1

KEY TERMS
1.

Abnormal Loss : Abnormal loss is not inherent. It has no concern with the nature of goods. Abnormal loss may arise due to theft, fire accident etc. Such losses should not be allowed to effect the consignment accounts, or profits on consignment. The value of closing stock is also effected in case of abnormal loss. Abnormal loss may occur either in the godown of the consignee or in transit.

2.
3.

Acceptance : After a bill is drawn by the drawer, it has got to be accepted by the drawee. Without such acceptance, a bill has got no value. Acceptance should be given by the drawee across the face of the bill.

4.

Accounting: Accounting concerned with the maintenance of accounts. It includes the preparation of records and reports based on the recorded data. It also includes interpretation of the reports. Accountancy helps the interested parties to know the state of affairs of the business. According to R. N. Anthony, Accounting system is a means of collecting, summarising, analysing and reporting in monetary terms, the information about the business. Accounting is known as Language of Business.

5.

Account Sales : A statement submitted by the consignee to the consignor giving account of the sale proceeds, details of various expenses incurred and the commission due to him.

6.

Accounting Concepts: Accounting concepts are the assumptions upon which the accounting is based. They are also known as Generally Accepted Accounting Principles. The accounting concepts include (I) money measurement concept; (ii) business entity concept; (iii) Cost concept; (iv) going concern concept; (v) dual aspect concept; (vi) matching concept; (vii) accounting period concept.

7.

Accounting Conventions: Conventions mean customs or traditions which are useful as a guide to the preparation and presentation of accounts. This include: (a) Convention of conservatism; (b) Convention of materiality; (c) Convention of consistency; (d) Convention disclosure.

8.

Account Current : An Account Current is a statement of mutual transactions between two parties for a given period of time. It includes interest payable to or

receivable from the other party at an agreed rate. It takes the form of an account with some additional columns for due date, number of days, interest, product, etc. In fact, it is a copy of the ledger.

9.

Accounting cycle: An Accounting Cycle is a complete sequence beginning with the recording of the transactions and ending with the preparation of final accounts. It includes journalizing, posting and balancing the ledger, preparation of trial balance and finally the preparation of financial statements.

10.

Accounting Equation: American Accountants have derived the rules of debit and credit through accounting equation which is given below: Assets = Equities or outside liability + Owners equity. The equation is based on the principle that accounting deals with property and rights to property and the sum of the properties owned is equal to the sum of rights to the properties. The properties owned by a business are called assets and the rights to properties are known as liabilities of the business. The accounting equation is: Assets = Liabilities + Capital.

11.

Accounting Period: A period of twelve months for which accounts are usually kept. It may be calendar year or financial year. In case of new business, certain times, accounting period may be less than twelve months.

12.

Accounting Standards: Accounting standard are the policy documents. They will be issued by recognised Accounting Bodies. They relate to various aspects of measurement, treatment and disclose of accounting transactions. The purpose of measurement, treatment and disclose of accounting transactions. The purpose of these standards is to standardise the information relating to financial statements.

13.

Accounting

Standard

Committee:

The
th

international

Accounts

Standards

Committee (IASC) was established on 29 June 1973. The IASC so far issued 39 International Accounting Standards (IAS). In India, the Accounting Standards International Accounting Standards (IAS). In India, the account Standards Board (ASB) was constituted by Institute of Charted Accountants of India (ICAI) on April 21, 1977. So far this Board issued 15 accounting standards.

14.

Adjusting Entries: Sometimes it becomes necessary to make entries for adjustments at the end of the year. Prepaid expenses, outstanding expenses, depreciation etc., will be shown by way of adjustment entries in the journal proper.

15. 16. 17.

Air Consignment Note : It refers to a document prepared by the consignor which is handed over to the carrier of goods, while transporting goods through airways.

Amortisation : The terms amortisation refers to writing off the proportionate value of the intangible assets such as copyrights, patents, goodwill etc.

Analytical Petty Cash Book: In business, the petty payments are numerous. They are entered in a petty cash book in a columnar form. There will be a separate column for each head of petty expense and a column for the total. Every petty payment is entered in both these columns. Thus, provision is made in the petty cash book to show the details of the payments. Such a book showing an analysis of the payments is called Analytical or Columnar petty cash book.

18. 19.

Annuity : Annual payment of the claim of a retiring or deceased partner.

Assets: The valuable things owned by the business are known as assets. These are the properties owned by the business. The assets are classified into four types. They are: (I) Fixed assets (land and Buildings, Plant , machinery etc.) (ii) Current assets (Cash, stock, debtors etc) (iii) Fictitious assets (preliminary expenses) (iv) Intangible assets (goodwill, patents etc.)

20. 21.

Assocham : It is a federation of Chamber of Commerce. It is located at Mumbai.

Assurance : The term Assurance is applied to contracts, where the risk insured against is certain to happen; but the time of its happening is uncertain. Technically speaking a life insurance should be called Life Assurance.

22. 23.

Average Days : The number of days arrived at by dividing the total of the products by the total amounts payable.

Average Due Date : It is the date on which a single payment may be made in one single amount in the place of several amounts due on different dates, without loss of interest to either party (debtor or creditor)/ Average Due date = Starting Date Total Products / Total Amount

24.

Bad debts: Sometimes, a debtor may not be able to pay the debt, partially or completely. The debts that cannot be recovered from the debtors are called bad debts. They are treated as a loss to the firm.

25.

Balance Method: Under this method all balances of each account will be shown against the debit or credit side in the Trial Balance. If an account has no balance then it will not be shown in the trial balance. This method is more convenient and commonly used.

26.

Balance Sheet: Balance sheet is a statement which shows the financial position of a business on a particular date. The left side of the balance sheet is called liabilities side. The right side is called assets side. The total liabilities side and the total of assets side of the balance sheet should be the same.

27. 28. 29.

Balance of Payments : A measure of all money flows in and out of a nation.

Balance of Trade : A measure of a nations exports and imports.

Base Date : It is the starting date taken for the calculation of average due date. It is also called starting date, zero date or focal date.

30.

Bank : A bank is an institution accepting for the purpose of lending or investment in deposit money from public, repayable on demand or otherwise, withdrawal by cheque, drafts, order or otherwise.

31. 32.

Bank Money : Bank Deposits against which cheques can be issued.

Bank Reconciliation Statement: Bank Reconciliation statement can be defined as a statement which reconciles the balances as per cash book and the balance as per pass book showing the causes of difference between the two. It is prepared with a view to find out the causes responsible for the difference between the balances of cash book and pass book and to reconcile the balance.

33. 34. 35.

Barter : Exchange of goods for goods or services without the use of money.

Barratry : It refers to a fraudulent breach of duty on the part of master of the ship or the mariners, to the injury of the owner of the ship or the cargo.

Bill Dishonour : When the acceptor fails to honour the bill, when it is presented for payment on the due date, it means the bill is dishonoured. Simply to say dishonour of the bill means the non-payment of the bill.

36.

Bills Payable Book: When the trader purchases goods from others, he will accept the bills and return them to the drawer. All such bills accepted by the trader are known as bills payable. Bills payable book is used to record all the bills or promissory notes accepted.

37.

Bills of Exchange : An instrument in writing containing an unconditional order, signed by the maker directing a certain person to pay a certain sum of money on demand or after a specified period to a certain person or his order.

38.

Bill of Lading : A receipt for goods, signed by the master or agent of a ship, acknowledging their receipt on board and undertaking their delivery to the consignee under specified conditions.

39.

Bills Receivable : A bill of exchange or a promissory note receivable by the business.

40.

Bonded warehouse : These are warehouses licenced by the Government. They accept imported goods for storage before the payment of customs duty.

41.

Book Keeping: Book keeping involves the chronological recording of financial transactions in a set of books in a systematic manner. The object of book keeping is to prepare original books of Accounts. It is restricted to journal, subsidiary books and ledger accounts only. Accountancy begins where book keeping ends.

42.

Capital: It is that part of wealth which is used for further production. Thus, capital consists of all current assets and fixed assets. Cash in hand, cash at Bank, buildings, Plant and furniture etc., are the capital of the business. Capital is classified as fixed capital and working capital.

43.

Capital Receipts: Capital receipts are those receipts which are received on selling of capital assets. For example, sale proceeds of fixed assets or amount raised through loans, issue of shares. All capital receipts are to be shown at the liabilities side of the balance sheet.

44.

Capital Expenditure: Amount spent on acquiring of capital assets is termed as capital expenditure. For example, amount spent on buying of plant and machinery. All items relating to capital expenditure are to be shown at the assets side of the balance sheet only.

45.

Capital Fund : The excess of assets over liabilities of trading concerns is termed as Capital Fund or General Fund. It includes other incomes like life membership fees, entrance fees etc.

46.

Card Index : A method of filing used to facilitate reference to any particular record. Also called visible card index.

47. 48.

Card Punch : A device which punches holes or perforates cards upon instruction from a computer.

Cash discount: Cash discount is an incentive given to debtors for making prompt payment of the amount due from them. Similarly, cash discount may also be received by the trader while making an early payment to the creditors. It is not deducted from the selling price of the goods because allowing of discount is not certain. Cash discount will be recorded in the books of accounts as an income when it is received and as an expense when it is allowed to the creditors.

49.

Cash Book: Cash book is a principal book as well as the subsidiary book. It is a book of original entry as the transactions are recorded for the first time from the original documents. It is a ledger in a sense that it is designed in the form of cash account. It records each receipts on the debit side and cash payments on the credit side. Thus, the cash book fulfils the functions of both Ledger and Journal.

50.

Cash Memo: Cash Memo is issued on cash sale. Cash memo Book is printed. It contains cash memos in duplicate. The original copy of the Cash Memo is given to the customer who pays cash on account of cash sales. The carbon copy is used as an office copy of Cash Memos.

51. 52.

Causa Proxima : It means nearest cause and not the remote one to be taken notice of, while determining the liability of the insurers.

Central Bank : It is the apex bank. It acts as a banker to Government, banker to banks. It frames various policies affecting the monetary policy of the economy. Reserve Bank of India is the Central Bank of our country.

53. 54.

Chamber of Commerce : It is a voluntary non-trading association of people engaged in Commerce and Industry.

Charter Party : An agreement relating to the hire of a ship or a part of it.

55. 56.

Chronological Filing : A filing system under which documents are filed according to date.

C.I.F. : It means cost, insurance and freight. Under a C.I.F. quotation the seller must ship the goods meeting all charged upto on board and pay freight and insurance of goods also.

57.

Clerical Errors : These errors arise because of mistakes committed in the ordinary course of the accounting work. The clerical errors are of three types. They are : (a) Errors of omission (b) Errors of commission (c) Compensating errors.

58. 59.

Closing Entries: At the end of the year the balance of nominal accounts are transferred to trading account or profit and loss account.

Closing Stock: It is the value of the unsold goods at the end of the trading period. Closing stock is valued at the cost price or the market price, which ever is lower. It should be noted that the closing stock of the current year, will be the opening stock for the next year.

60. 61. 62.

Commercial Bank : A Commercial bank is one which accepts demand deposits and allows withdrawal of money through cheques etc., Ex : SBI, Andhra Bank.

Common Carrier (Public carrier) : Transportation agencies that offer services to the general public.

Compensating Errors : A group of errors wherein the effect of one error is counter balanced (compensated) by the effect of the other errors. Such errors do not effect the agreement of trial balance.

63.

Compound entry: Some times two or more transactions of the same nature may take place on the same date. Instead of making a separate entry for each of

recording a number of transactions is termed as Compound Journal Entry. In case of compound entry the total of all debits should be equal to the total of all credits.

64. 65.

Computer : An electronic machine used to process data quickly.

Consignment : Goods sent by a producer or a trader to his agents for sale on their behalf and at their risk. The process of sending goods on this basis by one firm to another to sale is known as consignment. There are two parties in consignment. Viz., Consignor and Consignee.

66. 67.

Consignment Note : Form to be filled in while sending goods through passenger train.

Consignor : A person who sends the goods to his agent on consignment basis. The relationship between the consignor and consignee is that of a Principal and an Agent. The consignor prepares consignment account and consignee account.

68.

Consignee : A person to whom the goods are sent on consignment basis. For selling the goods the on consignment, the consignee gets commission. He finalize the account of the consignment by sending the account sales along with the money due to the consignor.

69.

Contingent Liabilities: These are not the real liabilities. Future events can only decide whether it is really a liability or not. Due to their uncertainty, these liabilities are termed as contingent (doubtful) liabilities. Ex: Dispute in a Court relating to the payment of taxes.

70. 71.

Containership : It is specially constructed for the transport of Cargo in Containers.

Contra Entry: The transactions relating to cash and bank balances are to be recorded in the cash book at the same time and hence contra entries are necessary. In Latin contra means the other side. Contra entry means the recording of debit and

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credit of a transaction at a time in the cash book. Contra entry is necessary when cash is deposited in the bank; cheque received is not sent to bank for deposit on the same day; and when cash is withdrawn for office purpose.

72.

Contract of Affreightment : It is a contract whereby the ship-owner agrees to carry the goods in return for a sum of money. It may be contain in a document called Bill of lading or Charter party.

73.
74.

Co-operative Banks : These are formed on the principle of co-operating to extend credit facilities to farmers, public etc. Cost Concept: Usually all the transactions will be recorded at cost in the books. However, at the end of every year the Accountant shows the reduced value of the asset, after providing for depreciation. This approach is preferred because it is difficult and time consuming to ascertain the market values. Further, it becomes very difficult to know the market values as they change from time to time.

75. 76.

Cost of Goods sold: It is the total of opening stock, purchases and direct expenses and subtraction of the closing stock from the total.

Creditor: A creditor is a person to whom something is owed by the business. He is a person to whom some amount is payable for loan taken, services obtained or goods bought.

77.

Credit Note: While returning the goods, the customers will send the debit note along with the goods. When the trader receives goods so returned he verifies the goods with the debit note. After satisfying himself the customers account will be credited. Then a letter containing this information is sent to the customer. It is called credit note. The credit note is just like debit note. For identification sake credit note and debit note will be printed in different colours.

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78.

Current Liabilities: Liabilities payable within a year are termed as current liabilities. The value of these liabilities goes on changing. Creditors, bills payable and outstanding expenses etc. are current liabilities.

79. 80. 81.

Customs Duty : It is one type of tax imposed by Central Government on certain commodities that are improrted.

Date of Maturity : The date on which bill is due for payment.

Days of Grace : While calculating due date of the bill, three days of grace have to be compulsorily added. Initially 3 days of grace were allowed to the drawee as a matter of sympathy and kindess but it became a practice. It has now become a law. According to Indian Negotiable Instrument Act, the drawee can avail of 3 days of grace as a matter of legal right. However, days of grace are not allowed to bills payable at sight.

82.

Debit Note: When goods are received from the supplier, suppliers account is credited. When the goods are returned, the suppliers account is debited. So in the case of purchase returns a debit note is prepared. It should contain the details of goods returned. Generally, the debit note will be made in duplicate. One will be sent to the supplier, and other will be kept as an office copy.

83. 84.

Debtor: Debtor means a person who owes money to the trader.

Deferred Revenue Expenditure: An expenditure that is normally heavy and its benefit is likely to be available for more than one year is referred to as deferred revenue expenditure. For example, expenditure incurred on advertisement, cost of shifting the plant and Machinery to a new site.

85.

Del Credere Commission : commission paid by the consignor to the consignee for bearing the risk of bad debts arising out of credit sales made by him on behalf of the

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consignor. Generally the Del credere commission is to be calculated on the total sales. Unless, otherwise mentioned that it is to be calculated on credit sales only.

86. 87.

Demurage : Penalty paid by the receiver of goods to the railways or Transportation agencies in case of delay in clearing goods from their godowns.

Depreciation: The permanent and continuous diminution in the quality, quantity or value of an asset. Generally, depreciation is applicable only for fixed asset. Depreciation is caused by use, passage of time or obsolescence. There are several methods available for calculating depreciation. They include (1) Straight Line Method (2) Written down Value Method etc.

88. 89.

Development Banks : They provide long-term funds to the industries. They also provide promotional services. Ex : IDBI, IFC, ICICI, APSFC.

Depletion : The term depletion is used in respect of the extraction of natural resources from wasting assets such as quarries, mines etc. It refers to the reduction in the available quantity of he material. It is a method of computing the depreciation on wasting assets.

90. 91. 92.

Dictaphone : A device which can record spoken words over the intercom for later transcription by audit typists.

Dictating Machine : A machine used to dictate letters.

Diminishing Balance Method : It is also known as Reducing Balance Method or Written Down Value method. Under this method, the amount of depreciation is a fixed percentage calculated on reducing value of the asset. The amount of depreciation goes on decreasing every year.

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93.

Direct Expenses: Direct expenses are the expenses incurred in purchasing or manufacturing goods. They include: carriage, freight duties, wages, factory lighting and insurance etc.

94.

Discount: Discount in cash book means cash discount only. In double column and triple column cash book there will be a column for discount in the debit and credit sides of cash book. Discount allowed will be shown in the debit side and discount received will be shown in the credit side of the cash book. Finally, the discount will be shown in the credit side of the cash book. Finally, the discount received and discount allowed are totalled separately.

95. 96.

Discounting of Bill : Encashment of bill with the bank before due date.

Donations : Donation is the charity given by an individual or an institution for a nonprofit organization. Donations can be of two types. They are : (1) General Donations and (2) Specific Donations. General Donation is to be treated as revenue income and is to be credited to Income and Expenditure account. If the amount is substantial is to be taken to the liabilities side of the balance sheet as capital receipt. Specific donations are treated as capital receipts. Hence, they are to be shown on the liabilities side of the Balance Sheet.

97.

Double Column Cash Book: This book has two amount columns on each side, one for discount and the other for cash. Discount column on debit side represents loss being discount allowed to customers. Similarly discount column on credit side represents gain being discount received. Two column cash book may also be maintained with discount and bank columns only.

98.

Double Entry System: Double entry system is a scientific way of presenting accounts. As such all the business concerns feel it convenient to prepare the accounts under double entry system. Under dual aspect concept, the Accountant deals with the two aspects of business transactions i.e., (I) receiving aspect and (ii) giving aspect. Receiving aspect is known as Debit aspect and giving aspect is

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known is Credit aspect. In double entry book-keeping system these two aspects are recorded facilitating the preparation of trial balance and the final accounts therefrom.

99.

Double Insurance : It is an insurance wherein the same risk is insured by two or more companies.

100. 101. 102.

103.

Drawer : One who draws the bill, usually a creditor.

Drawee : A person on whom the bill is drawn, usually a debtor.

Drawings: Cash or goods withdrawn by the proprietor from business for his

personal or household use is termed as drawings. Dual Aspect Concept: This concept throws light on the point that each transaction has two fold affect the receiving of the benefit and giving of the benefit. The receiving aspect is termed as debit, where as the giving aspect as credit. Therefore, for every debit, there will be corresponding credit. There is a famous dictum that every receiver is also a giver and every giver is also a receiver. The dual aspect concept also leads to the following accounting equation. Capital + Outside Liabilities = Assets
104.

Due Date : The due date of a bill of exchange is the date when the amount of the bill is payable by the drawee. It is also called the maturity date. The date of maturity will be determined according to the tenure of the bill adding three days of grace.

105.

Duplicator : A machine used to reproduce multiple copies of documents. Duty Drawback : Sometimes, goods which are imported into a country are reexported. In this case, the import duty, already charged, is refunded. This is known as customs draw-back.

106.

107.

Earned premium : The portion of an insurance premium for which protection has already been provided by the insurer.

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108.

Earnest Money : A deposit made towards the purchase of real property. In some locales it is viewed synonymously with the Binder. Other places consider it as an additional deposit towards the purchase. Here, the amount can be quite large. Often it would accompany a signed sales contract prior to the closing or settlement.

109.

Earnings : The amount of profit a company realizes after all costs, expensed and taxes have been paid. It is calculated by subtracting business, depreciation, interest and tax costs from revenues. Earnings are the supreme measure of value as far as the market is concerned. The market rewards both fast earnings growth and stable earnings growth. Earnings are also called profit or net income.

110.

Earnings per share : A widely used indicator of the return on equity investments. Any figure quoted represents the total amount of a companys earnings (after deductions) divided by the number of ordinary shares it has issued.

111.

Earnings yield : A companys per-share earnings expressed as a percentage of its stock price. This provides a yardstick for comparing stocks with bonds, as well as with other stocks.

112.

Ebit : Earnings before interest and taxes. Ebit is calculated by subtracting costs of sales and operating expenses from revenues. The figures are often used to gauge the financial performance of companies with high levels of debt and interest expenses.

113.

Economic indicators : Key statistics used to analyze business conditions and make forecasts. Among them are the unemployment rate, inflation rate, factory utilization rate and balance of trade.

114.

Economic Life : The time period over which an assets NPV is maximized. Economic life can be less than absolute physical life for reasons of technological obsolescence, physical life for reasons of technological obsolescence, physical deterioration, or product life cycle.

Economic Order Quantity (EOQ) : The order quantity that minimizes total inventory costs. A total inventory cost is the sum of ordering, carrying and stock-out costs.

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115.

Economic risk : In project financing, the risk that the projects output will not be salable at a price that will cover the projects operating and maintenance costs and its debt service requirements.

116.

Electrostat : A machine, which produces exact copies of original documents. Effective income tax rate : The income tax provision shown on an income statement divided by pretax income. This differs from the statutory rate because of deductions, credits, and exclusions.

117.

118.

Effective interest rate : The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the note.

119.

Effective Margin (EM) : Used with SAT performance measures, the amount equal to the net earned spread, or margin of income, on assets in excess of financing costs for a given interest rate and prepayment rate scenario.

120.

Efficient capital market : A market which new information is very quickly reflected accurately in share prices.

121.

Efficient market : Economy in which prices correctly reflect all relevant information. Elliott wave theory : Technical market timing strategy that predicts price movements on the basis of historical price wave patterns and their underlying psychological motives. Robert Prechter is a famous Elliott Wave theorist.

122.

123.

Electronic trading : The process whereby customers or their representatives can directly enter orders and receive reports and statement via the internet. It can also include trading with terminals over dedicated telephone lines.

124.

Embedded option : An option whose characteristics are implied but not explicitly specified. One notable example is the option granted a mortgagor (home owner) by the lender. The mortgagor has the right to prepay the mortgage at any time but is not required to do so in any specified manner.

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125.

Emerging markets : A term which broadly categorizes countries in the midst of developing their financial markets and economic infrastructures. This development is viewed in terms of freer, more liquid markets, which facilitate trade. Privatization of former state owned or administered businesses is a key factor in this process.

126.

Endorsement : The term endorsement is derived from the Latin word endorsum, which means on the back. It means putting ones signature on the back of a bill to transfer it to another.

127.

Endorser : A person who transfers a bills receivable to his own creditor in full or part payment of his debt.

128.

Endorsee : A person in whose favour the bills receivable is transferred. Endowment : A life assurance policy related to a mortgage designed to pay off the amount originally borrowed at the end of the mortgage term. An endowment policy will pay you a fixed amount on a set date or if you die before that date, in other words its both a way of saving and life insurance. People often use endowments to repay interest only mortgages. The drawback of them is that it is often unclear how much you are having to pay in charges and the plans are often very rigid, so if you start an endowment and then decide to cancel it, you might not get back what you paid in.

129.

130.

Entrance Fees : The fees collected at the time of admission of a member into the organization is known as Entrance fees. The Entrance fees is to be posted in the debit side of the Receipt and Payments Account. Entrance fees may be treated as capital income or revenue income. Sometimes, a part of it may be treated as capital income.

131.

Entrepot Trade : When a trader purchase goods from one country and sells the same goods to another country; it is called entrepot trade.

132.

Equities : Another word for stocks and shares. Equity : Ownership interest possessed by shareholders in a corporation stocks as opposed to bonds. It is the part of a companys net worth that belongs to shareholders.

133.

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134.

Equity capital : A form of financing where equity in a business is sold to private investors.

135.

Equity hedge funds : Try to long position themselves in stronger or outperform issues while selling short weaker or poorer prospect securities. Variations of this are : trading large cap issues versus small caps; using derivatives for enhanced returns; specializing in program trading; or using leverage to magnify returns.

136.

Franco or Rendu Price : It means that all the charges paid by the exporter upto and including delivery to the buyers warehouses.

137.

Error : A mistake in terms of quantity, type of order, side of market (purchase or sale), security, or other condition of a trade.

138.

Errors of Commission : When a transaction is incorrectly recorded in the books of account, it is called error of commission. Examples of such errors include errors on account of wrong balancing of an account, wrong posting, wrong carrying forwards, wrong totaling etc. errors of commission affect the agreement of Trial Balance.

139.

Errors disclosed by trial balance: There are a number of errors, which if

committed, will lead to the disagreement of trial balance. These include: wrong totaling or wrong casting of the subsidiary books, posting of the wrong amount, posting an amount on the wrong side of the accounts, omission of an account from ledger accounts, omission of an amount from the trial balance, carry forward errors, error in balancing the amount.

140.

Errors not disclosed by Trial Balance: The trial balance will agree even if

these errors are there in the accounts. These errors are: errors of omission, errors of commission, compensatory errors and errors of principle.

141.

Errors of Omission : When a transaction is wholly or partially omitted to be

recorded in the subsidiary books, it is called an error of omission. Complete omission involves the non-recording of any transaction in the original books of accounts. Partial omission is done when a transaction is recorded in the primary book but not posted to the ledger.

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142.

Error of Principle : Errors involving violation of accounting principle are

termed as Errors of Principle. For example, treating capital expenditure as revenue expenditure or vice versa.
143.

Escalation : Refers to the increase in benefit (usually annual) payable during the payment term of an insurance claim that is not settled via a lump sum payment. For example, claims under an Income Protection Policy might escalate annually in line with the Retail Price Index.

144.

Escalator Clause : A clause in a contract providing for increases in costs such as labor expense and materials.

145.

Escheat : The reversion of property to the state (government) in the absence of legal heirs or claimants.

146.

Escrow : (1) A procedure whereby a disinterested third party handles legal documents and funds on behalf of a seller and buyer. (2) Money that is kept by the mortgage company to ensure that taxes can be paid in full when due.

147.

Estate : Strictly, an interest in land, but generally used to mean the total (land, chattels, investments, etc) owned by an individual.

148.

Estate taxes : Taxes levied by the federal and state governments on the transfer of your assets after you die.

149.

Euro : The European Single Currency. Eurobonds : Bonds issued and traded outside the country whose currency they are denominated in, and outside the regulations of a single country; usually bonds issued by a non-European company for sale in Europe. Also called global bonds.

150.

151.

Eurocurrency : A deposit in a bank outside the depositors country of origin. Most deposits are U.S. dollar deposits, although nearly all major Western currencies are represented.

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152.

Eurodollars : U.S currency held in banks outside the United States, mainly in Europe, and commonly used for settling international transactions. Some securities are issued in Eurodollars that is, with a promise to pay interest in dollars deposited in foreign bank accounts.

153.

Euromarkets : A general term for the Eurobond and Euroloan markets. European Union (EU) : An economic association of European countries founded by the Treaty of Rome in 1957as a common market for six nations. It was known as the European Community before 1993 and is currently comprised of 15 European countries. Its goals are a single market for goods and services without any economic barriers and a common currency with one monetary authority.

154.

155.

EX : Derived from Latin and refers to Without or not included. Exchange Banks : An exchange bank is mainly concerned with buying and selling of foreign exchange. They also provide finance to the import and export trade.

156.

157.

Ex gratia payment : Latin for from favour. A payment by an insurer to an insured for which here is no liability under the contract.

158.

Exchange : A centralized place for trading securities and commodities, usually involving an auction process. Examples include the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX).

159.

Exchange Fund : Investment vehicle introduced in 1999 that appeals to wealthy investors with large holdings in a single stock who want to diversity without paying capital gains taxes. These funds allow investors to exchange their stock for shares in the diversified portfolio of stocks in a tax-free transaction.

160.

Exchange Rate : The price of one countrys currency expressed in another countrys currency.

161.

Exchange Rate Mechanism (ERM) : The methodology by which members of the EMS maintain their currency exchange rates within an agreed-upon range with respect to other member countries.

21

162.

Exchange rate risk : Also called currency risk; the risk that an investments value will change because of currency exchange rates.

163.

Exchange ratio : The number of new shares in an acquiring firm that are timed for each outstanding share of an acquired firm.

164.

Excise Duty : It is the tax by a Government on goods produced and consumed within the country.

165.

Exchange risk : The variability of a firms value that results from unexpected exchange rate changes, or the extent to which the present value of a firm is expected to change as a result of a given currencys appreciation or depreciation.

166.

EX-dividend : A period of time immediately before a dividend is paid, during which new investors in the stock are not entitled to receive the dividend. A stocks price is revised lower to reflect the dividend value on the first day of this period. On that day, a stock is said to go ex-dividend. Usually indicated in newspapers with an x next to the stocks or mutual funds name.

167.

Ex-dividend Date : Date on which the value of the income or capital gains distribution is deducted from the price of a funds shares.

168.

Ex-factory : Where a sellers responsibility ends when the buyer at point of origin. This can also be written as ex-warehouse, ex-works, etc.

169.

Exhaust price : The low price at which a broker must liquidate a clients holding in a stock purchased in a margin account in order to meet a margin call when the client cannot meet the call.

170.

Expectations theory of forward exchange rates : A theory of foreign exchange rates that states that the expected future spot foreign exchange rate t-periods from now equals the current t-period forward exchange rate.

171.

Expected volatility : The forward looking aspect of volatility or variability. Expense : Goods or services purchased directly for the running of the business. This does not include goods bought for re-sale or any items of a capital nature.

172.

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173.

Expense Ratio : The percentage of mutual fund assets deducted each year for expenses, which include management fees, operating costs, administrative fees, 12b-1 fees and all other costs incurred by the fund. Recently, the average expense ratio for domestic equity funds was 1.4%. for fixed-income funds it was 1.1%. International funds have higher expense ratios, averaging around 1.9%. There is no reason to buy funds with expenses ratios higher than that. Sometimes the funds management may elect to waive part of the expenses charged to shareholders in order to boost returns. But this is usually a temporary waiver, so be careful because such funds often raise their expenses once the waiver period ends.

174.

Exposure netting : Offsetting exposures in one currency with exposures in the same or another currency, when exchange rates are expected to move in such a way that losses or gains on the first exposed position should be offset by gains or losses on the second currency exposure.

175.

Export Houses : Purchase goods locally and export them to foreign countries on their account and risk instructing their branch offices or agents to whom they consign the goods to sell on their behalf.

176.

Export Trade : When a trader of one country sells goods to the traders of other countries, this trade is called Export Trade.

177.

Ex-rights : Refers to a transaction which the new purchaser of a stock is not entitled to participate in the recently declared rights offering. The mechanics are similar to exdividend conditions. Here, the exclusion point in time is known as the ex-rights date.

178.

Ex-stock dividends : The time period between the announcement of a stock dividend and its actual payment. The buyer of shares during this time period does is not entitled to the dividend.

179.

Extension risk : For mortgage backed securities, the risk that rising interest rates may slow down mortgage repayment. Because investors money is tied up in the securities, they may miss the opportunity to earn a higher rate of interest on a different investment.

180.

Extrinsic value : The time value component of an option premium.

23

181.

External Market : Also referred to as the international market, the offshore market, or, more popularly, the Euromarket. A mechanism for trading securities that at insurance (1) are offered simultaneously to investors in a number of countries and (2) are issued outside the jurisdiction of any single country.

182.

F.O.B : It is one of the most commons export terms meaning free on board. Under a F.O.B. quotation the exporter will deliver the goods free on board a ship as per contract.

183.

F.O.R : It means free on rail. The price quoted includes cost of goods plus packing charges plus the cost of carrying goods to a railway station and loading them into wagons.

184.

Face value : Just like it sounds : The value a bond has printed on its face, usually $1,000. Also known as par value, it represents the amount of principal owed at maturity. The bonds actual market value may be higher or lower. When a bonds market price fluctuates, it has an impact on its yield. If the price drops below the bonds face value, its yield goes up. If the price rises above face value, the yield goes down.

185.

Factors : Companies that buy accounts receivable, which are debts for merchandise or services bought on credit. Factors assume the job of collecting the money due.

186.

Facultative reinsurance : A type of reinsurance in which the reinsurer can accept or reject any risk presented by an insurance company seeking reinsurance.

187.

Fair value : Viewed as the indifference point from a modeling perspective as to whether to buy or sell an instrument or market. If the market price were higher than fair value it would suggest selling the security. If the security was trading at less than fair value it would suggest buying it. When coupled with related derivative instruments, the approach becomes an arbitrage one.

188.

Far month : Used in the context of option or futures to refer to the trading month of the contract that is farthest away. Antithesis of nearest month.

24

189.

FASB : The Financial Accounting Standards Board. The Private organization responsible for establishing the standards for financial accounting and reporting in the United States.

190.

Favourable Balance: Favourable balance as per cash book means debit

balance. On the other hand, favourable balance as per pass book means credit balance.

191. 192. 193. 194.

Fax : Fascimile transmission or communication.

Fiat Money : Money that people have to accept as it has legal backing.

FICCI : It is a Federation of Indian Industrialists. The office of the organization

is located at Delhi.

Fictitious assets: Those assets which do not have any physical form are

called as fictitious assets. They do not have any real value. The examples are : Preliminary expenses, goodwill etc.

195. 196.
197.

FII : It is a Federation of Indian Industrialists. The office is located at Delhi.

Filing : The process of classifying, arranging and sorting out records for

future use. Fill or Kill order (FOK) : A trading order that is canceled unless executed within a designated time period. A market or limited price order that is to be executed in its entirety as son as it is represented in the trading crowed, and, if not so executed, is to be treated as canceled. For purposes of this definition, a stop is considered an execution. Equivalent to AON and IOC simultaneously.

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198.

Final Accounts: Final accounts are primarily prepared for ascertaining the

operational result and the financial position of the business. They consist of (1) Trading and Profit and Loss a/c , (2) Balance Sheet
199.

Finance : 1 management of (esp. public) money. 2 monetary support for an enterprise. 3 (in pl.) money resources of a State, company, or person.

200.

Finance Charge : The total cost borne by a borrower to obtain credit. It includes interest, points, and fees.

201.

Finance company : Company providing money, esp. for hire purchase transactions. Financial accounting : The area of accounting concerned with reporting financial information to interested external parties.

202.

203.

Financial Accounting Standards Board (FASB) : The Financial Accounting Standards Board is an independent board responsible for establishing and interpreting generally accepted accounting principles (or GAAP). U.S. companies that adhere to GAAP are said to be more transparent and easier to analyze financially than companies in many foreign countries. In fact, the differences in accounting standards makes it difficult to compare the earnings of companies in different countries.

204.

Financial adviser : A professional offering financial advice to clients for a fee and / or commission.

205.

Financial Analysis : Also called securities analysts and investment analysts. Professional who analyze financial statements, interview corporate executives, and attend trade shows, in order to write reports recommending either purchasing, selling, or holding various stocks.

206.

Financial Control : The management of a firms costs and expenses in relation to budgeted amounts.

207.

Financial distress : Events preceding and including bankruptcy, such as violation of loan contracts.

26

208.

Financial Planning : Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against that plan.

209.

Financial Policy : Criteria describing a corporations choices regarding its debt/ equity mix, currencies of denomination, maturity structure, method of financing investment projects, and hedging decisions with a goal of maximizing the value of the firm to some set of stockholders.

210.

Financial Ratio : The result of dividing one financial statement item by another. Ratios help analysts interpret financial statements by focusing on specific relationships.

211.

Financial Reporting Release (FRR) : The policy releases and pronouncements from the sec (securities and exchange commission).

212.

Financial results : Usually refers to the summary financial statements provided in compliance to the gap guidelines. They can cover any periods, but usually cover either : single month, quarter, or annual periods.

213.

Financial risk : The risk that the cash flow of an issuer will not be adequate to meet its financial obligations. Also referred to as the additional risk that a firms stockholder bears when the firm uses debt and equity.

214.

Financial statements: Summary of accounting information such as Profit

and Loss Account and Balance Sheet prepared at the end of an accounting period. These are also called Final Accounts.
215.

Financial strategy : Practices a firm adopts to pursue its financial objectives. Financial structure : The way in which a companys assets are financed, such as short-term borrowings, long-term debt, and ownership equity. Financial structure differs from capital structure in that capital structure accounts for long-term debt and equity only.

216.

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217.

Financial tables : Tables found in newspapers listing prices, dividends, yields, priceearnings ratios, trading volume, and other important data on stocks, bonds, mutual funds, and futures contracts.

218.

Firewall : The legal barrier between banking and broker / dealer operations within a financial institution created to prevent the exchange of inside information.

219.

First call : With collateralized mortgage obligation (CMOs), the start of the cash flow cycle for the cash flow window.

220.

First mortgage : A type of mortgage that through a lien gives precedence to the lender of the first mortgage over all other lenders in case of default.

221.

Financial year : 1. Any year connected with finance, such as a companys accounting period or a year for which budgets are made up. 2. A specific period relating to corporation tax, i.e. the year beginning 1st April. Corporation-tax rates are fixed for specific financial years by the Chancellor in his budget; if a companys accounting period falls into two financial years the profits have to be apportioned to the relevant financial years to find the rates of tax applicable.

222.

First in-First Out (FIFO) : Basis for calculating the tax impact of mutual fund profits and losses that assumes shares sold are the oldest shares owned.

223.

First-in First-out : The accounting technique whereby the first items in inventory are paired against the first items sold out of inventory. Speculative futures transactions are treated this way. Securities transactions can be treated this way in the absence of further instructions.

224.

Fiscal policy : Influencing the direction of an economy through the use of taxation. Fiscal year : The 12-month period that a corporation or government uses for book keeping purposes. A companys fiscal year is often, but not necessarily, the same as the calendar year. A seasonal business will frequently select a fiscal rather than a calendar year so that its year-end figures will show it in its most liquid condition, which also means having less inventory to verify physically. The fiscal year of the U.S. government ends September 30. Abbreviated as FY.

225.

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226.

Fixed Assets:

These assets are acquired for long term use in the

business. They are not meant for resale. Land and Buildings, plant and Machinery, vehicles and furniture etc., are some of the examples of fixed assets.

227.

Fixed Capital: A method of maintaining capital accounts of partners where

two accounts viz., capital account and current account, are prepared for recording transactions relating to each partner.
228.

Fixed charge : Those expenses incurred each time a batch of product is produced. Primarily consists of ordering cost for the raw material, engineering costs for machine setup and preparation for the production run, and work order processing cost; also known as setup cost.

229.

Fixed costs : Operating expenses that are incurred to provide facilities and organization that are kept in readiness to do business without regard to actual volumes of production and sales. Fixed costs remain relatively constant until changed by managerial decision. Within general limits they do not vary with business volume. Examples of fixed costs consist of rent, property taxes, and interest expense.

230.

Fixed exchange rate : A countrys decision to tie the value of its currency to another countrys currency, gold (or another commodity), or a basket of currencies.

231.

Fixed expenses (costs) : Expenses of the business that remain constant over the short term and do not fluctuate with the sales volume.

232.

Fixed-charge coverage ratio : A measure of a firms ability to meet its fixed-charge obligations : The ratio of (net earnings before taxes plus interest charges paid plus long-term lease payments) to (interest charges paid plus long-term lease payments).

233.

Fixed rate : A guaranteed rate that is normally set just below the standard variable rate and is guaranteed for a certain period of time. If the standard variable rate falls below the fixed rate you will still have to pay the fixed rate. Once the fixed rate period ends you will normally pay the lenders variable rate. Sometimes there are redemption penalties associated with this type of deal.

29

234.

Fixed rate mortgages : Mortgages with a fixed interest rate. You payment fo9r principal and interest will not change for the life of the loan. Your monthly payment may changer if taxes or insurance rates change.

235.

Fixed-income security : A security that pays a fixed rate of return. This usually refers to government, corporate or municipal bonds, which pay a fixed rate of interest until the bonds mature, and to preferred stock, paying a fixed dividend. Since fixedincome investments guarantee you an annual payout, they are inherently less risky than stocks, which do not.

236.
237.

Fixed Liabilities: These liabilities are payable generally, after a long period.

Capital, loans, debentures, mortgage etc., are its examples. Fixed-rate mortgage : A type of mortgage where the interest rate does not fluctuate with general market conditions. Fixed-rate mortgages tend to have higher original interest rates than adjustable rate mortgages (or ARMs) do because lenders are not protected against a raise in the cost of money when they make a fixed-rate loan.
238.

Flat scale : The pattern for new issues where shorter and longer-term yields display very little difference over the bonds maturity range.

239.

Flat Tax : A tax which is levied at the same rate on all levels of income. Antithesis of progressive tax.

240.

Flat market : A term structure whereby the various delivery months are basically trading at the same price level or yield.

241.

Flexible mortgage : A feature of some mortgages that gives you freedom to change the amount and frequency of your mortgage payments

242.

Flip or to flip : Refers to a trade executed within a relatively short timeframe. Flipper : A trader who takes quick advantage of a profit. It often refers to individuals : not financial institutions : who quickly sell their Initial Public Offering (IPO) positions.

243.

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244.

Float : The number of outstanding shares in a corporation available for trading by the public. A small float means the stock will be more volatile, since a large order to buy or sell shares can influence the stocks price dramatically. A large float will mean a stock is less volatile. Since small capitalization stocks tend to have less shares outstanding than larger companies, their float is smaller and they tend to be more volatile. The same is true for closely-held companies.

245.

Floating rate : Refers tot he condition whereby exchange rates are relatively free to change. It can also refer to an interest rate which changes relatively quickly or frequently.

246.

Floating rate contract : An guaranteed investment instrument whose interest payment is tied to some variable (floating) interest rate benchmark, such as a specific-maturity Treasury yield.

247.

Floor broker : A member of an exchange who executes orders for others. Floor Trader : A member of an exchange who trades for his or her own personal account.

248.

249.

Floatation (Rotation) cost : The costs associated with creating capital through the issue of new stocks or bonds, including the compensation earned by the investment banker plus legal, accounting and printing expenses.

250.

Fluctuating Capitals : A method of maintaining capital accounts of partners where only one account viz., capital account is prepared for recording all transactions relating to each partner.

251.

Flux : The Flow Uncertainty Index. It refers to a financial model developed for the National Association of Insurance Commissioners to qualify the relative risk or variability of CMOs over a range of interest rate scenarios.

252.

FOB (Free-On-Board) destination : A business term meaning that the seller of merchandise bears the shipping costs and maintains ownership until the merchandise is delivered to the buyer.

31

253.

Foreclosure : Legal process by which a mortgagor of real property is deprived of his interest in that property due to failure to comply with terms and conditions of the mortgage.

254.

Foreign draft : This is similar to a bankers draft, but is in a foreign currency. Foreign drafts take around 5 days to arrive depending on where it is sent.

255.

Foreign exchange : Refers to currencies other than the United States dollar. It also refers to transactions, activities, and operations for trading, hedging, and investing in multiple currencies.

256.

Foreign exchange market : Market in which foreign currencies are bought and sold and exchange rates between currencies are determined. The exchange rate is the price at which one countrys currency can be converted into another. Some exchange rates are fixed by agreement, but most are determined by supply and demand on the exchange market.

257.

Foreign market beta : A measure of foreign market risk that is derived from the capital asset pricing model.

258.

Foreign trade or International trade : It refers to the exchange of goods and services between citizens, business firms or governments of different countries.

259.

Forensic accounting : Forensic accounting provides for an accounting analysis that is suitable to a court of law which will form the basis for discussion, debate and ultimately dispute resolution. Forensic accounting encompasses investigative accounting and litigation support. Forensic accounts utilize accounting, auditing and investigative skills when conducting an investigation. Equally critical is the ability to respond immediately and to communicate financial information clearly and concisely in a courtroom setting.

260.

Forward : A market similar to futures in terms of deferred deliveries. However, notable differences include the lack of contract standardization, the lack of a central clearing house, the potential for substantial counterpart risk, but it allows contractual term customization and deliveries at times, points and grades other than those listed for futures contracts. It is also used to refer to the bank currency market.

32

261.

Forward exchange rate : A currency exchange contract that traders have agreed upon for a future date. The forward rate is usually for one, two, three or six months and referred to 30-day forward, 60-day forward, etc.

262.

Forwarding Note : Form to be filled in while sending goods through goods train. Forward pricing : Practice mandated by the SEC that open-end investment companies establish all incoming buy and sell orders on the next net asset valuation of fund shares.

263.

264.

Forward rate : A projection of future interest rates calculated from either spot rates or the yield curve.

265.

Forward trading : Trade, usually at the current price, in which actual delivery and settlement is made at a future date. Forward trade occurs in the commodity, foreign exchange, stock, bond and futures markets.

266.

Fractal market hypothesis : The fractal market hypothesis states that (1) a market consists of many investors with different investment horizons, and (2) the information set that is important to each investment horizon is different. As long as the market maintains this fractal structure, with no characteristic time scale, the market remains stable. When the markets investment horizon becomes uniform, the market becomes unstable because everyone is trading based upon the same information set. Theory due to Ed Peters.

267.

Franking Machine : A machine used to stamp outgoing mail. Free delivery : Securities industry procedure whereby delivery of securities sold is made to the buying customers bank without requiring immediate payment; thus a credit agreement of sorts. Antithesis of delivery vs. payment.

268.

269.

Free on Board (FOB) : Implies that distribution services like transport and handling performed on goods up to the customs frontier are included in the price.

270.

Free trade Zone (FTZ) : An area, usually a port of entry, designated by the country for duty-free entry of goods. As long as the goods do not go into the country from the

33

ftz, no duty is assessed. While in the ftz, goods may be processed, packaged, serviced or displayed.
271.

Freed up : A term used to indicate that an underwriting syndicates members are no longer restricted to the fixed price agreed upon in the agreement among underwriters and are permitted to trade the security on a free market basis.

272.

Free riding : Has several meanings. It can refer to a customer account which engaged in purchases and sales without paying for the securities. There are several exceptions for some markets which may permit day-trading waivers or no reconciliation until final settlement or reciprocal closeout of position. It can refer to an underwriter withholding a portion of a hot issue for the benefit of its own account.

273.

Free trade : Refers to the unrestricted or unimpeded process of conducting business or transactions.

274.

Freehold : If you buy a property which is freehold it means that both the land and the property is yours, unlike leasehold where the land would not belong to you.

275.

Friendly takeover : An acquisition of one company by another in which the boards of both companies agree to the terms of the transaction.

276.

Front office : The area or function which relates to trading, investing, or sales activities for a financial firm. Orders start here, flow through the middle office, if any, and get processed by the back office.

277.

Front-end load : Refers to charges which are imposed upon the purchase or acquisition of an investment position. Many times these charges are on a sliding scale. Sometimes, these charges are viewed as impediments for early withdrawals. They are called front-end because they occur at the beginning of the investment process.

278.

Frozen account : Occurs when a client fails to pay for securities within the allotted time. Subsequent transactions can only occur if the account has sufficient funds or securities on deposit to complete the transactions. The frozen status or freeze can be removed only after the account complies with existing rules and regulations for an established time frame.

34

279.

Full cost recovery : Adjusting fees/ prices for goods/ services to where all cost o operations and maintenance are covered for supplying the given goods or services.

280.

Full disclosure concept: This concept deals with the convention that all information which is of material importance should be disclosed in the accounting statements. The Companies Act 1956 makes it compulsory to provide all the information in the prescribed form.

281.

Full- service brokers : Brokers who execute buy and sell orders, research investments, help investors develop and meet investment goals and give advice to investors. They charge commissions for their work. During a bull market, when stocks are going up consistently, good ideas are a dime a dozen. But when the markets turn choppy, solid advice can save you. Some full-service firms offer a range of good mutual funds, estate-planning services and tax advice. A broker will set up a financial profile for you based on your assets, income and goals and advise you appropriately. All of this, of course, will cost you a lot more than using a bare bones discount broker.

282.

Fund : General term for any investment vehicle which pools together the money of many small individual investors and invests it in certain markets and securities according to a defined set of investment aims and objectives. Covers such investments as unit trusts, investment trusts and pension plans.

283.

Fund manager : A fund manager is employed to invest money for (amongst other things) unit trusts and investment trusts. Fund managers aim to outperform their chosen index by buying shares, which they think will do particularly well. They can also choose to keep a percentage of their fund in cash if theyre not optimistic about the outlook for the stock market. Naturally, fund managers get paid to do this, so charges for an actively managed fund tend to be higher than for an index tracker.

284.

Fundamental analysis : Fundamental analysis asserts that a stocks price is determined by the future course of its earnings and dividends. The fundamental analyst tries to determine what the intrinsic value of a stocks underlying business is by looking at its financial statements and its competitive position within its industry. if this intrinsic value is greater than the market price of the stock, the stock is said to be undervalued. In other words, the company has greater earning potential than its stock

35

price would indicate. Fundamental analysis is the antithesis of technical analysis, which focuses on stock-price movements instead of underlying earnings potential.
285.

Fundamentals : Usually refers to the underlying economic factors affecting a particular market, country or sector and will include such aspects as industrial output, wages and raw materials costs, currency strength or weaknesses, trade balance and so on.

286.

Future : A term used to designate all contract covering the sale of financial instruments or physical commodities for future delivery on a commodity exchange.

287.

Future value : The amount of money than an investment made today (the present value) will grow to by some future date. Since money has time value, we naturally expect the future value to be greater than the present value. The difference between the two depends on the number of compounding periods involved and the going interest rate.

288.

Futures : An agreement to buy or sell a set amount of a commodity or security in a designated future month at a price agreed upon today by the buyer and seller. A futures contract differs from an option because an option is the right to buy or sell, whereas a futures contract is the promise to actually make a transaction. A future is part of a class of securities called derivatives, so named because such securities derive their value from the worth of an underlying investment.

289.

Future Contracts : Instruments predicated on a cash commodity or currency, a financial instrument, or an index. These are standardized contracts which are traded on organized exchanges. Also, these contracts are subject to industry and exchange regulations and government regulatory bodies and laws. The standardization is one of the key factors which differentiates these instruments from forward contracts. Other factors are the standardization of margin or performance bond procedures and the high degree of anonymous offset. Futures contracts can be offset by a trade opposite to the initial transaction, and EFP, or a good delivery. Good deliveries can be satisfied by either the delivery of the actual commodity or financial instrument or by a final cash payment for Cash Settlement markets.

290.

Futures option : An option on a futures contract.

36

291.

G-7 : The Group of Seven Nations. The membership consists of Britain, Canada, France, Germany, Italy, Japan, and the United States of America.

292.

Gaining Ratio : The ratio in which the retired or deceased partners ratio (share) is acquired by the remaining partners.

293.

Generally accepted Accounting Principles: They are also known as Basic Accounting Concepts. These are the fundamental ideas or basic assumptions underlying the theory and practice of accounting. They are the broad working rules for all accounting activities. They are developed and accepted by the accounting profession. These principles bring uniformity in the practice of accounting.

294.

Gamma : The second derivative of an option. It measures the expected change in the delta given a change in the underlying instrument.

295.

GAP : The term used to described differences or imbalances in asset and liability categories or buckets.

296.

Gearing : A measure of exposure. It relates the number of warrants that can be purchased for the same price of the stock. For example, if the stock is trading at 150 and the warrants are trading at 30, then the gearing is 5.00 or 5-to 1.

297.

GEM (Growing Equity Mortgage) : Mortgage in which annual increases in monthly payments are used to reduce outstanding principal and to shorten the term of the loan.

298.

General Accounting : Involves the basic principles, concepts and accounting practice, recording, financial statement preparation, and the use of accounting information in management.

299.

General Agreement on Tariffs and Trade (GATT) : A trade part ratified in 1994 that cut tariffs world-wide, reduced agricultural subsidies, standardized copyright and patent protection and set up arbitration panes. GATT was also an institution that oversaw international trade issues. The institution changed its name to the World Trade Organization after the trade pact was ratified.

300.

General index : Index of leading stocks on the Madrid Stock Exchange.

37

301.

Generally Accepted Accounting Principles (GAAP) : Guidelines that explain what should be done in specific accounting situations as determined by the Financial Accounting Standards Board. U.S. companies that adhere to GAAP are said to be more transparent and easier to analyze financially than companies in many foreign countries. In fact, the differences in accounting standards make it difficult to compare the earnings of companies in different countries.

302.

Generally Accepted Auditing Standards (GAAS) : In the us, GAAS are the broad rules and guidelines set down by the auditing standards board of the American institute of certified public accountants (aicpa). In carrying out work for a client, a certified public accountant would apply the generally accepted accounting principles (GAAP); if they fail to do so, they can be held to be in violation of the aicpas code of professional ethics.

303.

General-purpose Financial statements : The financial reports intended for use by a variety of external groups; they include the balance sheet, the income statement, and the statement of cash flows.

304.

Global funds : A fund that invests in stocks located throughout the world while maintaining a percentage of assets. Global funds tend to be the safest foreign-stock investments, but thats because they typically lean on better-known stocks.

305.

Global depository receipt : A receipt denoting ownership of foreign-based corporation stock shares which are traded in numerous capital markets around the world.

306.

Globalization : The name for the process of increasing the connectivity and interdependence of the worlds markets and businesses. In its literal sense, globalization is a social change, an increased connectivity among societies and their elements due to transculturation; the explosive evolutions of transport and communication technologies to facilitate international cultural and economic exchange are examples of globalization.

307.

Going Concern Concept: It is assumed that the business will continue for a long time. With this assumption fixed assets are recorded in the books at their original cost. Keeping this assumption in view, prepaid expenses are not treated as the

38

expenses of the year in which they are incurred. It is assumed that the business derives benefit out of it (prepaid expenses) in the years to come.
308.

Gold bars : Bars with a minimum content of 99.5% gold, which may be held by central banks or traded by ihnvestors.

309.

Gold bond : Bonds issued by gold-mining companies and backed by gold. The bonds make interest payments based on the level of gold prices.

310.

Gold bullion : Investment-grade, pure gold, which may be smelted into gold coins or gold bars.

311.

Gold Certificate : Certificate of an investor, that shows proof of ownership of gold bullion.

312.

Gold standard : A monetary system based on gold. The basic currency unit to a country is pegged to a specified amount of gold.

313.

Goodwill : Goodwill refers to the reputation or good name of a firm. It is a force which makes the old customers to go to the same shop again and again. It is this force which makes the old customers to go to the same shop again and again. It is this force which facilitates the firms to earn over and above the normal profits. Thus, goodwill is the present value of a firms anticipated excess earnings.

314.

Grace period : The specified period after a premium payment is due, in which the policyholder may make such payment, and during which the protection of the policy continues.

315.

Grantor : A person who, by a written instrument, transfers to another interest in land. Great depression : The world-wide economic hard times, which began after the stock market collapse on October 28, 1929, and continued through most of the 1930s.

316.

317.

Gray knight : In a merger or acquisitions, a gray knight is an acquiring company that outbids a while knight in pursuit of its own best interests, although it is friendlier than a hostile bidder.

39

318.

Gray List : Formal roster of stocks that can be traded by the block desks, but not in risk arbitrage because an investment bank is involved with the company on nonpublic activity. A stocks presence on this list should never be conveyed to anyone outside the trading area, much less outside the firm.

319.

Gray market : Describes the sale of securities that have not officially been issued to firms other than the underwriting syndicate. This type of market serves as a good indicator of demand for a new issue in the public market.

320.

Great Call : Used in the context of general equities. Potential customer who may have an interest in participating in a particular trade if customers pass inquiry or activity is any indication.

321.

Greater fool theory : An investment notion that even when a stock is fully valued by conventional standards, there is room for upward movement because there are enough buyers to push prices farther upward purely on speculation or hype.

322.

Green : A mortgage backed securities term which indicates mortgage which are not seasoned yet. Typically, a mortgage that is less than 30 months old is considered green.

323.

Gross Domestic Product (GDP) : The total value of goods and services produced by a nation. The GDP is made up of consumer and government purchases, private domestic investments and net exports of goods and services. In the U.S. it is calculated by the Commerce Department every quarter, and it is the main measure of economic output. Because GDP measures national output, and strong output is indicative of a healthy economy, bond prices react negatively to strong GDP data. A strong economy ignites inflationary fears, which is a negative for bond prices. Equities, on the other hand, tend to perform well when GDP is rising since earningsgrowth prospects are better during economic expansions.

324.

Gross margin : A companys profitability after the costs of production have been paid. Gross margin is calculated by dividing gross income (revenue after production costs are subtracted) by revenue and then multiplying by 100. The result is expressed as a percentage. Gross margin shows you how profitable the basic business of a

40

company is a before administrative costs, taxes and depreciation have been taken out. Operating markets may paint a truer picture of a companys profitability.
325.

Gross Margin percentage : The gross margin from an income statement divided by net sales revenue.

326.

Gross National Product (GNP) : The dollar value of all goods and services produced in a nations economy. Unlike gross domestic product, it includes goods and services produced abroad.

327.

Gross Profit / Loss: the difference between net sales and the cost of goods

sold is the gross profit. If cost of goods sold is more than net sales, it results in gross loss. Gross profit / loss will be transferred from trading account to profit and loss account.
328.

Gross profit Margin analysis : Indicates what the companys pricing policy is and what the true mark-up margins are. Calculated by : revenue cost of goods sold / revenue.

329.

Gross spread : The difference between the price that investors are charged for a security and the amount of proceeds that are paid to the issuer. In the securitiesunderwriting business, those proceeds are the total amount of fees that a company pays to an underwriting group in connection with a public offering of its stock or bonds. This includes the selling concession paid to members of the underwriting group and the underwriting and management fees that are paid to the securities firms in charge of the offering.

330.

Group life insurance : Group life is designed to pay a benefit, in either lump sum form or as a dependants pension, on the death of the member.

331.

Growth fund : As its name implies, this type of fund tends to look for the fastest growing companies on the market. Growth mangers are willing to take more risk and pay a premium for their stocks in an effort to build a portfolio of companies with above-average earnings momentum or price appreciation. Growth stock funds usually have higher return volatility than most funds. This means that if the market declines, a growth funds return will tend to decline more than the overall market. On the upside,

41

if the market rallies, growth funds typically outperform most market measures such as the S & P500. A growth fund invests in stocks of all market capitalization ranges small, medium and large.
332.

Growth phase : A phase of development during which a company experiences rapid earnings growth as it produces new products and expands market share.

333.

Growth Rates : Compound annual growth rate for the number of full fiscal years shown. If there is a negative or zero value for the first or last year, the growth is N.M.

334.

Hard asset : Also known as a tangible asset, a hard asset is one whose value depends on particular physical properties. These include reproducible assets such as buildings or machinery and non-reproducible assets such as buildings or machinery and non-reproducible assets such as land, a presence, such as goodwill or a copyright, are called intangible assets. An industrial company with a lot of hard assets (factories, machinery, etc) is best valued by its price-to-book ratio. But companies that have a lot of intangible intellectual assets (such as software makers or pharmaceutical companies) should be valued by other means.

335.

Hedge : The act of protecting a position. Hedges can be either Long or Short. Hedges are often done with derivative products. A Long Hedge refers to a position whereby a derivative contract is purchased to protect against a short actual position. A short Hedge is a position whereby a derivative is sold to protect against a long actual position.

336.

Hedge fund : A private investment partnership, owned by wealthy individuals and institutions, which is allowed to use aggressive strategies the are unavailable to mutual funds, including short selling, leverage, program trading, swaps, arbitrage and derivatives.

337.

Hedging : A strategy designed to reduce investment risk using call options, put options, short selling or futures contracts. A hedge can help lock in existing profits. Examples include a position in a futures market to offset the position held in a cash market, holding a security and selling that security short and a call option against a shorted stock. A perfect hedge eliminates the possibility for a future gain or loss. An imperfect hedge insures against a portion of the loss.

42

338.

Hedging paradox : When favorable basis movements do not guarantee a favourable global result for the hedge. Also, it can occur when the basis behavior is unfavorable yet the hedge is still beneficial.

339.

Hedge ratio (delta) : For options, ratio between the change in an options theoretical value and the change in price of the underlying stock at a given point in time. For convertibles, percentage of a convertible bond representing the number of underlying common shares sold against the shares into which bonds are convertible. If a preferred is convertible into 2000 common shares, a 75% hedge ratio would be short (long) 1500 common for every 1000 preferred long (short).

340.

Hedge wrapper : An options strategy in which an investor with a long position in an underlying stock buys an out-of-the-money put and sells an out-of-the-money call. The hedge wrapper defines a range where the stock will be sold at expiration of the option, which way the stock moves.

341.

Hedged Portfolio: A portfolio consisting of a long position in the stock and a long position in the put option on the stock, so as to be risk less and produce a return that equals the risk-free interest rate.

342.

Hedged position : A hedged position occurs if you own a second asset that should move in the opposite way the first asset would react to changes in the market. For example, you own a stock and a put and / or a call on the stock.

343.

Hemline theory : A theory that sotck prices move in the same direction as the hemlines of womens dresses. For example, short skirts (1920s and 1960s) are symbolic of bullish markets and long skirts (1930s and 1940s) are symbolic of bearish markets.

344.

Herstatt risk : The risk of loss in foreign exchange trading that one party will deliver foreign exchange but the counter party financial institution will fail to complete its end of the contract. this is also referred to as settlement risk.

345.

High flyer : High-priced and highly speculative stock that moves up and down sharply over a short period. Generally glamorous in nature due to the capital gains potential associated with them; also used to describe any high-priced stock. Antithesis of sleeper.

43

346.

High price : The highest (intraday) price of a stock over the past 52 weeks, adjusted for any stock splits.

347.

High-yield bond : These are the lowest quality bonds. Bonds with credit ratings below BBB from Standard & Poors or speculative because they have a greater chance of default than investment grade bonds. High-yield bonds are usually issued by smaller companies without long track records or by companies with questionable credit ratings. To compensate for the additional risk, issuers offer higher yield than investment grade bonds. In recent years however, junk-bond yields have declined as their popularity has increased and default rates have slowed. They are also called junk bonds.

348.

Hire purchase (HP) : A method of buying goods in which the purchaser takes possession of them as soon as he has paid an initial installment of the price (a deposit) and obtains ownership of the goods when he has paid all the agreed number of subsequent installments. A hire-purchase agreement differs from a credit-sale agreement and sale by installments (or a deferred payment agreement) because in these transactions ownership passes when the contract is signed. It also differs from a contract of hire, because in this case ownership never passes. Hire-purchase agreements were formerly controlled by government regulations stipulating the minimum deposit and the length of the repayment period.

349.

Hire and Purchase agreement : A contract (more fully called contract of hire with an option of purchase) in which a person hires goods for a specified period and at a fixed rent, with the added condition that if he shall retain the goods for the full period and pay all the installments of rent as they become due the contract shall determine and the title vest absolutely in him, and that if he chooses he may at any time during the term surrender the goods and be quit of any liability for future installments upon the contract.

350.

Historical cost : Assets, stock, raw materials etc. can be valued at what they originally cost (which is what the term historical cost means), or what they would cost to replace to todays prices.

351.

Historical cost accounting : An accounting principle requiring all financial statement items to be based on original cost. It is usually based upon the dollar amount

44

originally exchanged in an arms-length transaction; an amount assumed to reflect the fair market value of an item at the transaction date.
352.

Hold : To maintain ownership of a security over a long period of time. Hold is also a recommendation of an analyst who is not positive enough on a stock to recommend a buy, but not negative enough on the stock to recommend a sell.

353.

Holding company : A company whose principal assets are the securities it owns in companies that actually provide goods or services. A holding company enables one corporation and its directors to control several companies by holding a large stake in the companies.

354.

Honorarium : It is the amount paid to those persons who are not employees of the organization. Since such payments are made quite regularly they are treated as revenue expenditure. Therefore, they are shown on the expenditure (debit) side of the Income and Expenditure a/c.

355.

Horizontal Filing : A system of filing under which documents are kept in files in a flat position.

356.

Horizontal spread : A spread which is composed to two puts or two calls on the same underlying instrument. It is called horizontal because both options have the same strike or exercise price but two different expiration dates. Generally, the trade is placed with the nearby option sold and the deferred option purchased. This is an attempt to capitalize on the acceleration in time value decay for the nearby relative to the deferred contract month.

357.

Hostile : Often refers to an unsolicited and unwanted bid by the target company. it rejects this bid and indicates that the company does not want to be acquired by that bidder.

358.

Hostile takeover : An acquisition of one company by another despite resistance from the target companys board. Often an acquirer will take its transaction directly to the shareholders of the target company, offering to buy their shares through a tender offer or seeking their approval to remove opposing members from the target companys board.

45

359.

Hot issues : Stocks which trade at an immediate premium relative to their initial offering price on the effective date. There are restrictions and prohibitions regarding trading in these issues. These constraints apply to brokerage firm employees and their immediate families. Other parties may also be subject to such constraints.

360.

Hot Money : Money that moves across country borders in response to interest rate differences and that moves away when the interest rate differential disappears.

361.

Human capital : The unique capabilities and expertise of individuals that are productive in some economic context.

362.

Hundi : Hundies are bills of exchange in the Indian language. It usually written in a local language and regulated by local customs and traditions. It is order to the debtor to make the payment of specified amount after specified period.

363.

Hurdle rate : A term used in the budgeting of capital expenditures meaning the required rate of return in a discounted cash flow analysis. If the expected rate of return in a discounted cash flow analysis. If the expected rate of return on an investment is below the hurdle rate, the project is not undertaken. The hurdle rate should be equal tot he incremental cost of capital.

364.

Hybrid : A security which has mixed characteristics. One example is a convertible bond. It can have a coupon and pay interest and therefore partially behave like a credit market instrument. However, its conversion feature also imbues the instrument with equity characteristics.

365.

Hybrid fund : A mutual fund that invests in a combination of stocks, bonds, and other securities.

366.

Hybrid instrument : A package containing two or more different kinds of risk management instruments that are usually interactive.

367.

Hypothecation agreements : Legal documents which define the pledging of collateral. A mortgage defines the collateral for a real estate loan or Note and a securities hypothecation agreement permits margin accounts and figures accounts by stating what is being pledged to cover positions, debit balances, or even deficit balances. Generally, this document allows the owner to enjoy the usage of the

46

property provided that no default occurs. In the event of a default the property can go the creditor to satisfy the claim. The residual value, if any, would then go to the owner.
368.

Illiquid : An asset not readily convertible into cash.

Illiquid investments include

antique cars, paintings and stamp collections. An illiquid security is one without an active secondary market, making it difficult for an owner of the security to sell it. Small-capitalization stocks tend to be illiquid because they have fewer shares outstanding and lower trading volumes. That can make them more volatile to own.
369.

IMF : The international Monetary Fund. Implied price : The price computed by a model which considers a comparable benchmark, volatility, and spread adjustment. It is used in the absence of a current market price.

370.

371.

Implied repo rate : Influenced by the cost of funds, tax rates, deductibility of carry charges, yields, the time to expiration and organizational constraints. It indicates the implied rate of return for specified investments. While many quote services list an assumed or benchmark Implied Repo Rate, there are many because each investor has his or her own schedule of financing costs and investment opportunities.

372.

Implied volatility : The current volatility or the level of volatility required to generate an option premium given a known market price for the underlying, an interest rate, an expiration date and a strike price.

373.

Imports : Goods and services one country purchases from another. The opposite of exports, too many imports can result in an unfavorable balance of trade.

374.

Import Houses : Collect orders through their brokers and then import goods from abroad according to the orders received.

375.

Import Trade : When a trader of one country purchase goods from the traders of other countries, this trade is called Import Trade.

47

376.

Imprest System: Imprest system is one of the methods upon which the Petty

Cash Book may be maintained. The petty expenses of a period is estimated in advance. The estimated amount is handed over to the petty cashier in the beginning of the period. Petty cashier meets the petty expenses out of that amount. At the end of the period, petty cashier submits the record of total expenses of the period to the chief cashier. Then the petty cashier is reimbursed with the actual expenditure paid by him. So now the petty cashier has the same amount of cash as was in the beginning of the previous period. This system is known as imprest system of petty cash book.
377.

Imputed costs : Refer to the cost of an asset, service, or company that is not physically recorded in any accounts but is implicit in the product.

378.

Imputed value : Refers to the value of an asset, service, or company that is not physically recorded in any accounts but is implicit in the product, e.g., the opportunity cost of cash remaining in a savings account and not invested.

379.

Income: Periodic interest or dividend distributions obtained from a fund. Income and Expenditure Account : This account is just like profit and loss account of trading concerns. It is prepared on the same lines in which a Trading and Profit and Loss Account is prepared. It is a nominal account. All losses and expenses are recorded on its debit side. All incomes and gains will be shown in credit side. The balance of this account represents either the excess of income over expenditure or excess of expenditure over income.

380.

381.

Income tax : This is tax you pay on the income you earn each year above a certain amount. As well as your salary, income tax is also charged on interest and dividends you receive. The amount of tax you pay depends on the amount of money you earn and on your allowances.

382.

Income earned but not received: Certain items of income are earned during

the current accounting year but have not been actually received by the end of the same year. Such income is known as Accrued Income. For example, interest on loan commission, rent etc.

48

383.
384.

Income received in advance: Income due for the next period but received in

the current year itself. For example, Tuition fee received in advance. Incorporated : A legal entity that has undergone incorporation through approval by a state government.
385.

Incremental : Increasing gradually by regular degrees or additions. Incremental cash flows : Difference between the firms cash flows with and without a project.

386.

387.

Incremental cost : The increase or decrease in costs as a result of one more or one less unit of output.

388.

Incremental cost of capital : The weighted cost of the additional capital raised in a given period. Weighted cost of capital, also called composite cost of capital, is the weighted average of costs applicable to the issues of debt and classes of equity that compose the firms capital structure. Also called marginal cost of capital.

389.

Clause : Under this clause any loss caused by the negligence of the master or a crew members is also covered. The damage caused to the cargo in loading and unloading operations is also recoverable.

390.

Indemnify : Used in insurance policy agreements as to compensation for damage or loss. Hold harmless

391.

Indemnity : Compensating any loss or damage. Indent : An order for goods received from or, sent to abroad. Indenture : Agreement between lender and borrower that details specific terms of the bond issuance. Specifies legal obligations of bond issuer and rights of bondholders. An indenture spells out the specific terms of a bond, as well as the rights and responsibilities of both the issuer of the security and the holder.

392.

393.

49

394.

Index : A means of continually measuring the movement of a particular set of statistics over periods of time. Most unit trust fund managers measure their funds performance against that of an appropriate benchmark index with the aim of at least matching its progress or, better still, beating it.

395.

Index arbitrage : Buying or selling baskets of stocks while at the same time executing offsetting trades in stock-index futures. For example, if stocks are temporarily cheaper than futures, an arbitrageur will buy stocks and sell futures to capture a profit on the difference, or spread, between the two prices. By taking advantage of momentary disparties between markets, arbitrageurs perform the economic function of making those markets trade more efficiently.

396.

Index fund : A mutual fund that seeks to produce the same return that investors would get if they owned all the securities in a particular index. The most common variety is an S & P 500 index fund, which tries to mirror the return of the Standard & poors 500 stock index. Index funds have the lowest expense ratios in the fund universe and are also very tax-efficient because of their low turnover ratios. They are good funds for novice investors.

397.

Index futures : A futures contract on an index (such as a foreign stock index) in the futures market.

398.

Index linked : Insurance where the level of cover increases in line with an index of prices or earnings.

399.

Index method : Technique to calculate rates of return that is based on initial and terminal values.

400.

Index model : A model of stock returns using a market index such as the S & P 500 to represent common or systematic risk factors.

401.

Index option : An agreement that gives an investor the right, but not the obligation, to buy or sell the basket of stocks represented by a stock-market index at a specific price on or before a specific date. Index options allow investors to trade in a particular market or industry group without having to buy all the stocks individually.

50

402.

Index tracking : An index tracking fund aims to follow a particular index as closely as possible. It does not aim to beat it. It invests only in the companies that make up that index. Index tracking removes the need to employ fund managers, which means charges tend to be lower.

403.

Index swap : A swap of a market index for some other asset, such as a stock-forstock or debt-for-stock swap.

404.

Indexation :A method by which benefits are increased at periodic intervals by a factor derived from an index of prices or earnings.

405.

Indexing : A method of making reference to the records which have been filed.

406.

Indemnity Bond : It is the document to be filled in by the purchaser of goods,

in case of R/R is lost declaring, that the purchaser will compensate for loss, if any, to the railways in case of default
407.

Inflation : The rate at which the general level of prices for goods and services is rising. Inflation has an uncanny ability to erode the value of securities that dont grow fast enough. Thats why investing only in a money market fund can be more risky than it appears on the surface. If inflation is rising at 3% a year and your money market is growing at 5% or 6%, you wont have much money left over for your retirement. Measures of inflation include the consumer price index (CPI) and the producer price index (PPI).

408.

Inflation accounting : A system of accounting which, unlike historical cost accounting, takes into account changing prices.

409.

Inflation adjustment : Whenever any figure is adjusted for inflation / deflation. It simply means that all fluctuations in price that are directly attributable to inflation / deflation are reflected into that figure through either adding or subtracting the amount that is directly caused by inflation / deflation.

410.

Inflation hedge : Term describing an investment that performs well when inflation heats up.

51

411.

Inflation-indexed bonds : These Treasurys are designed to keep pace with inflation. The principal is adjusted to match changes in the consumer price index (CPI), while the interest rate remains fixed. In this way, inflation can not erode the value of your principal. New in 1997, they are officially known as Treasury Inflation Protection Securities, or TIPS.

412.

Inheritance tax : This tax is payable at the time of death, on any items (money or otherwise) where ownership changes on death or within 7 years before. There is no inheritance tax on the first portion of the deceased persons estate and transfers between husband and wife are exempt. There are other exemptions and the rules governing these can be complex.

413.

Information Coefficient (IC) : The correlation between predicted and actual stock returns, sometimes used to measure the contribution of a financial analyst. An IC of 1. 0 indicates a perfect linear relationship between predicted and actual returns, while an IC of 0. 0 indicates no linear relationship.

414.

Initial filing : His various meanings. It could refer to a form that is filed with the Securities and Exchange Commission in advance of a major event, such as a public offering or a share repurchase. It could also refer to filings that occur before legal inside transactions.

415.

Initial public offering : The first time a company issues stock to the public. This process often is called going public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large gains.

416.

Insider : A person, such as an executive or director, who has information about a company before the information is available to the public. An insider also is someone who owns more than 10% of the voting shares of a company. all insider trades must be disclosed to the Securities and Exchange Commission. However, it is illegal for insiders to trade on corporate information that hasnt been released to the public yet. Many professional investors watch insider activity closely for clues to a companys future.

52

417.

Insider information : Important knowledge about a companys affairs which has not been made public. It is illegal to trade on such information in a number of countries including the United States. Often this information by nature is only viewed by senior officials or those working closely with executives.

418.

Insider trading : In one respect, it refers to the legal trading of securities by corporate officers based on information available to the public. In another respect, it refers to the illegal trading of securities by any investor based on information not available to the public. Many professional investors watch insider activity closely for clues to a companys future.

419.

Insiders : These are directors and senior officers of a corporation-in effect, those who have access to inside information about a company. An insider also is someone who owns more than 10% of the voting shares of a company.

420.

Insolvency : Occurs when a business is unable to pay debts as they fall due. Insolvency risk : The risk that a firm will be unable to satisfy its debts. Also known as bankruptcy risk.

421.

422.
423.

Insolvent: The inability of a person to pay his debts when they become due.

The condition in which the liabilities exceed assets. Instant access : Accounts where you dont lose interest even though you withdraw money without giving the bank notice. The One account gives you instant access to your funds. All you have to do is write a cheque, arrange a transfer or use your Switch or VISA cards.
424.

Instrument : A written document. Institutional Investors : Organizations that invest, including insurance companies, depository institutions, pension funds, investment companies, mutual funds, and endowment funds.

425.

53

426.

Institutionalization : The gradual domination of financial markets by institutional investors, as opposed to individual investors. This process has occurred throughout the industrialized world.

427.

Insurable interest : A pecuniary interest of the policy holder in the property or life insured.

428.

Insurable risk : The risk which can be insured. Insurance : It is a contract in writing whereby the insurer agrees after receiving premium as consideration to indemnify the insured against loss of the subject matter.

429.

430.

Insured : A person or organization covered by an insurance policy. Insurer : The party to the insurance contract who promises to pay losses or benefits, usually an insurance company.

431.

432.

Intangible assets: These are the assets which lack physical substance. The

examples are : patents, trademarks, copyrights etc. In accounting, for intangible assets, the term amortization is used in the place of depreciation. Intangible assets are generally amortised on straight line basis method. As per the present Income Tax Act intangible assets are also eligible for depreciation.
433.

Intangible costs: Expenditure incurred to create an intangible asset. For example, legal fees to negotiate a lease, the cost to acquire a license, etc.

434.

Intangibles (net) : Intangible assets, including goodwill, trademarks, patents, catalogs, brands, copyrights, formulas, franchises, and mailing lists, net of accumulated amortization.

435.

Intercom System : This system is used for internal communication. It is very popular in offices. It can be used to supplement the PBX system.

436.

Intellectual property : Assets such as : copyrights, trademarks, and patents. Logos or special colors may also be intellectual properties.

54

437.

Intellectual property rights : Patents, copyrights, and proprietary technologies and processes that may be the basis of a companys competitive advantage.

438.

Interest : Either the interest rate or the income from a credit instrument. Interest rate : The rate of interest charged for the use of money, usually expressed as an annual rate. The rate is derived by dividing the amount of interest by the amount of principal borrowed. For example, if a bank charged $ 50 a year to borrow $1,000, the interest rate would be 5%. Interest rates are quoted on bills, notes, bonds, credit cards and many kinds of consumer and business loans. Rates in general trend to rise with inflation and in response to the Federal Reserve raising key short-term rates. A rise in interest rates has a negative effect on the stock market because investors can get more competitive returns from buying newly issued bonds instead of stocks. It also hurts the secondary market for bonds because rates look less attractive compared to newer issues.

439.

440.

Interest rate cap : An interest rate agreement in which payments are made when the reference rate exceeds the strike rate. Also called an interest rate ceiling.

441.

Interest rate floor : An interest rate agreement in which payments are made when the reference rate falls below the strike rate.

442.

Interest rate risk : This is the danger that prevailing interest rates will rise significantly higher than the rate paid on bonds you are holding. This drives down the price of your bonds, so if you sell youll lose money. This is a serious risk for anyone investing in long-term bonds, including Treasurys, because the longer the maturity, the higher the interest rate risk.

443.

Interest rate swap : The contract whereby one party typically agrees to exchange a floating rate for a fixed coupon rate. There are many variations to this theme. Some of these other swaps can be cross border, fixed-for-fixed, or floating for floating. The common denominator to these transactions is the swapping of cash flows and not principal amounts. There are predetermined periodic adjustments in cash flow payments.

444.

Intermediary : A person or organization that offers advice and arranges policies for clients. Under UK regulations, intermediaries must be either (1) Tied, whereby they

55

represent only one company in the case of life business or a limited number of companies for general business, or (2) Independent, whereby there is not limit on the number of companies with which they can deal.
445.

Interim audit : An audit conducted during the fiscal year usually as a means of minimizing the work and time involved in concluding the audit after the fiscal year. A corporation might have an interim audit covering the first nine months of the fiscal year so that at the end of the fiscal year most of the auditing will focus on the last three months of the fiscal year thus allowing for a comprehensive audit and early completion of the audit reports. An interim audit does not usually yield any formal reports from the external auditors.

446.

Interim dividend : The declaration and payment of a dividend prior to annual earnings determination.

447.

Interim financial statements : Financial statements that report the operations of an entity for less than one year.

448.

Interim financing : Short-term financing thats conditional upon securing intermediate or long-term financing. Also known as a bridge loan.

449.

Intermediate-term : Typically one-ten years. Intermediate cost : The cost involved in the placement of money with a financial intermediary. The person or institution empowered as the intermediary to make investment decisions for others. Examples : banks, savings and loan institutions, insurance companies, brokerage firms, mutual funds, and credit unions.

450.

451.

Internal rate of return : An accounting term for the rate of return on an asset. It is the discount rate on an investment that equates the present value of its cash outflows to the present value of its cash inflows.

452.

International arbitrage : Simultaneous buying and selling of foreign securities and ADRs to capture the profit potential created by time, currency, and settlement inconsistencies that vary across international borders.

56

453.

International Development Association (IDA) : Association established to stimulate country development; it was especially suited for less prosperous nations, since it provided loans at low interest rates.

454.

International Monetary Fund (IMF) : An organization that makes loans and provides other services intended to stabilize world currencies and promote orderly and balanced trade. Member nations may obtain foreign currency when needed, making it possible to make adjustments in their balance of payments without currency depreciation Abbreviated as IMF.

455.

Internet : The global computer network that connects independent networks. Interpolation : A method of approximating a price or yield that is unknown by using numbers that are known.

456.

457.

Intrinsic value : The underlying value of a business separate from its market value or stock price. In fundamental analysis, the analyst will take into account both the quantitative and qualitative aspects of a companys performance. The quantitative aspect is the use of financial ratios such as earnings, revenue, etc., while the qualitative perspective involves consideration of the companys management strength. Based on such analysis, the fundamental analyst will make a forecast of future earnings and prospectus for the company to arrive at an intrinsic value of its shares. The intrinsic value of a share can be at odds with its stock market price, indicating that the company is either overvalued or undervalued by the market.

458.

Intrinsic value of a firm : The present value of a firms expected future net cash flows discounted by the required rate of return.

459.

Intrinsic value of an option : The amount by which an option is in the money. An option that is not in the money has no intrinsic value.

460.

Inventory : The monetary value of a companys raw materials, work in progress, supplies used in operations and finished goods. Excess inventory on a companys balance sheet could indicate a showdown in sales and a lack of pricing power.

461.

Inventory turnover : For a company, the ratio of annual sales to inventory; or equivalently, the fraction of a year that an average item remains in inventory. Low

57

turnover is a sign of inefficiency, since inventory usually has a rate of return of zero. For example, if a company had $ 20 million in sales last year but $ 60 million in inventory, then inventory turnover would be 0.3, an unusually low number. That means it would take three years to sell all the inventory.
462.

Inventory turnover ratio : Computed by dividing annual sales by inventories. It is usually desirable to have a relatively high inventory turnover ratio relative to competitors.

463.

Inverted market : The market condition whereby the deferred or more forward delivery months are at a progressive discount to the spot or nearby month. This condition is marked by premiums for immediate or nearby deliveries. This is also known as a back wardation market. This is opposite to a contango or carrying charge market.

464.

Inverted yield curve : The market condition whereby the near-term interest rates are higher than long-term interest rates. For example, the two year rate is greater than the ten year rate; or, the spot (overnight) rate is higher than the ten year rate; or, the spot (overnight) rate is higher than the thirty year rate. This inversion may be induced or result from changes in monetary policy, foreign exchange movements, immediate liquidity needs within the financial system, constrictions in money / credit and other financial forces.

465.

Investment bank : A securities firm, financial company or brokerage house that helps companies take new issues to market. An investment bank purchases new securities from the issuer, then distributes them to dealers and investors, profiting on the spread between the purchase price and the offering price. Additionally, an investment bank handles the sales of large blocks of previously issued securities and private placements. Most investment banks also maintain brokerage operations and other financial services.

466.

Investment company : Firm that, for a management fee, invests pooled funds of small investors in securities appropriate for its stated investment objectives.

467.

Investment decisions : Decisions concerning the asset side of a firms balance sheet, such as the decision to offer a new product.

58

468.

Investment horizon : The actual or expected period that a financial position will be held. Some organizations and individuals use simple purchase-and-hold strategies, particularly for fixed income securities. For those parties, the investment horizon would be the time left to maturity. Other uses of the term are : day, short-term, intermediate term, and long-term holdings.

469.

Investment trust : Unlike a unit trust, which is open ended, an investment trust is effectively a company which, for a management fee, invests the pooled money of small investors in securities for stated investment objectives. An investment trust is closed-end in that it has a fixed number of shares that are traded like stock, often on many different exchanges. Visit the Flemings website for more details.

470.

Invoice Price : Invoice price is the price at which the consignor sends goods to the consignee. It is cost plus price. Generally, goods are sent on consignment by the consignor at cost. But sometimes, goods are invoiced at a price higher than cost i.e., proforma invoice price. The purpose is to conceal the cost price of the goods from the consignee. In such a cases, the entries are made by the consignor in his book at the invoice price. But for ascertaining true profit or loss some adjustments are to be made.

471.

Iou : An informal debt instrument in the form of a written promise to pay back money owed; e.g. Personal loans and professional services.

472.

Irrelevant cost : Any positive or negative implications phenomenon which is not consequent upon the production process, whether it is denominated in money terms or not.

473.

Issue : In securities, issue is stock or bonds sold by a corporation or a government; or, the selling of new securities by a corporation or government through an underwriter or private placement.

474.

Issued shares : The number of shares held by parties other than the corporation. Issued shares are equal to or less than the authorized share amount. It is often relied upon for modling efforts because two variables define its location and shape. These two variables are the mean and the standard deviation. It should be noted that normal distributions with larger standard deviations (or variances) are wider or flatter. This is because the greater volatility is dispersed over a wider range. Conversely, smaller

59

standard deviations generate tighter formations which have a pronounced peak appearance.
475.

Issued share capital : Total amount of shares that have been issued. Jettision : The act of throwing overboard part of a cargo in a ship or plane in order to save the ship or plane.

476.

477.

JIT : Refers to Just-in-Time inventory management. Joint account : An agreement between two or more firms to share risk and financing responsibility in purchasing or underwriting securities, or an account owned jointly by two or more persons at a bank or brokerage house.

478.

479.

Joint costs : Costs incurred to produce a certain amount of two or more products where the cost of producing one product cannot be logically isolated and cost allocation is arbitrary.

480.

Joint stock company : A company that has some features of a corporation and some features of a partnership. This type of company has access to the liquidity and financial reserves of stock markets as a corporation, however, as in a partnership; the stockholders are liable for company debts and have additional restrictions of a partnership.

481.

Joint venture : An agreement between two or more firms to undertake the same business strategy and plan of action.

482.

Journal : The word Journal is derived from the Latin word Journ which

means day. Journal means a day book where in day to day business transactions are recorded in chronological order. It is a book of original entry. All the business transactions are first entered in this book. The process of recording the transaction in the journal is called Journalising. The entries made in the book are called Journal Entries.
483.

Journal entry : The beginning of the accounting cycle. Journal entries are the logging of business transactions and their monetary value into the t-accounts of the

60

accounting journal as either debits or credits. Journal entries are usually backed up with a piece of paper; a receipt, a bill, an invoice, or some other direct record of the transaction; making them easy to record and to maintain traceability for each transaction.

484.

Journal Proper: The journal proper is one among the eight subsidiary books.

All the transactions that cannot be entered in the first seven subsidiary books will be recorded in this book. The form of journal proper is just like a journal. In this there will be five columns viz., date, particulars, L.F., debit and credit columns. All opening, closing, adjusting, transferring, rectification entries along with the miscellaneous transactions not recorded in any other subsidiary book will be recorded in this book.
485.

Junk bond : A bond with a speculative credit rating of BB (S & P) or Ba (Moodys) or lower. Junk or high-yield bonds offer investors higher yield than bonds of financially sound companies. Two agencies, Standard & Poors and Moddys Investor Services, provide the rating systems for companies credit.

486.

Kappa : An option term sometimes used as a synonym for vega, lambda or sigma. Karat : A measure of the purity of gold. Twenty-four Karat (24K) is considered as pure gold.

487.

488.

Keynesian economics : An economic theory of British economist, John Maynard Keynes that active government intervention is necessary to ensure economic growth and stability.

489.

Keynesian growth models : Models in which a long run growth path for an economy is traced out by the relations between saving, investing and the level of output.

490.

Kickback : In the context of finance, refers to compensation of dealers by sales finance companies for discounting installment purchase paper. In the context of contracts, refers to secret payments made to insure that the contract goes to a specific firm.

491.

Knock-out option : An option that is worthless at expiration if the underlying commodity or currency price reaches a specific price level.

61

492.

Kurtosis : The statistic which describes the degree of peakedness or flatness of a probability distribution relative to the benchmark normal distribution. Laisse-faire : Doctrine that a government should not interfere with business and economic affairs.

493.

494.

Lambda : An option term sometimes used as a synonym for vega, kappa, or sigma. Lapsed option : An option that no longer has any value because it has reached its expiration date without being exercised.

495.

496.

Last-in first-out : The accounting technique whereby the last items in inventory are paired against the first items sold out of inventory.

497.

Lateral Filing : A filing system in which files are arranged in suspended pockets hung from shelves.

498.

LBO : A Leveraged Buy Out. This transaction relies on borrowing funds. Often these borrowings are secured by various assets of the company which is targeted for acquisition.

499.

Lease : Contract by which the owner of property allows another to use it for a specified time, usu. In return for payment.

500.

Lead manager : The commercial or investment bank with the primary responsibility for organizing syndicated bank credit or bond issued. The lead manager recruits additional lending or underwriting banks, negotiates terms of the issue with the issuer, and assesses market conditions.

501.

Lead-time : The time between the initial stage of a project or policy and the appearance of results, for example, the long lead-time in oil production because of the need for new field exploration and drilling.

502.

Lease : A contract where a party being the owner (lessor) of an asset (leased asset) provides the asset for use by the lessee at a consideration (rentals), either fixed or dependent on any variables, or a certain period (lease period), either fixed or flexible, with an understanding that at the end of such period, the asset, subject to the

62

embedded options of the lease, will be either returned to the lessor or disposed off as per the lessors instructions.
503.

Leaseback (renting back) : A method of raising finance in which on organization sells its land or buildings to an investor (Usually an insurance company) on condition that the investor will lease the property back to the organization for a fixed term at an agreed rental. This releases capital for the organization, enabling it to be used for other purposes.

504.

Leasehold : If you buy a property that is leasehold it means that you own the property but not the land the property is on, unlike freehold where you would own both.

505.

Leasehold land : Land held under a lease. The land will eventually revert to the freehold owner, although there has repossession (e.g. in the Rent Acts). This is the most landlord maintains possession of the common parts and creates separate leases for each office. The ownership of each office may subsequently change as leases are assigned.

506.

Ledger:

A ledger may be defined as a summary statement of all the

transactions relating to a person, asset, expense or income, which have taken place during a given period of time. The up to date state of any account can be easily known by referring to the ledger. Ledger is the principal book of accounts. If helps the businessman in achieving the objectives of accounting.
507.

Leg : A part of piece of a transaction or position. For example, in futures trading there is a long leg and a short leg to a spread position.

508.

Leg up : Used in the context of general equities. (1) Have a portion of the offsetting side of a trade in your pocket (spoken for) so your capital risk in the transaction is reduced. (2) Complete one side of a two-sided transaction, as in a swap or contingency order.

509.

Legacies : Legacy denotes the amount received as per the will of the decreased donor. It is a non-recurring capital income. Legacy received is directly added to Capital Fund.

63

510.

Legal Tender Money : Currency and coins issued by a central bank and government.

511.

Lendable funds : The pool of funds available to borrows; typically categorized by currency and maturity.

512.

Lessee : The person who rents a property from its owner. These properties can be real estate, precious metals or other assets. When the asset is real estate the lessee is the tenant.

513.

Lessor : The person who leases out a property to another person (lessee). The lessor either owns the property of holds a master lease which grants ownership-type powers. In the case of real estate, the lessor would be considered as the landlord.

514.

Letter of Credit (LOC) : A form of guarantee of payment issued by a bank on behalf of a borrower that assures the payment of interest and repayment of principal on bond issues.

515.

Letter of intent : An assurance by a mutual fund shareholder that a certain amount of money will be invested monthly, in exchange for lower sales charges. In mergers, a preliminary merger agreement between companies after significant negotiations.

516.

Lender of Last Resort : If the Commercial banks fail to secure money, they can go to the Central Bank of the country as last resort. The central bank helps the banks as lender of last resort by discounting their bills.

517.

Lever Arch File : A file in which a lever is used to open and close the metal arch through which papers are inserted.

518.

Leverage : Refers to the concept of increasing , multiplying, or magnifying the market impact of an investment. Leverage magnifies both the gains or the losses. In corporate finance, leverage often means the amount of debt to equity. Borrowing can enhance shareholder equity returns because the interest is deductible but the profits remain for the common share investors. For derivative products, little or no margin is required for placing positions. Depending on the instrument, market, exchange and

64

other factors, valuation swings may have to be satisfied by new margin or performance bond monies.
519.

Leverage ratios : Measures of the relative value of stockholders, capitalization, and creditors obligations, and of the firms ability to pay financing charges. Value of firms debt to the total value of the firm (debt plus stockholder capitalization).

520.

Leveraged beta : The beta of a leveraged required return; that is, the beta as adjusted for the degree of leverage in the firms capital structure.

521.

Leveraged company : A company that has debt in its capital structure. Leveraged stock : Stocks financed with credit, such as that purchased on a margin account.

522.

523.

Leveraged portfolio : Investment at least partially financed by borrowing.

524.

Liabilities: Liabilities are the obligations of the business. They are the debts

payable by the enterprises in future. They can be classified into: (I) fixed liabilities (loans, debentures etc.) (ii) Current liabilities (creditors, bills payable etc.) and (iii) Contingent liabilities (future liabilities)
525.

Liability swap : An interest rate swap used to alter the cash flow characteristics of an institutions liabilities so as to provide a better match with its assets.

526.

Licensing : Arrangement in which a local firm in the host country produces goods in accordance with another firms (the licensing firms) specifications; as the goods are sold, the local firm can retain part of the earnings.

527.

Lien : A claim against a property. Life annuity : A contract that provides an income during the remaining lifetime of the purchaser.

528.

529.

Life Membership Fees : Some organizations collect life membership fee from their members. If any member pays Life membership fee, he/she need not pay the annual

65

subscription every year. The life membership fee may be treated as capital receipt or revenue receipt depending upon the circumstances. Sometime a part of it may be treated as revenue income.
530.

Limitation : A certain period limited by statute after which actions, suits, or prosecutions cannot be brought in the courts.

531.

Limited liability : The legal protection given stockholders whereby they are responsible for the debts and obligations of a corporation only to the extent of their capital contributions.

Limited liability company : A entity created under state law that is taxed like a partnership (i.e., income and losses are passed through to the partners), but where the liability of the owners is limited to their investment in the company. That is, they cant be held personally liable for the debts of the company.
532.

Limited liability Partnership (LLP) : General partnership which, via registration with an appropriate state authority, is able to enshroud all its partners in limited liability. Rules governing llps vary significantly from state to state.

533.

Line of credit : An agreement whereby a financial institution promises to lend up to a certain amount without the need to file another loan application. The borrower is required to reduce the debt whenever the limit of the full amount of credit has been reached.

534.

Liner : Ships having scheduled arrival and departure at the sea port are liners. Linking method : Method for calculating rates of return that multiplies one plus the interim rate of return.

535.

536.

Lintners observations : John Lintners work (1956) suggests that dividend policy is related both a target level, and to the speed of adjustment of change in dividends.

537.

Liquid : To be in a state of liquidity, i.e., Maintain sufficient assets in the form of cash or assets easily convertible to cash to satisfy current liabilities. When speaking of money or an economy; being very liquid means it is driven by primarily by cash,

66

checking/ saving accounts, treasury bills, stocks and bonds, etc; while being very illiquid means it is driven primarily by human capital.

538.

Liquid Assets: These assets also known as circulating, fluctuating or current

assets. These assets can be converted into cash as early as possible. Current assets are cash bank balance, debtors, stock, investments.
539.

Liquidation : The act of selling some or all positions to reduce or close out a portfolio.

540.

Liquidity : Quality of the asset by which it can be readily converted into cash. Listed : Refers to securities which are approved for trading on a recognized exchange. Is a security or instrument which is traded on a recognized exchange.

541.

542.

Listed company : A public company listed or quoted on a stock exchange. Listed firm : A company whose stock trades on a stock exchange, and conforms to listing requirements.

543.

544.

Listed security : Stock or bond that has been accepted for trading by one of the organized and registered securities exchanges in the United States. Generally, the advantages of being listed are that exchanges provide : (1) an orderly marketplace; (2) liquidity; (3) fair price determination; (4) accurate and continuous reporting on sales and quotations; (5) information on listed companies; and (6) strict regulation for the protection of security holders. Antithesis of OTC security.

545.

Listing : In the context of real estate, written agreement between a property owner and a real estate broker that gives the broker permission to find a buyer or tenant for some property. listing broker in the context of equity, when a stock is traded in exchange it is said to be listed.

546.

Loading : The difference between the invoice price and the cost price is known as loading. The means the amount of profit which is added to the cost in order to arrive at the invoice price is called loading. Loading is to be calculated in the following way.

67

Loading = Invoice Price Cost Price.

547.

Local Expectations Hypothesis (LEH) : Theory that bonds similar in all aspects except maturity will have the same holding-period rate of return.

548.

Local expectations theory : A form of the pure expectations theory that suggests that the returns on bonds of different maturities will be the same over a short-term investment horizon.

549.

Locational arbitrage : Attempt to exploit discrepancies in exchange rates between banks.

550.

Lock : Used in the context of general equities. Make a market both ways (bid and offer) either on the bid, offering, or an in-between price only. Locking on the offering occurs to attract a seller, since the trader is willing to pay (and ask) the offering side when others only ask it. Locking on the bid side attracts buyers for similar reasons. Typically, the sell side requires a plus tick to comply with short sale rules.

551.

Lock Price : Also known as Ex-works price, it means the ex-warehouse price of goods. This price includes the cost of goods, packing costs and some normal profit.

552.

Locked market : A market is locked if the bid price equals the ask price. This can occur, for example, if the market is brokered and one side pays brokerage only, in over-the-counter trading the initiator of the transaction. Highly competitive market environment with inside bid and offering at the same price. Often occurs when an OTC dealer has not updated the market.

553.

Lock-out : With PAC bond CMO classes, the period before the PAC sinking fund become effective. With multifamily loans, the period of time during which prepayment is prohibited.

554.

Lockup option : Often used in risk arbitrage. Privilege offered a white knight (friendly acquirer) by a target company to buy crown jewels or additional equity. The aim is to discourage a hostile takeover.

555.

Logging : The practice of recording data, in some medium, sequential input, often in a time-associated format.

68

556.

Log-linear least-squares method : A statistical technique for fitting a curve to a set of data points. One of the variables is transformed by taking its logarithm, and then a straight line is fitted to the transformed set of data points.

557.

Lognormal distribution : pattern of frequency of occurrence in which the logarithm of the variable follows a normal distribution. Lognormal distributions are used to describe returns calculated over periods of a year or more.

558.

Lombard rate : Applies mainly to international equities. Interest rate the German Bundesbank uses as an upper limit to the day-to-day money rate, since no bank will pay higher rates in the money market than it has to pay for very short-term recourse to Lombard credit.

559.

London Interbank Bid Rate (LIBID) : The bid rate that a Euromarket bank is willing to pay to attract a deposit from another Euromarket bank in London.

560.

London Interbank Offered Rate (LIBOR) : The rate that the most credit worthy international banks that deal in eurodollars charge each other for large loans. It is equivalent to the federal funds rate in the u.s.

561.

London Stock Exchange (LSE) : The U.K.s six regional exchanges joined together in 1973 to form the stock exchange of Great Britain and Ireland, later named the LSE. The FTSE 100 index (known as the footsie) is its dominant index.

562.

Long coupon : Refers to the initial coupon for a municipal security which reflects more than 6 months of accrued interest. The time of accrual is measure from the start of the dated Date and continues until the end of the initial accrual period.

563.

Long hedge : The purchase of a futures contract in anticipation of actual purchases in the cash market. Used by processors or exporters as protection against an advance in the cash price.

564.

Long leg : The part of an option spread in which an agreement to buy the underlying security is made.

565.

Long run : A period of time in which all costs are variable; longer than one year.

69

566.

Long-term funds : A mutual fund industry designation for all funds other than money market funds. Long-term funds are broadly divided into equity (stock), bond, and hybrid funds.

567.

Long-term gain : A profit on the sale of a capital assets held longer than 12 months, and eligible for long-term capital gains tax treatment.

568.

Lookback option : An option that allows the buyer to choose as the option strike price any price of the underlying asset that has occurred during the life of the option. For a call option, the buyer will choose the minimum price; for a put option, the buyer will choose the maximum price. This option will always be in the money.

569.

Losses: Losses may be capital or revenue losses. Revenue losses are

deductible in computing the profit in trading and profit and loss account. While Capital losses are to be adjusted only in balance sheet.
570.

Loss leader : A featured article of merchandise sold at a loss in order to draw customers.

571.

Loose Leaf Index : A method of filing using loose leaf binders. Lots : In the context of general equities, this blocks or portions of trades. Can express a specific transaction in a stock at a certain time, often implying execution at the same price.

572.

573.

Low : In the context of general equities, this is a specific minimum limit required by a seller in execution an order; implies a not-held limit order. Antithesis of top.

574.

Low price-earnings ratio effect : The tendency of portfolios of stocks with a low price-earnings ratio to outperform portfolios of stocks with high price-earnings ratios.

575.

Lump sum : A price for a group of goods or services where there is no breakdown of price for the various items.

576.

Mail : Written communication passing through the post office or messenger.

70

577.

Management

accounting

The

process

of

identification,

measurement,

accumulation, analysis, preparation, interpretation, and communication of financial information used by management to plan, evaluate, and control within an organization and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non-management groups such as shareholders, creditors, regulatory agencies, and tax authorities.
578.

Management buying : The acquisition of a controlling interest in a promising business by an outside investment group that retains existing management and places representatives on the board of directors.

579.

Management Information System (MIS) : A system which supplies information to managers for decision making.

580.

Management by Objectives (MBO) : A management theory that calls for managing people based on documented work statements mutually agreed to by manager and subordinate. Progress on these work statements is periodically reviewed, and in a proper implementation compensation is usually tied to MBO performance.

581.

Management control system : Essentially a strategic tool for holding managers accountable and responsible for their performance. Existence of such a system also provides feedback for managers to know how they perform, in which direction the organization is heading, and what type of course correction may be required to stay on course.

582.

Management Discussion and Analysis (MD & A) : Usually seen in a financial report. The information disclosed has been derived from analysis and discussions held by the management (and is presented usually for the benefit of shareholders).

583.

Managerial accounting : The process of identifying, measuring, analyzing, interpreting and communicating information in pursuit of an organizations goals.

584.

Mandatory transfers : Transfers from the current fund group to other fund groups arising out of binding legal agreements related to the financing, e.g., In education : debt retirement, interest, and grant agreements with federal agencies and other organizations to match gifts and grants. Whereas non-mandatory transfers would be

71

transfers from the current fund group to other fund groups made at the discretion of management to serve various objectives, e.g., Additions to loan funds, endowment funds, plant additions, and voluntary renewal and replacement of plant.

585.

Manufacturing Account: It is the account prepared by an enterprise

engaged in manufacturing activities. It is prepared to find out the cost of goods manufactured. This account will be closed by transferring its balance to the debit of the trading account.

586.

Manufacturing concerns: Manufacturing concerns are those business

concerns which are involved in manufacturing business. These concerns buy raw materials from the market are convert the same into finished goods, by applying certain productive process. The final accounts of a manufacturing concern consists of manufacturing account, trading and profit and loss account and balance sheet.
587.

Margin : Allows investors to buy securities by borrowing money from a broker. The margin is the difference between the market value of a stock and the loan a broker makes.

588.

Margin account : A leverageable account in which stocks can be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock; if the value of the stock drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. Margin rules are federally regulated, but margin requirements and interest may vary among broker / dealers.

589.

Marginal call : A demand for additional funds because of adverse price movement. Maintenance margin requirement, security deposit maintenance.

590.

Marginal lending : Margin lending is where the lender, usually a bank, will lend you between approximately 40% and 70% of the value of approved shares and managed funds. For example, if you have $30,000 in cash, you could borrow up to $70,000 and buy a $1,00,000 portfolio. This portfolio then becomes the security for your margin lending facility.

72

591.

Margin of profit : Gross profit divided by net sales. Used to measure a firms operating efficiency and pricing policies in order to determine how competitive the firm is within the industry.

592.

Margin of safety : With respect to working capital management, the difference between (1) the amount of long-term financing and (2) the sum of fixed assets and the permanent component of current assets.

593.

Margin security : A security that may be bought or sold in a margin account. Margin trading : Buying securities, in part, with borrowed money. Marginal cost : A calculation showing the change in total cost as a result of a change in volume, e.g. If one more item of output increases the total cost by $25, the marginal cost is $25. It is usually useful to determine marginal cost because it can aid in determining if the rate of production should be altered.

594.

595.

596.

Marginal efficiency of capital : The percentage yield earned on an additional unit of capital.

597.

Marginal profit : The change in the total profit that results from the sale of an additional unit.

598.

Marginal revenue : The change in total revenue as a result of producing one additional dollars of taxable income earned.

599.

Marginal utility : The change in total satisfaction as a result of consuming one additional unit of a specific good or service.

600.

Mark up or markup : Refers to the amount of spread or transaction fee added to a security for sale by a dealer to a client. There are various guidelines provided by regulatory and industry groups. Excessive mark ups are prohibited.

601.

Market : An order to buy or sell an instrument at the prevailing price (bids and offers). In the case of a buy order it means taking the offers whereas for a sell order it means hitting the bids.

73

602.

Market analysis : An analysis of technical corporate and market data used to predict movement in the market.

603.

Market capitalization : The total dollar value of all outstanding shares. It is calculated by multiplying the number of shares times the current market price.

604.

Market capitalization rate : Expected return on a security. The market-consensus estimate of the appropriate discount rate for a firms cash flow.

605.

Market cap or market capitalization : A value placed on a company. it is computed by multiplying the number of outstanding shares by the current share price.

606.

Market clearing : Total demand for loans by borrowers equals total supply of loans from lenders. The market, any market, clears at the equilibrium rate of interest or price.

607.

Market conversion price : Also called conversion parity price, the price that an investor effectively pays for common stock by purchasing a convertible security and then exercising the conversion option. This price is equal to the market price of convertible security divided by the conversion ratio.

608.

Market correction : A relatively short-term drop in stock market prices, generally viewed as bringing overpriced stocks back to a level closer to companies actual values.

609.

Market efficiency hypotheses : Refer to theories which try to explain financial market behaviour. Some hypotheses state that the markets are rigorously efficient and operate by an immediate discounting of perfect information. Other theories state that the markets are relatively inefficient, particularly when socially-oriented goals are also to be considered. Other hypotheses state the information is good or even very good but not perfect. Also, not all data or information. The latter theorists believe that the markets try to attain pure efficiency. However, they also and this influences the discounting and adoption processes. A simple example will highlight this view. While improvements in technology are reducing costs and communication times, not everyone updates their systems given each and every change in chip speeds and processing power. To do so would be too expensive and this creates one of example of a marketplace paradox.

74

610.

Market failure : The inability of arms length markets to deliverer goods or services. A multinational corporations market internalization advantages may take advantage of market failure.

611.

Market index : Market measure that consists of weighted values of the components that make up certain list of companies. A stock market tracks the performance of certain stocks by weighting them according to their prices and the number of outstanding shares by a particular formula.

612.

Market maker : In the over-the counter market, a trader responsible for maintaining an orderly market in an individual stock by standing ready to buy or sell shares. The market makers job is to maintain a firm bid and ask price for his assigned security. If a broker wants to buy a stock but there are no offers to sell it, the market maker fills the order himself by selling shares from his own account. And vice versa if a broker wants to sell but no one wants to buy, the market maker buys the shares. On a stock exchange like AMEX or NYSE, a market maker is known as a specialist.

613.

Market value : The value of an open position. It is determined by multiplying the known or implied prevailing price by the quantity.

614.

Market segmentation theory or preferred habitat theory : A biased expectations theory that asserts that the shape of the yield curve is determined by the supply of and demand for securities within each maturity sector.

615.

Market share : The percentage of sales a company captures for a particular product line, i.e., The percentage of total industry sales that a particular company controls within a given market.

616.

Market sweep : A second offering following a tender offer, allowing institutional investors to obtain a controlling interest at a price higher than the original offer.

617.

Market value : The price at which buyers and sellers trade similar items in an open market place. In the absence of a market price, it is the estimated highest price a buyer would be warranted in paying and a seller justified in accepting, provided both parties were fully informed and acted intelligently and voluntarily.

75

618.

Market value ratio : Ratios that relate the market price of the firms common stock to selected financial statement items.

619.

Market value-weighted index : An index of a group of securities computed by calculating a weighted average of the returns on each security in index, where the weights are proportional to outstanding market value.

620.

Marketability : A negotiable security is said to have good marketability if there is an active secondary market in which it can easily be resold.

621.

Marketable security : A readily tradable equity or debt security with quoted prices; to include commercial paper and treasury bills. It is a close to cash asset which is classified as a current asset.

622.

Market-book ratio : Market price of a share divided by book value per share. Markowitz efficient frontier : The graphical depiction of the Markowitz efficient set of portfolios representing the boundary of the set of feasible portfolios that have the maximum return for a given level of risk. Any portfolios above the frontier cannot be achieved. Any below the frontier are dominated by Markowitz efficient portfolios.

623.

624.

Marshalling: The order in which the various assets and liabilities are

arranged in the Balance Sheet is known as marshalling. The assets and liabilities are arranged in two ways in the balance sheet viz., (a) In order of liability (b) In order of permanence.
625.

Matching : The matching of invoices to purchase orders and delivery notes prior to payment.

626.

Matching Cost Concept: According to this principle, the expenses incurred in an accounting period should be matched with the revenues recognised on all goods sold during a period, cost of those goods sold should also be charged to that period.

627.

Matching principle : A fundamental concept of basic accounting. In any one given accounting period, you should try to match the revenue you are reporting with the

76

expenses it book to generate that revenue in the same time period, or over the periods in which you will be receiving benefits from that expenditure.
628.

Mates Receipt : It is issued by the captain of the ship of the exporter or the forwarding agent on the receipt of goods on the ship for transportation to another country. It may be a clean receipt or a foul receipt.

629.

Mathematical programming : An operations research technique that solves problems in which an option value is sought subject to specified constraints. Mathematical programming models include linear programming, quadratic programming, and dynamic programming.

630.

Matrix organization : Where a company superimposes a group or interdisciplinary team of project specialists on a functional organizational design. In a matrix organization the members have dual allegiances, i.e., To that particular assignment or project as well as their normal organizational department.

631.

Matrix trading : Swapping bonds in order to take advantages of temporary differences in the yield spread between bonds with different ratings or different classes.

632.

Maturity date : The date on which a payment becomes due at the end of the term of an endowing policy or a fixed term security or loan.

633.

Maturity value : The amount payable to the insured at the maturity date of an endowment policy.

634.

MBSCC : The Mortgage Back Securities Clearing Corporation. Mean reversion : The postulate that short term rates or volatilitys will move toward longer term averages.

635.

636.

Melt down or meltdown : A sudden decline or collapse in financial values. Tends to be used for broader indicators such as market indices or asset classes.

77

637.

Measurement theory : Measurement theory involves the assignment of numerals to objects or events in order to represent certain attributes, or properties, of those objects and events.

638.

Mechanics lien : A claim in favor of mechanics, contractors, laborers or material suppliers against a building or other structure. The lien can only be filed by persons who worked on the building or supplied materials.

639.

Median : The value of the midpoint variable when the data are arranged in ascending or descending order.

640.

Merchandising : The delivery aspect of the futures market. It is secondary to the risk management role of the futures and options market. Merchandising occurs when a hedger delivers commodities or financials. Sometimes, this technique is used for the hedger to maintain anonymity.

641.

Merchant banking : A form of banking where the bank arranges credit financing, but doesnt hold loans until maturity. A merchant bank invests its own capital in leveraged buyouts, corporate acquisitions and other structured financial transactions. It is a feebased business, in which the bank assumes market risk but no long-term credit risk.

642.

Merger : The formation of one company from two or more previously existing companies through pooling of common stock, cash payment or a combination of both. Mergers where common stock is exchanged for common stock are nontaxable and are called tax-free mergers.

643.

Methods of Calculation of Interest : The methods are : (I) Interest Table Method (ii) Product Method; (iii) Interest Numbers Method (iv) Periodic Balance Method.

644.

Microfiling : A method of copying records on safety base films. Modigliani and miller proposition I : A proposition by Modigliani and Miller which states what a firm cannot change the total value of its outstanding securities by changing its capital structure proportions. Also called the irrelevance proposition.

645.

646.

Modigliani and miller proposition II : A proposition by Modigliani and Miller which states that the cost of equity is a linear function of the firms debt / equity-ratio.

78

647.

Monetary measurement : The idea that money, as the common medium of exchange, is the accounting unit of measurement, and that only economic activities measurable in monetary terms are included in the accounting model.

648.

Monetary market : Money markets are for borrowing and lending money for three years or less. The securities in a money market can be U.S. government bonds, Treasury bills and commercial paper from banks and companies.

649.

Monetary policy : The regulation of the money supply and interest rates by a central bank, such as the U.S. Federal Reserve, in order to control inflation and stabilize currency. If the economy is heating up, the Fed can withdraw money from the banking system, raise the reserve requirement or raise the discount rate to make it cool down. If growth is slowing, the Fed can reverse the process increase the money supply, lower the reserve requirement and decrease the discount rate.

650.

Money : Anything that is generally acceptable as a means of exchange. At the same time it acts as a measure and store of value.

651.

Money supply : Total stock of money in the economy, consisting primarily of currency in circulation and deposits in savings and checking accounts. Too much money in relation to the output of goods tends to push interest rates down and push inflation up; too little money tends to push rates up and prices down, causing unemployment and idle plant capacity. The Federal Reserve manages the money supply by raising and lowering the reserves banks are required to hold and the discount rate at which they can borrow money from the Fed. The Fed also trades government securities (called repurchase agreements) to take money out of the system or put it in. there are various measures of money supply, including M1, M2, M3 and L; these are referred to as monetary aggregates.

652.

Money market security : Short-term investment usually of less than one year. Money Measurement Concept: The business transactions are not recorded in terms of Kilograms, quintals, meteres, litres etc. They will be recorded in a common denomination. It is mainly to see that they become homogeneous and meaningful. Money does this function. It is adopted as the common measuring unit. So, all recording is done in terms of standard currency of the country where the business is

653.

79

set up. Therefore, only those transactions and event which can be expressed in terms of money are recorded in the books of accounts.
654.

Monopoly : Absolute control of all sales and distribution in a market by one firm, due to some barrier to entry of other firms, allowing the firm to sell at a higher price than the socially optimal price.

655.

Monopsony : The existence of only one buyer in a market, forcing sellers to accept a lower price than the socially optimal price.

656.

Mortgage : A loan used to buy your house, where your house is used as security until youve paid off the loan (usually after a fixed period). There are three main types of mortgage. -A repayment mortgage you pay off the loan by installments of capital and interest so that after the agreed period you have paid off all the loan -An interest only mortgage you pay only interest on mortgage and make other arrangements to repay the capital, like an endowment policy. -A flexible mortgage allows you to make overpayments and take payment holidays.

657.

Mortgage note : An instrument used to encumber land as security for a debt. This document gives the mortgage company in term jurisdiction over the mortgagor.

658.

Multiplier : A factor within can increase the leverage of an instrument such as a floater or inverse floater. While sometimes the multiplier is less than 1.0, it is usually greater than 1.0. multipliers are often seen in structured financings such as CMOs and Over-the Counter derivatives.

659.

Mutual fund : An investment company which the number of shares outstanding varies according to demand. If investors seek to own more shares, the fund wills ell new ones. If existing shareholders seek to reduce their holdings then the fund will purchase them at the Net Asset Value. In recent years, there have been new provisions which can slow down the redemption process. It had been the case that fund shares were to be redeemed immediately on demand. This type of investment company is also known as an Open End Fund because the number of shares outstanding can vary widely from day-to-day.

80

660.

Moving average : A perpetual inventory cost flow alternative whereby the cost of goods sold and the cost of ending inventory are determined by using a weightedaverage cost of all merchandise on hand after each purchase.

661.

Mutual agency : The right of all partners in a partnership to act as agents for the normal business operations of the partnership, with the authority to bind it to business agreements.

662.

Mutual fund theorem : A result associated with the CAPM, asserting that investors will choose to invest their entire risky portfolio in market-index or mutual fund.

663.

Naked option : An open option position which is not covered or hedged. Frequently, it is used in the context of a sold option position.

664.

Narration: Narration means brief explanation of the entry. Every jounrnal

entry must be followed by narration. Important details, calculations, respective documents and resolutions, if any will be mentioned in the narration. Narration is written under the journal entry in particulars column. It is to be written in one or two lines.
665.

Nasdaq small-capitalization companies : A group of 2000 companies with relatively small capitalization, which are listed separately and have at least two market makers.

666.

Negative working Capital : Occurs when current liabilities exceed current assets, which can lead to bankruptcy.

667.

Negotiable instrument : A written document, the title of which can be transferred tot he thrid party for valuable consideration. The negotiable instruments are : Bills of Exchange, promissory note and cheque.

668.

Net adjusted present value : The adjusted present value minus the initial cost of an investment.

81

669.

Net Asset Value (NAV) : Refers to the value of a share or unit of investment. It is computed by adjusting the market value of all investments by the liabilities. Then this net dollar amount is divided by the number of shares or units outstanding. Unless there are additional charges to be imposed upon redemption, the Net Asset Value becomes the bid and transaction market price. Most open end funds only calculate transactional net asset values once a day based on the closing and settlement prices.

670.

Net capital requirement : SEC requirement that member firms and nonmember securities broker-dealers maintain a maximum ratio of indebtedness to liquid capital of 15 to 1.

671.

Net capitalized cost : In leasing, its the price of the vehicle after deducting manufacturers discounts, dealer participation allowances, and cap cost reduction (down payment) from the manufacturer's suggested retail price.

672.

Net cash flow : Equals cash receipts minus cash payments over a given period of time; or equivalently, net profit plus amounts charged off for depreciation, depletion, and amortization. Also called cash flow. Net cash flow is a measure of a companys financial health.

673.

Net coupon : The coupon or interest payment made to the investor of a mortgage backed security. It is lower than the gross coupon of the collateral by an amount equal to the servicing, guarantee, and other applicable fees.

674.

Net current assets : The difference between current assets and current liabilities, also known as working capital.

675.

Net Income : Also known as the bottom line, this is the profit a company realizes after all costs, expenses and taxes have been paid. It is calculated by subtracting business, depreciation, interest and tax costs from revenues. Investors often pay too much attention to net income, the calculation of which can be easily manipulated by accountants. A better measure of corporate growth, some analysts say, is cash flow. Net income is also called earnings or net profit.

676.

Net Present Value (NPV) : A method used in evaluating investments, whereby the net present value of all cash outflows and cash inflows is calculated using a given discount rate. An investment is acceptable if the NPV is positive. In capital budgeting,

82

the discount rate used is called the hurdle rate and is usually equal to the incremental cost of capital.

677.

Net Profit / Loss: Net profit can be defined as an excess of total revenues of

the business over the total expenses of the business. If the total expenses are more than the total revenues, it results in net loss. Net profit / Loss will be transferred to capital account.
678.

Net margin : A companys profitability after all costs, expenses and taxes have been paid. The net margin is calculated by dividing net earnings by revenue and them multiplying by 100. The result is expressed as a percentage. Net margin is used to measure operating efficiency at a company. It is the one of profit margin investors watch most closely because it takes into account all expenses of running the company. But operating margins may paint a truer picture of a companys profitability.

679.

Net Present value : One of the building block processes for finance. It provides a methodology for evaluating and pricing securities and projects. In a simple case it is the discount mechanism for a zero coupon security. Here, there is one payment predicated either on interest or principal. By knowing the time left to maturity, assuming no option features, and knowing the discount rate, one can price or evaluate the zero coupon. Pricing bonds is an extension of this process. Now, instead of evaluating, one payment, there is an entire interest and principal payment stream. For equities, the process evaluates expected cash or dividend flows and the residual value of the enterprise. Complexity arises when there are multiple discount rates (bids and offers), yield curve shapes, and credit differences. Even the selection of discrete, compounding or accretion modeling can make a substantial impact on the value of a simple zero coupon bond.

680.

Net worth : The amount by which total assets exceed total liabilities. Also known as shareholders equity or book value, net worth is what would be left over for shareholders if the company were sold and its debt retired. It takes into account all money invested in the company since its founding, as well as retained earnings. Examining the price-to-book ratio (P/B) of an industrial company with a lot of hard assets is a good way of telling if its undervalued or overvalued.

83

681.

Net working capital : Current assets minus current liabilities. Often simply referred to as working capital.

682.

Net worth : Common stockholders equity which consists of common stock, surplus, and retained earnings.

683.

Netting : A process used by institutions and clearing houses to determine the marginal risks and demands for funds.

684.

Noah effect : The tendency of persistent time series to have abrupt, and discontinuous changes. The normal distribution assumes continuous changes in a system. However, a time series which exhibits Hurst statistics may abruptly change levels, skipping values either up or down. Mandelbrot coined the term Noah effect after the biblical story of the deluge.

685.

Nominal Accounts: Accounts relating to expenses, losses, incomes and gains are known as Nominal Accounts. A separate account is maintained for each item of expenses, loss, income or gain. Wages account, salaries account, commission received account, and Interest received account are some examples of nominal accounts.

686.

Noncash items : Items included in the determination of net income on an accrual basis that do not affect cash; examples are depreciation and amortization.

687.

Noncash transactions : Investing and financing activities that do not affect cash; if significant, they are disclosed below the statement of cash flows or in the notes to the financial statements.

688.

Non-recurring Expenses : All the expenses incurred for bringing goods to the godown of the consignee are non-recurring in nature. Such expenses are generally incurred on the consignment as a whole. The non-recurring expenses will be incurred partly by the consignor and partly by the consignee, Ex : Packing, Carriage, unloading charges etc.

689.

Non-trading concerns : They are the organizations not engaged in any business activity. They are established for promoting of art, music, culture, education etc. They may also be established for charitable and social purposes. Hospitals, educational

84

institutions, cultural organizations, religions and welfare institutions, clubs, libraries, literary societies etc., come under these non-trading organizations. Their main aim is not to earn profit, but rendering services to their members and to the general public. As such, they are also called as Non-trading Concerns or non-profit organizations.
690.

Noting Charges : Charges paid to the Notary Public who gives a certificate indicating dishonour of a bill.

691.

Notary Public : A person authorized by the Government for recording the fact of dishonour (noting) in respect of the bill.

692.

Normal Loss : Normal loss arises due to natural causes such as evaporating, drying, breaking etc. Such losses cannot be avoided inspite of best efforts. For example, coal, cement etc., when transported, to some extent lose their weights. In such cases the total cost of goods shall be suitably inflated so as to absorb the losses. The question of normal loss assumes importance in valuing closing stock. The following formula can be applied for this purpose. Value of Closing Stock = Value of goods sent x Quantity in stock ------------------------------------------------Net quantity received by the consignee

693.

Normal Profits : Amount of profits expected on the basis of the normal rate of return. Obsolescence : Obsolescence refers to the decrease in usefulness arising on account of the external factors like change in technology, new inventions, change of style etc.

694.

695.

Office : An office may be regarded as a place where the control mechanism of an organization is located.

696.

Ombudsman : An independent official to whom grievances can be aired, free of charge. Ombudsman is a Swedish word meaning citizens representative. The Insurance Ombudsman Bureau aims to increase confidence in Insurance by offering an independent resource for resolving disputes between insurance companies and their customers.

85

697.

One-sided errors : An error which affects the debit or credit side of one account only.

698.

Opening Entries: When the old books are closed and the new books are

opened for the new year, we have to write the opening entries in the new books. While doing so the balances of personal and real accounts of old books are recorded the new year on the first day in new books.
699.

Operating income : A measure of a companys earning power from ongoing operations, equal to earnings before deduction of interest payment and income taxes. Operating income is calculated by subtracting costs of sales and operating expenses from revenues. It is often used to gauge the financial performance of companies with high levels of debt and interest expenses. Also called operating profit or EBIT (earnings before interest and taxes).

700.

Operating margin : A companys profitability after all operating costs have been paid. Operating margin is calculated by dividing cash flow by revenue and then multiplying by 100. The result is expressed as a percentage. Operating margin shows you how profitable a company is before interest expenses on debt and depreciation costs have been deducted. Since accountants often manipulate depreciation and amortization costs on income statements, many analysts feel operating profit paints a truer picture of a companys profitability.

701.

Option : An agreement that gives an investor the right, but not the obligation, to buy or sell a stock, bond or commodity at a specified price within a specific time period. A call option is an option to buy the security; a put option is an expiration date, all monies paid for the option are forfeited. Options are traded on several exchanges, including the Chicago Board of Options Exchange, The American Stock Exchange, the Philadelphia Stock Exchange, the Pacific Stock Exchange and the New York Stock Exchange.

702.

Outstanding expenses: Expenses that are incurred during the current year

but their payment is not made in the same year. Example, outstanding salaries, office rent etc.

86

703.

Over the Counter (OTC) : The Market place where securities are not listed on an exchange. Many derivatives, fixed income securities, and very small capitalization stocks belong in this group. Another notable difference between Over the Counter instruments and listed securities is that OTC instruments tend to be customized whereas listed instruments are standardized.

704.

Overdraft: When a customer of a bank obtains the facility of drawing from his

current account more account than his deposit. It is called overdraft. In case of overdraft, the pass book shows debit balance.

705.

Over-riding Commission : It is the commission over and above the normal

commission paid to the consignee for extra services provided by him or excess price realized by him or to introduce a new product into the market.
706.

Over-the-counter market : A market in which securities transactions are conducted by dealers through a telephone and computer network connection dealers in stocks and bonds. Also called OTC trading.

707.

Paper Money : Money which has no intrinsic value. But it is accepted as money due to its general acceptance and quality of scarcity.

708.

Par Value : The nominal dollar amount assigned to a bond by its issuer. Par value represents the amount of principal you are owed at a bonds maturity. The bonds actual market value may be higher or lower. When a bonds market price fluctuates, it has an impact on its yield. If the price drops below the bonds par value, its yield goes up. If the price rises above par value, the yield goes down. Also called face value.

709.

Partners Current Account : An account prepared (under fixed capitals method) for recording all transactions relating to a partner other than the capital brought by him.

710.

Partnership Deed : A document which contains the terms of partnership as agreed among the partners.

711.

Partnership Firm : A business unit owned by two or more persons under an agreement to share profit of the business carried on by all or any of them acting for all.

87

712.

Pass Book: When a person opens an account in the bank, the banker

maintains a book in the name of the depositor to record all the deposits and withdrawals of the depositor. This book is called Bank Pass Book. The banker supplies the copy of the pass book to the customer. The transactions in the pass book will be entered only by the bank staff.
713.

Pay out ratio : The percentage of a companys earnings paid to shareholders as dividends. It is calculated by dividing the quarterly dividend by the quarterly earningsper-share and multiplying by 100. Typically, growth companies retain earnings to spur further growth, while old-line companies, banks and utilities tend to have higher payout ratios.

714.

Payee : A person who has the right to receive the payment against the bill. Personal Accounts: Accounts which show transactions with persons are called Personal Accounts. A separate account is kept in the name of each person for recording the benefits received from, or given to the person in the course of dealings with him. Examples are: Krishna s Account, Gopal s Account, Kalyan s Loan Account etc. Personal Accounts also include accounts in the names of firms, companies or institutions such as Malini & Sons Account, Nagarjuna Finance Company Limited Account.

715.

716.

Petty Cash Book: In every business, there are so many payments of small

nature like rickshaw charges, coolie charges, stamps and telegrams, stationery etc. Inclusion of all these petty expenses will make the cash book unnecessarily bulky. Moreover, inclusion of a large number of items will invite error into the cash book. Hence, to record all such day to day small expenses, a separate book is maintained known as Petty Cash Book. The person in charge of that book is known as Petty Cashier.
717.

Portability : All the interest rates in this range are portable. This means that if you move home during the discounted or fixed rate period, you can enjoy the same rate, on the amount outstanding on your original loan, for the remainder of the discounted or fixed rate period. Conditions apply please ask for details.

88

718.

Portfolio : A collection of securities held by an investor. Portfolios tend to consist of a variety of securities in order to minimize investment risk.

719.

Portfolio

analysis

The

methodology

which

quantified

systematic

and

nonsystematic risk for investment holdings. Harry Markowitz is considered the primary influence in this field.
720.

Portfolio theory : Evaluates the reduction of nonsystematic or diversifiable risks through the selection of securities or other instruments into a composite holding or efficient portfolio. This efficiency means that a portfolio would offer lower risks or more stable returns for a targeted return level. Instruments that have independent returns lower nonsystematic risks. Also, instruments that are inversely related on a return basis reduce the diversifiable risks. The basic theory assumes that returns are independent, investor expectations are homogeneous, and that the normalized probability distributions are stable.

721.

Posting: Posting is the process of entering in the ledger the entries given in

the journal. Posting into ledger is done periodically. It may be done weekly or fortnightly as per the convenience of the business. After the completion of journal entry only posting is to be made into the ledger. For each item in the journal a separate account is to be opened. For each account there must be a name. This should be written on the top of the account in the middle. The debit side of the journal entry is posted to the debit side of the account by starting with To. The credit side of the journal entry is posted on the credit side of the account by starting with By.
722.

Power Grid : A matrix which enables an analyst, investor, portfolio or risk manager a quick and incisive look at the option characteristics of a group of countries or corporations. In the case of countries, such as the G-7, the equity; credit and currency markets are comparable in terms of standardized statistics such as volatility. This tool helps to identify imbalances and potential arbitrage situations.

723.

Preferred Stock : An equity security which has a priority relative to ordinary common shares for dividends and return of par amount in the event of a corporate dissolution. Often, a default in the payment of that issues preferred dividend or other convenant breach may temporarily give the preferred holders voting powers. Preferred shares can have convertible, cumulative, participating, voting, or other special features.

89

724.

Prepaid expenses: Expenses relating to the future years but paid in the

current year itself. There are several items of expenses which are paid in advance in the normal course of business operations. These expenses are also known as Unexpired expenses. The example of a such expenses paid in advance generally are insurance premium, rent etc.

725.

Premium : Amount paid by an incoming partner to compensate the old

partners for their loss of share in future profits of the firm. It is equal to his share of goodwill.
726.

Price-to-earnings ratio (P/E) : A ratio of evaluate a stocks worth. It is calculated by dividing the stocks price by an earnings- per share figure. If calculated with the past years earnings, it is called a forward P/ companies sometimes manage their earnings with accounting wizardry to make them look better than they really are. Thats why some analysts prefer to focus on the price-to-cash flow measure instead.

727.

Price-to-earnings-growth ratio (PEG) : The PEG ratio (Price-to-earnings-growth) is calculated by dividing a stocks forward P/E by its projected three to five-year annual earnings-per-share growth rate. It is used to find companies that are trading at a discount to their projected growth. A PEG ratio of less than one is considered a sign that a stock is a good value. Generally speaking, the higher the PEG, the pricier the stock.

728.

Prime rate : The interest rate banks charge their most credit worthy commercial customers. Banks use the prime as a base to set rates for credit cards, home-equity loans and other loans, including loans to small and medium-size businesses. The rate is determined by general trends in interest rates. As rates decline, the prime rate will also move lower. However, it doesnt typically move on a day-by-day basis. Prime rate changes are usually led by major money center banks. Normally, the prime rate will move in steps and then remain constant until a major rate change has been made. This usually happens when the Federal Reserve makes major changes in monetary policy.

729.

Principal : The face value or par value of a bond. It represents the amount of money you are owed when a bond reaches its maturity. So if you buy a 10-year Treasury

90

note with a 5% coupon rate and a $1,000 face value, $1,000 is the principal owed to you in 10 years.
730.

Private Automatic Branch Exchange (PABX) : All incoming calls are put through by the operator. For outgoing calls, an executive can go through the operator. If PABX system is operated electronically it is called EPABX (Electronic Private Automatic Branch Exchange).

731.

Private Branch Exchange (PBX) : Here the internal telephone extensions may be brought together on a private switchboard. It is connected with central telephone exchange by two or more lines.

732.

Private Carrier : Firms that own and operate their own vehicles for the movement of their own goods.

733.

Private warehouse : These are the warehouses generally owned by large business houses for the storage of their own stock.

734.

Product : The amount arrived at by multiplying the amount on the bill with the number of days from the starting date.

735.

Profit and Loss Appropriation Account : An account prepared for distribution of profit or loss of the firm among the partners.

736.

Promissory Note : A Promissory Note is an instrument in writing (not being bank note or currency note), containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or to the order, of a certain person or to the bearer of the instrument.

737.

Pro rata premium : A rate charged for a period of insurance cover shorter than the normal period. For example, if an insured had cover for one quarter of a year, the Pro Rata premium might be only one quarter of the annual premium.

738.

Profit : The earnings a company realizes after all costs, expenses and taxes have been paid. It is calculated by subtracting business, depreciation, interest and tax costs from revenues. Profit is the supreme measure of value as far as the market is concerned. Profit is also called earnings or net income.

91

739.

Profit and Loss Account: Profit and Loss Account is the second part of trading and profit and loss account. It is prepared to calculate the net profit or net loss of the business. In the debit side of the P & L account all the revenue expenditures and recorded. The credit side of the P & L account shows all the revenue incomes.

740.

Profit and Loss Appropriation Account : An account prepared for distribution of profit or loss of the firm among the partners.

741.

Profit margin : A measure of a companys profitability, cost structure and efficiency, calculated by dividing earnings or cash flow by revenue. There are four basic types of profit margin : gross, operating, pre-tax and net. Net margin is the one investors pay the most attention to. It shows a companys profitability after all costs, expenses and taxes have been paid. The net margin is calculated by dividing earnings by revenue and then multiplying by 100. Margins are particulars helpful since they an be used both the compare profitability among many companies and to look for financial trouble at a single outfit.

742.

Proforma Invoice : Proforma Invoice is a statement of the goods sent by the consignor to consignee. It contains the description of the goods consigned, weight, quantity etc. The price at which the goods are to be sold will be given. The consignee has to sell the goods at the Proforma Invoice Price or at a price above that. But he cannot sell below that price without obtaining consent from the consignor.

743.

Prospectus : A formal, written offer to sell securities that sets forth the plan for a proposed or existing business. The prospectus must be filed with the Securities and Exchange Commission and given to prospective buyers. A prospectus includes information on a companys finances, risks, products, services and management. Prospectuses are also used by mutual funds to describe the fund objectives, risks, fees and other essential information.

744.

Provision for Discount on Debtors: When the goods are sold on credit and

the payment may be made after a fixed period. But if the party pays it early, the trader allows some discount. Such discount will be an anticipated loss for business and must be provided in accounts. Hence, provision for discount is calculated on the debtors. It is shown on the debit side of the profit and loss account and on the assets

92

side of the balance sheet by way of deduction from the amount of debtors. When a discount is allowed, it is deducted form the provision for discount account.

745.

Provision for Discount Creditors: Creditors, generally, allow a cash

discount for making prompt payments so that the expected gain on account of discount receivable from the creditors in the next year is taken into account. Such a provision is called provision for discount on creditors. Discount on provision of creditors is shown on the credit side of the profit and loss account and it is shown as a deduction from sundry creditors on the liabilities side of the balance Sheet.
746.

Proxy : A Proxy is the authorization or power of attorney, signed by a stock holder assigning the right to vote their shares to another party. A companys management mails proxy statements to registered stockholders prior to the annual shareholder meetings. The statement contains a brief explanation of proposed managementsponsored voting items, along with the opportunity to vote for or against each individual issue or transfer the right to vote to company management or another party.

747.

Public company : A company that sells shares of its stock to the public. Public companies are regulated by the Securities and Exchange Commission (SEC). Also called a publicly held company.

748.

Public warehouses : These are the warehouses owned by port trusts, the Government, wharfingers or any member of the public.

749.

Purchases Book: This book records all credit purchases only. Purchase of

goods for cash will not be recorded in this book. In the same way, purchase of assets for cash or credit also do not appear in this book. The purchases book will be totaled periodically. It will be posted to the debit side of the purchases account.

750.

Purchase Returns Book: This book is also known as Returns Outward

Book. This book is used to record the particulars of goods returned to the supplier. This book helps in knowing about the amount of goods returned to the suppliers.

93

751.

Quick Assets : Refer to current assets which are readily convertible into cash. These quick assets are often defined as current assets minus inventory values.

752.

Quick asset ratio : Refers to the ratio of cash, cash equivalents and accounts receivable relative to the total current liabilities. It is also known as the Acid Test Ratio. This measure of liquidity is more rigorous than the Current Ratio.

753.

Quotation : The illustration provided to show the costs of insurance cover. The quotation document forms the basis of a new contract or the renewal of an existing one. It contains details of the conditions, benefits, caveats and premiums for the policy.

754.

Railway Receipt (R / R) : It is the document of agreement between the sender of goods and the railways for transporting the specific goods from one railway sttion to other railway station.

755.

Random : A condition in finance or economics whereby changes occur on a probabilistic basis. The underlying probability function may be known or unknown.

756.

Random walk : The financial theory that asserts that changes in price or rate time series are unpredictable. However, the theory recognizes that there is a statistical interdependency between the data. The non-random stickiness is sometimes referred to as autocorrelation or serial correlation.

757.

Range : The difference between the high and the low for a time series for a stated period. For example, it can refer to the daily, weekly, monthly, yearly or lifetime range in prices, interest rates or other economic indicator.

758.

RAROC : Refers to the Risk Adjusted Return on Capital.

759.

Real Accounts: Accounts relating to properties or assets are known as Real

Accounts. Every business needs assets such as machinery, furniture etc., for running its activities. A separate account is maintained for each asset owned by the business. All transactions relating to a particular asset are recorded in the concerned asset account. Cash account, Furniture account, Machinery account, Building Account etc., are some examples of real accounts.

94

760. 761.

Rebate : The discount allowed to the drawee for early payment of the bill.

Receipts and Payments account : It is a summary of cash transactions at

the end of a particular period. It is prepared by Non-trading concerns. It shows the receipts and payments of cash during the period. It is a real account. It starts with the opening balance of cash in hand and at bank. All receipts and payments of cash are entered in this book. The balance in this account shows closing balance of cash or bank.

762.

Rectification Entries: While recording the transactions in the books the

accountant may do some mistakes. Any such errors committed should be rectified. It will be done by passing rectification entries.

763.

Recurring Expenses : These expenses are incurred after the goods have

reached the consignees place or godown. They are recurring in nature because they may be incurred repeated by the consignor and consignee. Ex : Bank charges, Godown charges, insurance etc.

764.

Red Ink Interest : In case the due date of a bill falls after the date of closing

the account, then no interest is allowed for that. However, interest from the date of closing to such due date is written in Red Ink in the appropriate side of the Current Account. This interest is called Red-Ink Interest. This Red Ink Interest is treated as negative interest.
765.

Redemption : For all our mortgages, if you pay off the whole or any part of the loan before the end of the mortgage term, you will have to pay a redemption charge. This will be the amount specific to the mortgage product specified on the relevant Web page and in our brochures. There will also be an Administration fee at redemption. If you decide to redeem your Standard Variable Rate mortgage, you would only pay an administration fee. Fees applied in addition to any interest charges at the time the mortgage is redeemed are charged to cover our reasonable administration costs. These include retrieving and checking the Deeds and Documents, formal sealing, recording of documents sealed and secure postage.

95

766.

Regional Rural Banks : These are the banks set up in rural areas. They are meant for serving agricultural needs along with needs of rural people. Ex : Chaitanya Grameena Bank.

767.

Repo rate : The rate on securities repurchase agreements used by central banks to influence domestic money markets.

768.

Repos : Repurchase Agreements. Repossession : This is when a borrower fails to pay back their loan in accordance with the Terms ad Conditions of that loan and the lender exercises their legal charge over the borrowers property by taking legal ownership.

769.

770.

Renewal of Bill : It means the cancellation of the old bill before due date and drawing a new bill in its place.

771.

Reserve for bad and doubtful debts: In every business it is certain that

some portion of debt will not be recovered. This amount is written off as bad debts. It is also likely that some of the remaining debts may not be recovered in full. Hence, an attempt is made to maintain a provision to recover the loss of anticipated bad debts at the time of p reparation of final accounts. This provision is known as Provision for bad and doubtful debts.
772.

Return of Assets (ROA) : The rate of investment return a company earns on its assets. An indicator of profitability, ROA is determined by dividing net income from the past 12 months by total assets and then multiplying by 100. Within a specific industry, ROA can be used to compare how efficient a company is relative to its competitors. Unlike return on equity, ROA ignores a companys liabilities.

773.

Return on equity : The rate of investment return a company earns on shareholders equity. An indicator of profitability, ROE is determined by dividing net income from the past 12 months by net worth (or book value). This statistic shows how effectively a company is using its investors money. Within a specific industry, it can be used to compare how efficient a company is relative to its competitors.

96

774.

Return on Investment : A measure of how much the company earns on the money the company itself has invested. It is calculated by dividing the companys net income by its net assets.

775.

Reinsurance : It is sub-insurance made by the main insurer in case he finds himself incapable to compensate for the loss.

776.

Residual Value Or Scrap Value : This is expected realisable amount, when the asset is sold out at the end of its useful life. The scrap value depends upon the usage of the asset, its obsolescence and loss due to destruction.

777.

Revaluation Account / Profit and Loss Adjustment a/c : Whenever there is a new admission or retirement of partners, an account known as Revaluation Account will be prepared. The adjustment in the value of assets and liabilities are effected through an account. It is called Profit and Loss Adjustment Account. The preparation of this account helps us in finding out the profit or loss on the revaluation of assets and liabilities of the firm. Ultimately, the profit or loss on revaluation will be transferred to the capital accounts of the partners.

778.

Revenue : Revenue is the earnings of a company before any costs or expenses are deducted. It includes all net sales of the company plus any other revenue associated with the main operations of the business. It does not include dividends, interest income or non-operating income. Also called net sales.

779.

Revenue Receipts: Amounts received by sale of goods or services are

known as revenue receipts. These receipts will recur continuously. For example, Receipts by sale of goods or services; Receipt of Interest, Dividend, Commission, Discount etc. All revenue receipts are to be shown in the credit side of trading, profit and loss account.

780.

Revenue Expenditure: Expenses incurred in day to day running of

business is known as revenue expenditure. For example, wages, salaries, other office expenses, selling, distribution expenses etc. All revenue expenses are to be shown in the debit side of the trading and profit and loss account.

97

781.

Reverse Repos : Reverse Repurchase Agreements. Depending on the context, they may be called Matched Sales.

782.

Risk arbitrage : A form of trading whereby the risk arbitrageur attempts to profit from issues involved in merger/ acquisitions. The underlying rationale is that the current price after the announcement is still below the bid price. Also, the company may find itself subject to other bids for its stock in excess of the initial announced bid. These price differentials are the arbitrage part. The risk is that other bids do not materialize or the initial announcement fails due to other considerations.

783.

Sacred cow :

An asset, position, or project which is considered protected by

management. Often this investment is presented as off-limits or non-negotiable.

784.

Sacrificing Ratio : Ratio in which the old partners sacrifice their share of profit in favour of the new partner.

785.

Sales Book: This book is used to record credit sales only. Goods sold for

cash, and sale of assets for cash or credit will not be recorded in this book. The entries in sales book are made from copies of the Invoices. The sales day book will be totaled periodically. The balance amount will be posted tot he credit side of the sales account.

786.

Sales returns Book: This book is also known as Returns Inward Book. This

book records the particulars of goods returned by the customers. It helps the trader to know how much goods the customers have returned.
787.

Salvage value : The amount remaining after a depreciated useful life. It refers to the residual or recoverable value of a depreciated asset. It should be noted that the gross salvage value may be adjusted by a removal or disposal cost. This adjustment would lower the gross salvage value.

788.

Secondary market : The market where previously issued securities are traded. Most trading is done in the secondary market. The New York Stock Exchange, Amex, Nasdaq, the bond markets, etc., are secondary markets.

98

789.

Settlement date : The date of the financial satisfaction of a transaction. This satisfaction can include payment and delivery of securities. In recent years, there has been progress towards closing the gap between trade date and settlement date. Many back office systems are primarily focused on trades or transactions. Here, too the gaps are narrowing with the implementation of middle office software.

790.

Shareholder : One who owns shares. In a mutual fund, this person has voting rights. Shareholders equity : The amount by which total assets exceed total liabilities. Also known as net worth or book value, shareholders equity is what would be left over for shareholders if the company were sold and its debt retired. It takes into account all money invested in the company since its founding, as well as retained earnings. examining the price-to-book ratio (P/B) of an industrial company with a lot of hard assets is a good way of telling if its undervalued or overvalued.

791.

792.

Shares : Shares are issued by a company to raise money. Unlike bonds, which are a straightforward loan, shares give you ownership of part of the company. most shares are listed on a stock exchange, which makes them easy to buy and sell, although dealing costs may be expensive, which is another attraction of investing in a unit trust as the costs are shared with lots of others.

793.

Short : The position opposite that of a long. Some who is short the market. Short coupon : Refers to the initial coupon for a municipal security which reflects less than 6 months of accrued interest. The time of accrual is measure from the start of the Dated Date and continues until the end of the initial accrual period.

794.

795.

Short covering : Trades that reverse, or close out, short-sale positions. For instance, when a stock rises sharply in price, investors who shorted the stock, expecting it to fall, are often forced to purchase the shares they borrowed from their brokers. That can push the price of the stock up even higher.

796.

Short hedge : Refers to the status of the open futures contract equivalent position. Here, it is understood that the hedger is short futures against a long actual position.

797.

Short selling : The act by which a speculator or risk manager sells an instrument at a high price with the intent of purchasing it lower. This is particularly the case for the

99

speculator. The risk manager would generally be selling short against a specific or global exposure. There are technical differences in selling short on the futures and securities markets. Also, the purchase of puts or other derivative strategies can serve as a substitute for being short. There are different rules which apply to short sellers on securities markets. The key differences are between market makers and market participants.
798.

Short squeeze : Occurs when the price of a security rises sharply, causing many short sellers to buy the security to cover their positions and limit losses. That buying leads to even higher prices, increasing the losses of short sellers who havent covered their positions.

799.

Short-term gain or loss : For tax purposes, the profit or loss from selling capital assets or securities held 12 months or less. Short-term gains are taxed at your regular income-tax rate, which can be as high as 39.6%. It pays not to trade. At the moment, the maximum federal tax rate on long-term capital gains is only 20%.

800.

Sigma : An option term sometimes used as a synonym for vega, lambda or kappa.

801.

Simple Cash Book: It is also called Single column cash book. Simple cash

book is a Cash Book which appears like an ordinary account. It will have one amount column on both the sides. The left side records receipts and the right side records payments. The difference between the debit side and credit side represents the balance. The simple cash book always shows debit balance only. This cash book records only cash transactions. For bank transactions, a separate Bank Account is opened in the ledger.
802.

Simulations : The results or the processes of generating data and outcomes for different paths and scenarios. It provides a statistical framework for what-if conditions. The art of the simulation is trying to construct an elegant, representative model. This model should properly weigh, in a probabilistic sense, the expected behavior of the time series.

803.

Single Entry System: It is a crude and unscientific method of maintaining accounts. Single entry system does not mean that only one aspect of a transaction is recorded. It simply refers to incomplete records or the defective double entry system. Under this

100

system all the transactions are not recorded. Similarly, all the accounting books are not maintained. This system is having many defects. The preparation of trial balance and financial statements is difficult under this system.
804.

Skewness : Occurs when a distribution is not symmetrical about its mean. A distribution is symmetrical when its median, mean, and mode are equal. A positively skewed distribution occurs when the mean exceeds the median. A negatively skewed distribution occurs when the mean is less than the median. These conditions are also known as skewed to the right and skewed to the left, respectively.

805.

Small caps : Another name for smaller companies, as measured by their market capitalization. Our definition of a smaller company is one which has a market capitalization of less than US$500 million, which is still quite sizeable by most standards. Usually a switch discount of up to 3% off the offer price is given.

806.
807.

Solvent: One who is able to pay Ones debts when they become due.

Sovereign : Refers to a debt security issued by a government other than the United States. It is often believed that the issuing government via its treasury will fully back the payment of interest and principal in a timely manner. Sometimes, that backing is insufficient and a default occurs.

808.

SPAN : The Standard Portfolio Analysis of Risk system. It was initially developed and implemented by the Chicago mercantile Exchange. Other exchanges and clearing houses have since adopted this methodology. It evaluates the performance bond, or margining requirements, for position on a portfolio basis. It matches and evaluates similar instruments. These instruments can be futures, options, and derivatives. SPAN tries to indicate the largest potential one-day loss that a portfolio might experience. These losses can be attributable to adverse price and volatility behavior. Since the inception of SPAN, methodologies such as Value at Risk (VAR), have also focused on standard deviation (confidence level)statistics. SPAN uses 16 different scenarios or market conditions in the calculation of the risk arrays.

809.

Speculation : Gambling on a risky investment in hopes of a high pay off down the road.

101

810.

Spot market : A market for buying or selling commodities or foreign exchange for immediate delivery and for cash payment. Trades that take place in futures contracts expiring in the current month are also called spot market trades.

811.

Spot price : The price of a commodity or currency available for immediate sale and delivery.

812.

Spread : In stocks, the difference between the bid price and ask price. In bonds, the difference between the yields on securities of the same credit rating but different maturity or the difference between the yields on securities of the same maturity but of different rating. The term also represents the difference between the public offering price of a new issue and the proceeds the issuer receives.

813.

Stock : A position which is focused on a particular delivery or expiration date. For example, a futures position which is comprised of 12 contracts all of which are established for December delivery.

814.

Stagflation : A combination of high inflation and slow economic growth. A term coined in the 1970s, stagflation described the previously unprecedented combination of high unemployment (stagnation) with rising prices (inflation). The principal factor was the fourfold increase in oil prices imposed by OPEC in 1973, which raised prices throughout the economy while slowing economic growth. Traditional fiscal and monetary policies aimed at reducing unemployment only exacerbated the inflationary effects.

815.

Standard Coins (Full bodies coins) : Coins whose face value and intrinsic value were the same.

816.

Standard Deviation : A measure of volatility, risk, or statistical dispersion. The standards deviation is calculated by : computing the mean of the series then taking the deviation by subtracting the mean from each observation, squaring the differences or deviations for each observation, squaring the differences or deviations for each observation, dividing the sum of the squared deviations by the number of observations and then calculating the positive square root of the sum of squared deviations. In other words, the standard deviation is the positive square root of the variance.

102

817.

Standard normal distribution : Occurs when the underlying normal distribution is converted by changing its scale. The importance of this is that different normal distributions can now be compared to one another. Otherwise, separate tables of values would have to be generated for each pairing of mean and standard deviation values. This standardized variate term is often expressed as Z is N (0, 1), or Z is a normal distribution with a mean value of zero and variance equal to one.

818.

Standard variable rate : A lenders standard mortgage rate. This goes up and down with interest rates generally.

819.

Statistical analysis : A mathematical approach which quantifies market action. In its general form, it is reliant on large sample statistics and linear analysis. It assumes independence. Its popular terms are : the mean, variance, standard deviation, alpha and beta.

820.

Stochastic : A condition in finance or economics whereby changes occur on a more abrupt basis than those expected to be normally encountered. In some ways stochastic has infinite variance and / or non-converging means implications.

821.

Stock : An investment that represents part ownership of a companys assets and earnings. there are two different types of stock : common and preferred. Common stocks provide voting rights but no guarantee of dividend payments. Preferred stocks provide no voting rights but have a set, guaranteed dividend payment. Preferred stock also enjoys prior claim to company assets over common stock in the case of a bankruptcy. Contrast with bond.

822.

Stock exchange : A forum for the trading of stocks, shares and other securities. The London Stock Exchange is the main stock exchange in the United Kingdom.

823.

Stock option : An option in which the underlying security is the common stock of a corporation, giving the holder the right to buy or sell its stock at a specified price by a specific date. Also, it is a method of employee compensation that gives workers the right to buy the companys stock during a specified period of time at a stipulated exercise price. In recent years, offering top executives stock options as compensation has become increasingly popular.

103

824.

Stock split : A change in a companys number of shares outstanding that doesnt change a companys total market value, or each shareholders percentage stake in the company. Additional shares are issued to existing shareholders, at a rate expressed as a ratio. A2-for-1 stock split, for instance, doubles the number of shares outstanding. So an investor holding 100 shares of a $60 stock would have 200 shares of a $30 stock following a 2-for-1 split. But his percentage of equity in the company remains the same. Typically, management will split a stock to make the shares more affordable to a greater number of investors.

825.

Stock broker : Person licensed to sell stocks and other types of securities. Also known as a registered representative.

826.

Strip : A bond, usually issued by the U.S. Treasury, whose two components, interest and repayment of principal, are separated and sold individually as zero-coupon bonds. Strips generally have a slightly higher return than a regular Treasury bond, but they dont pay regular interest payments. Instead the buyer receives the return by the gradual appreciation of the security, which is redeemed at face value on a specified maturity date. Strip is an acronym for Separate Trading of Registered Interest and Principal of Securities.

827.

Straight Line Method : It is the simplest method of charging depreciation. Under this method, depreciation is arrived at by providing the original cost of the asset estimated life period. Annual Depreciation = Cost of Assets Scrap Value ----------------------------------------Estimated Life of asset (in years)

828.

Strip Index : A filing system based on sheets of cardboard strips into which file names can be typed or written.

829.

Subrogation : It means substitution of the insurer in the place of the insured. According to this principle, the insurer, after compensating the insured, will have the right to exercise all the powers of the insured over the property insured.

830.

Subscriptions : Subscriptions is the main source of income of non-trading concerns. Subscription received from members is a revenue item and credited to Income and Expenditure Account. The subscriptions received from members first is to be shown

104

as receipt in the Receipts and Payments Account and then as an income in the Income and Expenditure Account.

831.

Subsidiary books: Subsidiary books are also known as books of Original

entry. Transactions are recorded first in these books. Later these will be transferred to their respective accounts in the ledger. Subsidiary books provide many advantages. They help in division of work and save time. Ledger postings is easy from subsidiary books. They provide ready made information of relating to a class of transaction. Subsidiary books are divided into eight types.

832.
833.

Super Profits : Excess of average expected profits over normal profits.

Surrender : where you cancel an investment or policy and usually receive a reduced pay out, due to the impact of charges.

834.

Surrender value : It was amount which an insurance company is prepared to pay to the insured in case of termination of the policy before its maturity.

835.

Suspense Account: When the Trial Balance does not agree, an effort is

made to, locate errors and rectify them. But if the errors cannot be located easily and quickly and, at the same time, if the final accounts are to be prepared urgently, the difference in the Trial Balance is rectified by writing it to the lesser side of the Trial Balance under the name of Suspense Account. Such a temporarily opened suspense account is to be closed later on when the errors are located and rectified.
836.

Swap : A customized financial transaction between two or more counter parties. however, banks or brokerage firms often act as intermediaries or assume some of the risk of the total transaction as well. A swap is engineered between counter parties who agree to make periodic payments or adjusts to one another. Swaps cover interest rate, equity, commodity and currency products. They can be simple floating for fixed exchanges or complex hybrid products with multiple option features. Swaps are not exclusively OTC transactions because listed instruments are often include in the risk management of the position. Often managers evaluate the relative merits of conducting a swap (OTC) or a hedge predicated on listed instruments. The interaction between these two markets promotes greater financial efficiencies.

105

837.

Sweetener : An added incentive to purchase a security. One example of this would be the coupling of warrants with a convertible bond issue. Here, the warrants would be viewed as the sweetener.

838.

Telex : Use of teleprinters for sending and receiving messages. Terminal Value : Refers to the financial remainder, residual amount, or end-ofprocess (life) valuation. Some examples are the remaining value of an expired option or hedge position. It may also refer to a non-discounted or discounted financial value for an investment.

839.

840.

Theory of cross hedging : Refers to a modification of the hedging process. It depends on hedging principles, practices and strategies but with a relaxation of strict standards of cash position specifications versus hedge instrument specifications. Often there can be a slight difference in grade, location, maturity, actual portfolio composition or product relative to the optimal hedge instrument. For example, treasury bond or note futures might be used in conjunction with To Be Announced securities (TBAs) to hedge mortgage backed securities portfolios. Mortgage backed securities are not deliverable against treasury bond futures, but there are features which improve the overall hedging efficiency by using blended hedges.

841.

Theta : The sensitivity of an option premium or price relative to changes in time. This characteristic tends be viewed on an instantaneous basis in financial literature and on a daily change basis in practice.

842.

Theta risk : Refers to the time value exposure for an option. Academic literature tends to view it on an instantaneous basis whereas practioners tend to view it on a daily basis. For the later it can calculate the time value difference between 6.7.00 and 6.8.00 all other things being held constant. Then the amounts would be expressed in dollars or other designated currency.

843.

Token Coins : Coins whose face value was much higher than their intrinsic value. Time value : Has two general meanings. The first is the value or amount of a sum of money adjusted by an interest rate for a given time period. The second common

844.

106

usage is in the context of options. Here, it defines the amount of premium attributed to the remaining term of the option after factoring out any in-the-money component.
845.

TIN : Refers to the Tax Identification Number or to the Tax Payer Identification Number.

846.

Total invested capital : Total invested capital is a tally of all the outside investments a companys management has used to finance its business : everything from equity (the amount of stock sold) to long-term debt. It is calculated by taking the sum of common and preferred stock equity, long-term debt, deferred income taxes, investment credits and minority interest. Total invested capital is the denominator of the debt-to-capital-ratio, a ratio that measures how leveraged a company is.

847.

Total liabilities : A companys total current liabilities plus long-term debt and deferred income taxes. Total assets can be found on a companys balance sheet. Total assets minus total liabilities equals book value or net worth.

848.

Total Method: Under this method the total of debits and credits of all

accounts are shown in the trial balance respectively in the debit and credit side of the trial balance. The trial balance prepared under this method is known as gross trial balance.
849.

Total return : The full amount an investment earns over a specific period of time. When dealing with mutual funds or securities, total return takes into consideration three factors : changes in the NAV or price; the accumulation / reinvestment of dividends, the compounding factor over time. The return is presented as a percentage and is usually associated with a specific time period such as six months, one year or five years. Total Return can be cumulative for the specific period or annualized. If it is cumulative, it describes how much your investment grew in total for the entire period. If it is annualized, it describes the average annual return over the period of years described.

850.

Trade Association : Trade Association is a voluntary association of traders formed to promote the mutual interest of individuals or companies engaged in the same kind of business.

107

851.

Trading Account: It is prepared for ascertaining the gross profit or gross

loss. It helps in the calculation of cost of goods sold. It also helps in the calculation of gross profit ratio.

852.

Trading concerns: Trading concerns are those business concerns

(establishments) which buy goods from suppliers and sell them to customers at profit. These concerns do not undertake any manufacturing activity. The final accounts of a trading concern consists of trading and profit and loss account and balance sheet.

853.
854.

Tramps : Ships having non-scheduled journey as per the requirement of the

sender of goods. Transaction: Any sale or purchase of goods or services is called the transaction. Transactions are three types. They are: (I) Cash transactions; (ii) Credit transactions; and (iii) Non cash transactions (Depreciation, return of goods etc.)

855.

Transferring Entries: Sometimes the trader transfers an amount from one

account to another account. Then he writes transfer entry. This entry is made in the journal proper only.
856.

Trial Balance: In double entry system of book-keeping for every debit there must be a credit. As such all the debit balances should be equal to credit balances. To prove this a comprehensive statement of debits and credits will be prepared by the accountant. This statement is known as Trial Balance. Thus the trial balance is a statement of debit and credit balances. It is prepared on a particular date, with the object of checking the arithmetic accuracy of the book of accounts.

857.

Triple Column Cash Book: In a three column cash book there are three

columns on each side viz., discount, cash and bank transactions. Cash and bank columns on each side records cash and bank transactions respectively. Discount columns on debit and credit side are maintained for discount allowed and received. One more important point relating to three column cash book is contra entry.

108

858.

Turnover : In accounting terms, the number of times an asset is replaced during a set period. In trading, the volume of shares traded on the exchange on a given day. In employment matters, turnover refers to the total number of employees divided by the number of employees divided by the number of employees replaced during a certain period.

859.

Turnover ratio : A measure of a funds trading history that is expressed as a percentage. A fund with a 100% turnover generally changes the composition of its entire portfolio each year. A low turnover figure (20% to 30%) would indicate a buyand-hold strategy. High turnover (more than 100%) would indicate an investment strategy involving considerable buying and selling of securities. Funds with higher turnover incur greater brokerage fees for affecting the trades. They also tend to distribute more capital gains than low-turnover funds, because high-turnover funds are constantly realizing the gains. A change in a funds general turnover pattern can indicate changing market conditions, a new management style or a change in the funds investment objective.

860.

Two-sided errors : An error which involves two or more accounts and effect both known as Rectifying Entries.

861.

Uberrimae Fibei : It means principle of utmost good faith. Insurance contract is mainly based on this principle.

862.

Uncertainty : Usually refers to risk or volatility. Underwriter : An investment banker who purchases shares of a company that is going public, then resells them to investors for a higher price. When an underwriter brings shares of a new company to market it is called an initial public offering (IPO). Investment banks can also underwrite secondary offering of existing public companies.

863.

864.

Unfavourable Balance (Overdraft): Unfavourable Balance as per cash book

means credit balance. On the other hand, unfavourable balance as per pass book means debit balance.

109

865.

Up-and-in : An option feature by which a derivative contract becomes active when an indicator, such as price, goes through an upside trigger point or threshold. Related topics are Down-and-out, Down-and-In, and Up-and-Out.

866.

Up-and-out : An option feature by which a derivative contract dies or ceases to be active when an indicator, such as price, goes through an upside trigger point or threshold. Related topics are Down-and-Out, Down-and-In, and Up-and-In.

867.

Valuation : Carried out by a professional surveyor to establish how much the property is worth and whether it is suitable to lend a mortgage on. There are 3 types of valuation that can be done, a basic valuation, homebuyers report or full structural survey.

868.

Value Added Tax (VAT) : An indirect tax payable by adding it onto the value of most goods and services.

869.

Venture capital : Financing for new businesses. Start-up companies that receive venture capital are perceived to have excellent growth prospects but dont have access to capital markets because they are private companies. In return for venture capital, investors may receive a say in the companys management, as well as some combination of profits, preferred shares or royalties. Sources of venture capital include wealthy individual investors, investment banks, and other financial institutions that pool investments in venture-capital funds or limited partnerships. The risks and rewards of venture-capital investing can be extreme.

870.

Vertical Filing : A filing system under which files are kept in folders standing upright.

871.

Voucher: Whenever payment is made either in cash or by cheque, the party

receiving the payment issues a receipt. Payments made are supported by receipts issued by the payee. Such a receipt is known as voucher.
872.

Vulture funds : Investment vehicles which focus on acquiring properties which may be available due to financial distress. Principal owners may be in immediate need of cash. Usually, the term describes investment activities in real estate or closely held companies which may not enjoy the liquidity benefits of an exchange listing.

110

873.

Warehouse : A place where goods are stored after manufacturing or production. Warehouse Warrant : It is a document of title given by warehouse keeper in favour of the owner of the goods, who stored them in the warehouse. It is a document of title to goods.

874.

875.

Warehouse Keepers receipt : It is a receipt issued by the warehouse-keeper to the owner of the goods. It serves as a proof of storing certain goods. It is not a document of title to goods.

876.

Warrant : A security entitling the holder to buy a proportionate amount of stock at some specified future date at a specified price, usually one higher than the current market price. Warrants are issued by corporations and often used a s a sweetener bundled with bonds or preferred stock to enhance their marketability. They are like call options, but with much longer time spans that can stretch into years. In addition, warrants are offered by corporations whereas exchange traded options are not.

877.

Warranty : A warranty in a marine insurance contract denotes a clause in the policy which must be strictly complied with for the insurance to be effective.

878.

Wash sale : The sale of a security or instrument and the subsequent purchase with no economic interest. It can be motivated by tax or reporting purposes. It is generally deemed to be a sham transaction. It can also be constructed as creating fictitious trading activity.

879.

Wasting assets: Wasting assets are those assets which lose their value by

wear and tear or by the passage of time or extraction. Mines are the best example of wasting assets.

880.

Way Bill : The way bill is an acknowledgement of receipt of goods for

transport by the Transportation company. The consignee by presenting the Way Bill can take the delivery of goods at the destination point.
881.

Window dressing : Trading activity near the end of a quarter or fiscal year that is designed to dress up a portfolio to be presented to clients or shareholders. For example, a mutual fund manager may sell losing positions in his portfolio right before

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his semiannual report is released so he can display only positions that have gained in value.

882.

Working Capital: The part of capital available with the firm for day to day

working of the business is known as working capital. Working capital can also be expressed as under. Working capital = Current Assets Current Liabilities.
883.

World Bank : An organization created to make loans primarily to developing countries, with the stipulation that these governments must guarantee the loan. Its full name is the International Bank for Reconstruction and Development.

884.

World Trade Organization (WTO) : An institution created by the General Agreement on Tariffs and Trade that oversees international trade issues, resolves trade disputes and enforces the GATT trade pact. Abbreviated as WTO.

885.

Written Down Value : Book value of an asset after deducting depreciation from the original cost.

886.

WTO : World Trade Organization is an international trading organization where the countries having interest in international trade are the members.

887.

XD : Ex-dividend. This is the interval between the announcement and placement of the next dividend or, in the case of a unit trust, the income distribution. Some one who invests during the interval between two distributions and is not entitled to the dividend. With an income-paying unit trust, the xd date is usually about eight weeks before its distribution date.

888.

Yield curve : Refers to the graphical or tabular representation of interest rates across different maturities. The presentation often starts with the shortest term rates and extends towards longer maturities. It reflects the markets views about implied inflation/ deflation, liquidity, economic and financial activity and other market forces.

889.

Yield spread : The difference of the yield between various securities. Yield spreads are often used to compare bonds of different maturities or credit ratings. Bonds with lower credit ratings and longer maturities tend to have higher yields than those with

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good ratings and short maturities. In evaluating a lower quality bond, you must decide whether the yield spread to better rated issues is worth the extra risk of default.
890.

Yield to call : The yield on a bond assuming the bond is redeemed by the issuer at the first call date. A bonds call provision is detailed in its prospectus. Yield to call differs from yield to maturity in that yield to call uses a bonds call date as the final maturity date (most often, the first call date). The price at which an issuer can call a bond is the call price. The call price generally includes a call premium that is greater than the bonds face value. Conservative investors calculate both a bonds yield to call and yield to maturity, selecting the lower of the two as a measure of potential return.

891.

Yield to maturity : The rate of return which is measured by the current expected income stream relative to the prevailing market price assuming that the asset is held until maturity. If the instrument is trading at a discount, then the yield to maturity will be greater than the coupon rate. If the instrument is trading at a premium, then the yield to maturity will be less than the coupon rate.

892.

Zero cost collar : A transaction which has little or zero cash outlay or cost for the initiating person. Often, a security is held and some protection is sought via a hedging transaction. One example, would be the purchase of an out-of-the-money put (debit) and the sale of an out-of-the money call (credit). Here, the premiums for the debit and credit are nearly the same. Therefore, there would be little or no cost for the person seeking the hedge. However, this position places a cap on the potential reward for holding the underlying asset. Essentially, the protection does not kick-in until the price of the underlying instrument goes below the exercise price for the put. Generally speaking, it should be noted that if the hedger occurred with both options at-themoney, then the person replicated a synthetic short against an actual long position. For the latter, the hedge would be considered as delta neutral whereas using two outof-the-money options, the hedge at the origination would not be delta neutral. Rather, it would be computed as a partial hedge when placed.

893.

Zero coupon bond :

A security which the interest and / or principal has been

discounted to be offered at less than the stipulated principal or coupon amount due at maturity or early option payment. These securities effectively behave like treasury bills or other paper offered at an original discount. Zero coupon bonds can have conversion factors and other features implicitly embedded or explicitly stated.

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894.

Zero curve : A yield curve comprised of the yields of zero coupon bonds arranged over time. Frequently, this arrangement is graphically portrayed starting with the shortest maturities and progressing to the longest maturities. The curve would provide the basis for pricing other securities using iterative or interpolation techniques.

895.

Zero-minus-tick : Refers to a trading transaction made at the same price as the preceding one but the preceding one was lower than its predecessor.

896.

Zero-plus-tick : Refers to a trading transaction made at the same price as the preceding one but the preceding one was higher than its predecessor.