid job.
Prebisch-Singer Hypothesis The argument that primary-product export orientation of the developing countries results in a secular decline in their terms of trade.
Prepayments These are the payments for services such as rent and rates made in one accounting period for consumption wholly or partly in a following period.
Price Ring It is an unofficial syndicate by which the prices are controlled with the prior understanding among the traders. The dealers under the price ring decide not to over-bid one another at the public auction to keep the prices low. Price ring discourages outsiders from coming to the auctions.
Promissory Note It is a legal document between a lender and a borrower whereby the latter agrees to certain conditions for the repayment of the sum of money borrowed.
Protection In economics, protection refers to imposition of tariffs or quotas to restrict the inflow of imports.
Public-Private Partnership (PPP) A cooperative venture between the public and private sectors to achieve faster economic development. This partnership is built on clearly defined public needs through the appropriate, allocation of resources, risks and rewards, which ensures maximum efficiencies and innovations of private enterprise and provides capital to finance government’s social programmes. Besides, risks are allocated on the basis of the capability of players to manage them efficiently and hence maximise value to all. There are various models of PPP ranging from straight contracting out to complete privatisation.
The models primarily followed in India are build operate- transfer (BOT), build-own-operate-transfer or build-own-operate (BOOT), concession design build-finance-operate, management contract and asset sale. These models can be modified and structured according to the needs of the projects such as roads, ports and metro rail.
Pump Priming It is an investment concept given by J.M. Keynes. It refers to the autonomous investment which is made by the government to revive the economy from the phase of depression, such investment may become productive or unproductive.
Purchase Tax It is an indirect tax levied at different percentage rates for different commodities on their wholesale prices.
Purchasing Power Parity (PPP) The theory that exchange rates between currencies are determined in the long run by the amount of goods and services that each can buy. An alternative form of PPP says that changes in the equilibrium exchange rate are determined by changes in relative price levels.

Quoted Company A quoted company is the one included in the official list of a recognised stock exchange.

Rate of Return It is net profit after depreciation as a percentage of average capital employed in a business. Reflation refers to a macroeconomic policy of increasing aggregate demand in the economy in order to reduce unemployment.
Reverse Merger A reverse merger occurs when a private company acquires or merges with a public company that is dormant, little more than a shell. That is, although the public company is listed on a stock exchange, such as the NASDAQ, or trades in the over-thecounter (OTC) market, its primary business has failed and it has sold off most of its assets and discontinued operations. Reverse mergers became popular after the stock market bubble burst in 2000 and the initial public offering market virtually shut down. It is also called a back-door listing, as it enables private companies to go public without registering an initial public offering (I PO). Reverse mergers are appropriate for companies that do not need capital quickly and that will experience enough growth to reach a size and scale at which they can succeed as a public entity. By becoming public, a company becomes a more attractive investment opportunity to a wider range of investors. The supply of equity capital is more abundant for public companies than for private ones.
Reverse Mortgage Loan Scheme A reverse mortgage product seeks to monetise the house as an asset, and specifically the owner’s equity in the house. The scheme involves senior citizen borrowers mortgaging their property to a lender, who then makes periodic payment to the former during their lifetime. Loan amount depends on market value of property as assessed by primary lending institution, age of borrower(s) and prevalent interest rate.
Reverse Takeover The buying of a large company by a smaller company. Another version could be the purchasing of a public company by a private company. This may be the cheapest way that a private company can obtain a listing on a stock exchange, as it avoids the expenses of a flotation and it may be that the assets of the public company can be purchased at a discount.
Richardian Equivalence The argument that individual’s sings behaviour will be affected in the same way by government spending, whether this is financed by taxes or borrowing.
Rolling settlements Rolling settlement refers to the process of settling security trades on successive dates so that trades executed today will have a settlement date one business day later than trades executed yesterday. This contrasts with account settlement, in which all trades are settled once in a set period of days, regardless of when the trade took place.

Sales Tax It is a tax levied as a proportion of the retail price of a commodity at the point of sale. An indirect tax, the term is sometimes used to refer to all taxes on expenditure, i.e., to include value added tax, which is levied at all levels of production and distribution.
Say’s Law of Markets A law formulated by Jean-Baptiste say (French economist) which states that supply creates its own demand.
Scrip Issue An issue of new shares to shareholders in proportion to their existing holdings is called scrip issue Unlike rights issue, scrip issue is charge-free. A scrip issue does not raise new capital. It is merely an adjustment to the capital structure. The word ‘scrip’ is an abbreviation of ‘subscription certificate’
Secondary Tariffs Additional taxes being imposed on imports; may be called import surcharge, equalisation tax of stamp duty.
Share It is one of a number of equal portions in the nominal capital of a company, entitling the owner to a proportion of distributed profits and of residual values if the company goes into liquidation.
A shareholder or stockholder is an individual or company (including a corporation) that legally owns one or more shares of stock in a joint stock company. A company’s shareholders collectively own that company.
Shareholders are granted special privileges depending on the class of stock, including the right to vote (usually one vote per share owned, but sometimes this is not the case) on matters such as elections to the board of directors, the right to propose shareholder resolutions, the right to share in distributions of the company’s income, the right to purchase new shares issued by the company, and the right to a company’s assets during a liquidation of the company.
Social Dumping Claims that industries in countries with lower labour standards (including denial of basic rights) have an unfair advantage over industries in countries with higher labour standards.
Soft Currency It is a currency whose exchange rate is tending to fall because of persistent balance of payments deficit. The speculative selling of the currency in anticipation of a decline in its exchange rate may also result in real fall in exchange rate of the currency. Governments avoid to hold a soft currency in their foreign exchange reserves.
Special Drawing Right (SDR) SDR is an interest-bearing international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries. The SDR is based on a basket of international currencies comparising the US dollar, Japanese yen, euro and pound sterling. It is not a currency, nor a claim on the ImF, but is potentially a claim on freely usable currencies of IMF members. The value of the SDR is not directly determined by supply and demand in the market, but is set daily by the IMF on the basis of market exchange rates between the currencies included in the SDR basket. It can be held and used by member countries, the IMF, and certain designated official entities called “prescribed holder” - but it cannot be held, for example, by private entities or individuals.
Spot Market It refers to a market in which goods or securities are traded for immediate delivery is called the spot price.
Stag Stag is a speculator who buys large number of new issued share at the issue price and sells them at premium (higher price than issue price) at a later stage when the prices goes up in the stock market.
Stagflation It refers to inflation associated with static or declining output and employment.
Stamp Duty It is a form of indirect taxation which involves the fixing of pre-paid stamp to legal and commercial documents.
Stock The term ‘stock’ means a fixed interest security, i.e., loan stock in a company or government stock. Stock is also known as share/equity.
Structural inflation Inflation that arises as a result of supply inelasticities and structural rigidities (e.g., inefficient marketing and distribution systems) in the industrial sectors of the economy. It is a form of demand-pull inflation, but can exist with considerable excess capacity and unemployment.
Sub-prime business A general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates because of problems with their credit history or the ability to prove that they have enough income to support the monthly payment on the loan for which they are applying. Subprime loans or mortgages are risky for both creditors and debtors because of the combination of high interest rates, bad credit history, and murky financial situations often associated with subprime applicants. (For details see section on US Subprime Mortgage Crisis.)
Subsidy Government grants to suppliers of goods and services are known as subsidies. A subsidy may be provided to keep prices down, to maintain incomes of producers, or to maintain a service or employment. An essential characteristic of a subsidy is that it has the object of keeping prices below the factor cost of production.
Sustainable Development Process of development where resources are used to maximise the benefits of economic development for the present generation without impairing the prospects of maintaining or improving the living standards of the future generations.

Teaser/Terraced Loans A teaser loan is an adjustable mortgage loan in which the borrower pays a very low initial interest rate, which increases after a few years. [In the Economic Survey 2010-11, the term ‘terraced loan’ was used in preference to the term ‘teaser loan’.) The State Bank of India Easy Home Loans and SBI Advantage Home Loan were teaser products but these were withdrawn with effect from May 11, 2011 under persistent pressure from RBI. The central bank felt that the schemes could affect the asset quality of the home loan portfolio of SBI.
Terms of Trade The ratio of the index of export prices to the import prices is called the terms of trade. If export prices rise more quickly than import prices, an improvement in the terms of trade is said to have occurred. The Indian stock exchange runs rolling settlements where the cash and security settlement takes place at T+2, i.e., the exchange happens two days after the trading day.
Tobin Tax A proposed low-level tax on foreign-exchange dealings. It has been suggested that such a tax could have the effect of restraining destabilizing currency speculation while also raising large sums that could be used to aid developing nations. The tax was proposed by the American economist John Tobin.
Trade Barrier It is a general term which is used to express any government limitation on the free international exchange of merchandise.
Trade Cycle It refers to regular fluctuations in the level of national income. It often occurs on a generally upward growth path and has a variable time span.
Trade Discount It is the percentage below the published retail price of a commodity at which a Manufacturer sells to his distributors, wholesale or retail, or at which a wholesaler sells his goods to a retailer.
Transfer Costs It is the total costs of moving goods or materials from one place to another. Transfer costs include loading/ unloading costs and administrative costs as well as transport costs.
“Trickle-down” Theory of Development The notion that development is purely an “economic” phenomenon in which rapid gains from the overall growth of GNP (gross national product) and per capita income would automatically bring benefits (i.e., “trickle-down”) to the masses in the form of jobs and other economic opportunities. The main preoccupation is therefore to get the growth job done while problems of poverty, unemployment, and income distribution are perceived to be of secondary importance.
Turnover The total sales revenue of a business is called turnover.

Value-added Tax (VAT) It is a general tax applied at each point of exchange of goods and services from primary production to final consumption. It is levied on the difference between the sale price of the goods or services, to which the tax is applied and the cost of goods and services bought in for use in its production.
Venture Capital Companies These give commercial support to new ideas and introduction and adaptation of new technologies. Venture capital financing by its nature involves’a high degree of risk.

Webriz Curve This curve represents the graphical relationship between level of unemployment and level of employment avenues availability in a country; both these components have inverse relationship, i.e., if unemployment increases the level of employment decreases and vice versa.
Withholding Tax Tax deducted at source from dividends or other income paid to non-residents of a country.

Zero-base Budgeting The proposal that the budgets of government and other organisations should be designed starting from first principles, defining the aims of the organisation and adopting the best method of achieving them. This is contrasted with normal budgetary procedure, which starts from the previous period’s budget and makes marginal changes.