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Account Agreement: The contract

governing your open-end credit account, it


provides information on changes that may
occur to the account.
Account History: The payment history of
an account over a specifc period of time,
including the number of times the account
was past due or over limit.
Account Holder: Any and all persons
designated and authorized to transact
business on behalf of an account. Each
account holder's signature needs to be on
fle with the ban. The signature authorizes
that person to conduct business on behalf
of the account.
Acquiring Bank: !n a merger, the ban
that absorbs the ban ac"uired.
Accrued interest# !nterest due from issue
date or from the last coupon payment date
to the settlement date. Accrued interest on
bonds must be added to their purchase
price.
Adjustable-Rate Mortgages (ARMS):
Also nown as variable-rate mortgages. The
initial interest rate is usually below that of
conventional f$ed-rate loans. The interest
rate may change over the life of the loan as
maret conditions change. There is
typically a ma$imum %or ceiling& and a
minimum %or 'oor& defned in the loan
agreement. !f interest rates rise, so does
the loan payment. !f interest rates fall, the
loan payment may as well.
Arbitrage: (uying a fnancial instrument in
one maret in order to sell the same
instrument at a higher price in another
maret.
Adverse Action: )nder the E"ual *redit
+pportunity Act, a creditor's refusal to
grant credit on the terms re"uested,
termination of an e$isting account, or an
unfavorable change in an e$isting account.
Adverse Action otice: The notice
re"uired by the E"ual *redit +pportunity
Act advising a credit applicant or e$isting
debtor of the denial of their re"uest for
credit or advising of a change in terms
considered unfavorable to the account
holder.
A!R: Annual earnings rate on an
investment.
Alteration: Any change involving an
erasure or rewriting in the date, amount, or
payee of a chec or other negotiable
instrument.
Amorti"ation: The process of reducing
debt through regular installment payments
of principal and interest that will result in
the payo, of a loan at its maturity.
Anytime Banking: -ith introduction of
AT.s, Tele-(aning and internet baning,
customers can conduct their business
anytime of the day and night. The '(aning
/ours' is not a constraint for transacting
baning business.
Any#$ere Banking : 0efers to baning
not only by AT.s, Tele-(aning and internet
baning, but also to core baning solutions
brought in by bans where customer can
deposit his money, che"ues and also
withdraw money from any branch
connected with the system. All ma1or bans
in !ndia have brought in core baning in
their operations to mae baning truly
anywhere baning.
Annual %ercentage Rate (A%R): The
cost of credit on a yearly basis, e$pressed
as a percentage.
Annual %ercentage &ield (A%&): A
percentage rate re'ecting the total amount
of interest paid on a deposit account based
on the interest rate and the fre"uency of
compounding for a 234-day year.
Annuity : A life insurance product which
pays income over the course of a set
period. 5eferred annuities allow assets to
grow before the income is received and
immediate annuities %usually taen from a
year after purchase& allow payments to
start from about a year after purchase.
A%R: The annual percentage rate of
interest, usually on a loan or mortgage,
usually displayed in bracets and
representing the true cost of the loan or
mortgage as it shows any additional
payments beyond the interest rate.
A''lication: )nder the E"ual *redit
+pportunity Act %E*+A&, an oral or written
re"uest for an e$tension of credit that is
made in accordance with the procedures
established by a creditor for the type of
credit re"uested.
A''raisal: The act of evaluating and
setting the value of a specifc piece of
personal or real property.
Ask %rice: The lowest price at which a
dealer is willing to sell a given security.
Asset-Backed Securities (ABS): A type
of security that is baced by a pool of ban
loans, leases, and other assets. .ost A(6
are baced by auto loans and credit cards 7
these issues are very similar to mortgage-
baced securities.
At-t$e-money: The e$ercise price of a
derivative that is closest to the maret
price of the underlying instrument.
A(M: AT.s are Automatic Teller .achines,
which do the 1ob of a teller in a ban
through *omputer 8etwor. AT.s are
located on the branch premises or o,
branch premises. AT.s are useful to
dispense cash, receive cash, accept
che"ues, give balances in the accounts and
also give mini-statements to the customers.
Aut$ori"ation: The issuance of approval,
by a credit card issuer, merchant, or other
a9liate, to complete a credit card
transaction.
Automated )learing House (A)H): A
computerized facility used by member
depository institutions to electronically
combine, sort, and distribute inter-ban
credits and debits. A*/s process electronic
transfers of government securities and
provided customer services, such as direct
deposit of customers' salaries and
government beneft payments %i.e., social
security, welfare, and veterans'
entitlements&, and preauthorized transfers.
Automated (eller Mac$ine (A(M): A
machine, activated by a magnetically
encoded card or other medium that can
process a variety of baning transactions.
These include accepting deposits and loan
payments, providing withdrawals, and
transferring funds between accounts.
Automatic Bill %ayment: A checless
system for paying recurring bills with one
authorization statement to a fnancial
institution. :or e$ample, the customer
would only have to provide one
authorization form;letter;document to pay
the cable bill each month. The necessary
debits and credits are made through an
Automated *learing /ouse %A*/&.
Availability *ate: (an's policy as to
when funds deposited into an account will
be available for withdrawal.
Availability %olicy: (an's policy as to
when funds deposited into an account will
be available for withdrawal.
Available Balance: The balance of an
account less any hold, uncollected funds,
and restrictions against the account.
Available )redit: The di,erence between
the credit limit assigned to a cardholder
account and the present balance of the
account.
Banking: Accepting for the purpose of
lending or investment of deposits of money
from <ublic, 0epayable on demand or
otherwise and withdraw able by che"ues,
drafts, order, etc.
Bank +mbudsman: (an +mbudsman is
the authority to loo into complaints
against (ans in the main areas of
collection of che"ue ; bills, issue of demand
drafts, non-adherence to prescribed hours
of woring, failure to honour guarantee ;
letter of credit commitments, operations in
deposit accounts and also in the areas of
loans and advances where bans 'out
directions ; instructions of 0(!. This 6cheme
was announced in =>>4 and is functioning
with new guidelines from ?@@A. This
scheme covers all scheduled bans, the
00(s and co-operative bans.
Bancassurance: (ancassurance refers to
the distribution of insurance products and
the insurance policies of insurance
companies which may be life policies or
non-life policies lie home insurance - car
insurance, medi-policies and others, by
bans as corporate agents through their
branches located in di,erent parts of the
country by charging a fee.
Banker,s -ien: (aners lien is a special
right of lien e$ercised by the baners, who
can retain goods bailed to them as a
security for general balance of account.
(aners can have this right in the absence
of a contract to the contrary.
Basel-..: The *ommittee on (aning
0egulations and 6upervisory <ractices,
popularity nown as (asel *ommittee,
submitted its revised version of norms in
Bune, ?@@C. )nder the revised accord the
capital re"uirement is to be calculated for
credit, maret and operational riss. The
minimum re"uirement continues to be DE
of capital fund %Tier ! F !! *apital& Tier !!
shall continue to be not more than =@@E of
Tier ! *apital.
Brick / Mortar Banking: (ric and
.ortar (aning refers to traditional system
of baning done only in a f$ed branch
premises made of bric and mortar. 8ow
there are baning channels lie AT.,
!nternet (aning, tele baning etc.
Business o0 Banking : Accepting
deposits, borrowing money, lending money,
investing, dealing in bills, dealing in :oreign
E$change, /iring Gocers, +pening 6afe
*ustody Accounts, !ssuing Getters of *redit,
TravelersH *he"ues, doing .utual :und
business, !nsurance (usiness, acting as
Trustee or doing any other business which
*entral Iovernment may notify in the
o9cial Iazette.
Bouncing o0 a c$eque: -here an account
does not have su9cient balance to honour
the che"ue issued by the customer, the
che"ue is returned by the ban with the
reason Jfunds insu9cientJ or JE$ceeds
arrangementK. This is nown as '(ouncing
of a che"ueH.
Basis %oint: +ne hundredth of =E. A
measure normally used in the statement of
interest rate e.g., a change from 4.A4E to
4.D=E is a change of 3 basis points. (ear
.arets# )nfavorable marets associated
with falling prices and investor pessimism.
Bid-ask S'read: The di,erence between a
dealersHs bid and as price.
Bid %rice: The highest price o,ered by a
dealer to purchase a given security.
Blue )$i's: (lue chips are unsurpassed in
"uality and have a long and stable record
of earnings and dividends. They are issued
by large and well-established frms that
have impeccable fnancial credentials.
Bond: <ublicly traded long-term debt
securities, issued by corporations and
governments, whereby the issuer agrees to
pay a f$ed amount of interest over a
specifed period of time and to repay a
f$ed amount of principal at maturity.
Book 1alue: The amount of stocholdersH
e"uity in a frm e"uals the amount of the
frmHs assets minus the frmHs liabilities and
preferred stoc.
Broker: !ndividuals licensed by stoc
e$changes to enable investors to buy and
sell securities.
Brokerage 2ee: The commission charged
by a broer.
Bull Markets: :avorable marets
associated with rising prices and investor
optimism.
)all +'tion: The right to buy the
underlying securities at a specifed e$ercise
price on or before a specifed e$piration
date.
)allable Bonds: (onds that give the
issuer the right to redeem the bonds before
their stated maturity.
)a'ital 3ain: The amount by which the
proceeds from the sale of a capital asset
e$ceed its original purchase price.
)a'ital Markets# The maret in which
long-term securities such as stocs and
bonds are bought and sold.
)erti4cate o0 *e'osits ()*s): 6avings
instrument in which funds must remain on
deposit for a specifed period and
premature withdrawals incur interest
penalties.
)erti4cate o0 *e'osit:5 *ertifcate of
5eposits are negotiable receipts in bearer
form which can be freely traded among
investors. This is also a money maret
instrument,issued for a period ranging from
A days to f one year .The minimum deposit
amount is 0s. = lah and they are
transferable by endorsement and delivery.
)$eque: *he"ue is a bill of e$change
drawn on a specifed baner ordering the
baner to pay a certain sum of money to
the drawer of che"ue or another person.
.oney is generally withdrawn by clients by
che"ues. *he"ue is always payable on
demand.
)$eque (runcation: *he"ue truncation
truncates or stops the 'ow of che"ues
through the baning system. Ienerally
truncation taes place at the collecting
branch, which sends the electronic image
of the che"ues to the paying branch
through the clearing house and stores the
paper che"ues with it.
)losed-end (Mutual) 2und: A fund with a
f$ed number of shares issued, and all
trading is done between investors in the
open maret. The share prices are
determined by maret prices instead of
their net asset value.
)ollateral: A specifc asset pledged
against possible default on a bond.
.ortgage bonds are baced by claims on
property. *ollateral trusts bonds are baced
by claims on other securities. E"uipment
obligation bonds are baced by claims on
e"uipment.
)ommercial %a'er: 6hort-term and
unsecured promissory notes issued by
corporations with very high credit
standings.
)ommon Stock: E"uity investment
representing ownership in a corporationL
each share represents a fractional
ownership interest in the frm.
)om'ound .nterest: !nterest paid not
only on the initial deposit but also on any
interest accumulated from one period to
the ne$t.
)ontract ote: A note which must
accompany every security transaction
which contains information such as the
dealerHs name %whether he is acting as
principal or agent& and the date of contract.
)ontrolling S$are$older: Any person
who is, or group of persons who together
are, entitled to e$ercise or control the
e$ercise of a certain amount of shares in a
company at a level %which di,ers by
1urisdiction& that triggers a mandatory
general o,er, or more of the voting power
at general meetings of the issuer, or who is
or are in a position to control the
composition of a ma1ority of the board of
directors of the issuer.
)onvertible Bond: A bond with an option,
allowing the bondholder to e$change the
bond for a specifed number of shares of
common stoc in the frm. A conversion
price is the specifed value of the shares for
which the bond may be e$changed. The
conversion premium is the e$cess of the
bondHs value over the conversion price.
)or'orate Bond: Gong-term debt issued
by private corporations.
)ou'on: The feature on a bond that
defnes the amount of annual interest
income.
)ou'on 2requency: The number of
coupon payments per year.
)ou'on Rate: The annual rate of interest
on the bondHs face value that a bondHs
issuer promises to pay the bondholder. !t is
the bondHs interest payment per dollar of
par value.
)overed 6arrants: 5erivative call
warrants on shares which have been
separately deposited by the issuer so that
they are available for delivery upon
e$ercise.
)redit Rating: An assessment of the
lielihood of an individual or business being
able to meet its fnancial obligations. *redit
ratings are provided by credit agencies or
rating agencies to verify the fnancial
strength of the issuer for investors.
)ollecting Banker: Also called receiving
baner, who collects on instruments lie a
che"ue, draft or bill of e$change, lodged
with himself for the credit of his customer's
account.
)onsumer %rotection Act: !t is
implemented from =>DA to enforce
consumer rights through a simple legal
procedure. (ans also are covered under
the Act. A consumer can fle complaint for
defciency of service with *onsumer 5istrict
:orum for amounts upto 0s.?@ Gacs in
5istrict *ourt, and for amounts above 0s.?@
Gacs to 0s.= *rore in 6tate *ommission and
for amounts above 0s.= *rore in 8ational
*ommission.
)o-o'erative Bank : An association of
persons who collectively own and operate a
ban for the beneft of consumers ;
customers, lie 6araswat *o-operative (an
or Abhyudaya *o-operative (an and other
such bans.
)o-o'erative Society : -hen an
association of persons collectively own and
operate a unit for the beneft of those using
its services lie Apna (azar *o-operative
6ociety or 6ahaar (handar or a *o-
operative /ousing 6ociety.
)ore Banking Solutions ()BS): *ore
(aning 6olutions is a buzz word in !ndian
baning at present, where branches of the
ban are connected to a central host and
the customers of connected branches can
do baning at any breach with core baning
facility.
)redit#ort$iness: !t is the capacity of a
borrower to repay the loan ; advance in
time along with interest as per agreed
terms.
)rossing o0 )$eques: *rossing refers to
drawing two parallel lines across the face of
the che"ue. A crossed che"ue cannot be
paid in cash across the counter, and is to
be paid through a ban either by transfer,
collection or clearing. A general crossing
means that che"ue can be paid through
any ban and a special crossing, where the
name of a ban is indicated on the che"ue,
can be paid only through the named ban.
)ustomer: A person who maintains any
type of account with a ban is a ban
customer. *onsumer <rotection Act has a
wider defnition for consumer as the one
who purchases any service for a fee lie
purchasing a demand draft or a pay order.
The term customer is defned di,erently by
Gaws, softwares and countries.
)urrent Account: *urrent account with a
ban can be opened generally for business
purpose. There are no restrictions on
withdrawals in this type of account. 8o
interest is paid in this type of account.
)urrency Board: A monetary system in
which the monetary base is fully baced by
foreign reserves. Any changes in the size of
the monetary base have to be fully
matched by corresponding changes in the
foreign reserves.
)urrent &ield: A return measure that
indicates the amount of current income a
bond provides relative to its maret price. !t
is shown as# *oupon 0ate divided by <rice
multiplied by =@@E.
)ustody o0 Securities: 0egistration of
securities in the name of the person to
whom a ban is accountable, or in the
name of the banHs nomineeL plus
deposition of securities in a designated
account with the banHs baners or with
any other institution providing custodial
services.
*ebit )ard: A plastic card issued by bans
to customers to withdraw money
electronically from their accounts. -hen
you purchase things on the basis of 5ebit
*ard the amount due is debited
immediately to the account. .any bans
issue 5ebit-*um-AT. *ards.
*ebtor: A person who taes some money
on loan from another person.
*emand *e'osits: 5eposits which are
withdrawn on demand by customers. E.g.
savings ban and current account
deposits.
*emat Account: 5emat Account concept
has revolutionized the capital maret of
!ndia. -hen a depository company taes
paper shares from an investor and converts
them in electronic form through the
concerned company, it is called
5ematerialization of 6hares. These
converted 6hare *ertifcates in Electronic
form are ept in a 5emat Account by the
5epository *ompany, lie a ban eeps
money in a deposit account. !nvestor can
withdraw the shares or purchase more
shares through this demat Account.
*erivative )all (%ut) 6arrants:
-arrants issued by a third party which
grant the holder the right to buy %sell& the
shares of a listed company at a specifed
price.
*erivative .nstrument: :inancial
instrument whose value depends on the
value of another asset.
*iscount Bond: A bond selling below par,
as interest in-lieu to the bondholders.
*is$onour o0 )$eque: 8on-payment of a
che"ue by the paying baner with a return
memo giving reasons for the non-payment.
5efault 0is# The possibility that a bond
issuer will default ie, fail to repay principal
and interest in a timely manner.
*iversi4cation: The inclusion of a number
of di,erent investment vehicles in a
portfolio in order to increase returns or be
e$posed to less ris.
*uration: A measure of bond price
volatility, it captures both price and
reinvestment riss to indicate how a bond
will react to di,erent interest rate
environments.
!arnings: The total profts of a company
after ta$ation and interest.
!arnings 'er S$are (!%S): The amount
of annual earnings available to common
stocholders as stated on a per share basis.
!arnings &ield: The ratio of earnings to
price %E;<&. The reciprocal is price earnings
ratio %<;E&.
!-Banking : E-(aning or electronic
baning is a form of baning where funds
are transferred through e$change of
electronic signals between bans and
fnancial institution and customers AT.s,
*redit *ards, 5ebit *ards, !nternational
*ards, !nternet (aning and new fund
transfer devices lie 6-!:T, 0TI6 belong to
this category.
!2( - (!lectronic 2und (rans0er): E:T is
a device to facilitate automatic
transmission and processing of messages
as well as funds from one ban branch to
another ban branch and even from one
branch of a ban to a branch of another
ban. E:T allows transfer of funds
electronically with debit and credit to
relative accounts.
!it$er or Survivor: 0efers to operation of
the account opened in two names with a
ban. !t means that any one of the account
holders have powers to withdraw money
from the account, issue che"ues, give stop
payment instructions etc. !n the event of
death of one of the account holder, the
surviving account holder gets all the
powers of operation.
!lectronic )ommerce (!-)ommerce): E-
*ommerce is the paperless commerce
where the e$change of business taes
place by Electronic means.
!ndorsement: -hen a 8egotiable
!nstrument contains, on the bac of the
instrument an endorsement, signed by the
holder or payee of an order instrument,
transferring the title to the other person, it
is called endorsement.
Bouncing o0 a c$eque: -here the name
of the endorsee or transferee is not
mentioned on the instrument.
!ndorsement in 2ull: -here the name of
the endorsee or transferee appears on the
instrument while maing endorsement.
!quity: +wnership of the company in the
form of shares of common stoc.
!quity )all 6arrants: -arrants issued by
a company which give the holder the right
to ac"uire new shares in that company at a
specifed price and for a specifed period of
time.
!7-dividend (8*): A security which no
longer carries the right to the most recently
declared dividend or the period of time
between the announcement of the dividend
and the payment %usually two days before
the record date&. :or transactions during
the e$-dividend period, the seller will
receive the dividend, not the buyer. E$-
dividend status is usually indicated in
newspapers with an %$& ne$t to the stocHs
or unit trustHs name.
!7ecution o0 *ocuments: E$ecution of
documents is done by putting signature of
the person, or a9$ing his thumb
impression or putting signature with stamp
or a9$ing common seal of the company on
the documents with or without signatures
of directors as per articles of association of
the company.
2ace 1alue9 ominal 1alue: The value of
a fnancial instrument as stated on the
instrument. !nterest is calculated on
face;nominal value.
2i7ed-income Securities: !nvestment
vehicles that o,er a f$ed periodic return.
2i7ed Rate Bonds: (onds bearing f$ed
interest payments until maturity date.
2loating Rate Bonds: (onds bearing
interest payments that are tied to current
interest rates.
2actoring: (usiness of buying trade debts
at a discount and maing a proft when
debt is realized and also taing over
collection of trade debts at agreed prices.
2oreign Banks: (ans incorporated
outside !ndia but operating in !ndia and
regulated by the 0eserve (an of !ndia
%0(!&,. e..g., (arclays (an, /6(*, *itiban,
6tandard *hartered (an, etc.
2or0eiting: !n !nternational Trade when an
e$porter fnds it di9cult to realize money
from the importer, he sells the right to
receive money at a discount to a forfaiter,
who undertaes inherent political and
commercial riss to fnance the e$porter, of
course with assumption of a proft in the
venture.
2orgery: when a material alteration is
made on a document or a 8egotiable
!nstrument lie a che"ue, to change the
mandate of the drawer, with intention to
defraud.
2undamental Analysis: 0esearch to
predict stoc value that focuses on such
determinants as earnings and dividends
prospects, e$pectations for future interest
rates and ris evaluation of the frm.
2uture 1alue: The amount to which a
current deposit will grow over a period of
time when it is placed in an account paying
compound interest.
2uture 1alue o0 an Annuity: The amount
to which a stream of e"ual cash 'ows that
occur in e"ual intervals will grow over a
period of time when it is placed in an
account paying compound interest.
2utures )ontract: A commitment to
deliver a certain amount of some specifed
item at some specifed date in the future.
3arnis$ee +rder: -hen a *ourt directs a
ban to attach the funds to the credit of
customer's account under provisions of
6ection 3@ of the *ode of *ivil <rocedure,
=>@D.
3eneral -ien: A right of the creditors to
retain possession of all goods given in
security to him by the debtor for any
outstanding debt.
3uarantee: A contract between guarantor
and benefciary to ensure performance of a
promise or discharge the liability of a third
person. !f promise is broen or not
performed, the guarantor pays contracted
amount to the benefciary.
Hedge: A combination of two or more
securities into a single investment position
for the purpose of reducing or eliminating
ris.
Holder: /older means any person entitled
in his own name to the possession of the
che"ue, bill of e$change or promissory note
and who is entitled to receive or recover
the amount due on it from the parties. :or
e$ample, if ! give a che"ue to my friend to
withdraw money from my ban,he becomes
holder of that che"ue. Even if he loses the
che"ue, he continues to be holder. :inder
cannot become the holder.
Holder in due course : A person who
receives a 8egotiable !nstrument for value,
before it was due and in good faith, without
notice of any defect in it, he is called holder
in due course as per 8egotiable !nstrument
Act. !n the earlier e$ample if my friend
lends some money to me on the basis of
the che"ue, which ! have given to him for
encashment, he becomes holder-in-due
course.
Hy'ot$ecation: *harge against property
for an amount of debt where neither
ownership nor possession is passed to the
creditor. !n pledge, possession of property
is passed on to the lender but in
hypothecation, the property remains with
the borrower in trust for the lender.
.denti4cation: -hen a person provides a
document to a ban or is being identifed
by a person, who is nown to the ban, it is
called identifcation. (ans as for
identifcation before paying an order
che"ue or a demand draft across the
counter.
.ndemni4er: -hen a person indemnifes
or guarantees to mae good any loss
caused to the lender from his actions or
others' actions.
.ndemnity: !ndemnity is a bond where the
indemnifer undertaes to reimburse the
benefciary from any loss arising due to his
actions or third party actions.
.ncome: The amount of money an
individual receives in a particular time
period.
.nde7 2und: A mutual fund that holds
shares in proportion to their representation
in a maret inde$, such as the 6F< 4@@.
.nitial %ublic +:ering (.%+): An event
where a company sells its shares to the
public for the frst time. The company can
be referred to as an !<+ for a period of time
after the event.
.nside .n0ormation: 8on-public
nowledge about a company possessed by
its o9cers, ma1or owners, or other
individuals with privileged access to
information.
.nsider (rading: The illegal use of non-
public information about a company to
mae proftable securities transactions
.nsolvent: !nsolvent is a person who is
unable to pay his debts as they mature, as
his liabilities are more than the assets .
*ivil *ourts declare such persons insolvent.
(ans do not open accounts of insolvent
persons as they cannot enter into contract
as per law.
.nterest 6arrant: -hen che"ue is given
by a company or an organization in
payment of interest on deposit , it is called
interest warrant. !nterest warrant has all
the characteristics of a che"ue.
.nternational Banking: involves more
than two nations or countries. !f an !ndian
(an has branches in di,erent countries
lie 6tate (an of !ndia, it is said to do
!nternational (aning.
.ntroduction: (ans are careful in opening
any account for a customer as the
prospective customer has to be introduced
by an e$isting account holder or a sta,
member or by any other person nown to
the ban for opening of account. !f ban
does not tae introduction, it will amount to
negligence and will not get protection
under law.
.ntrinsic 1alue: The di,erence of the
e$ercise price over the maret price of the
underlying asset.
.nvestment: A vehicle for funds e$pected
to increase its value and;or generate
positive returns.
.nvestment Adviser: A person who
carries on a business which provides
investment advice with respect to
securities and is registered with the
relevant regulator as an investment
adviser.
.%+ 'rice: The price of share set before
being traded on the stoc e$change. +nce
the company has gone !nitial <ublic
+,ering, the stoc price is determined by
supply and demand.
;H2 Account : Boint /indu :amily Account
is account of a frm whose business is
carried out by Marta of the Boint family,
acting for all the family members.. The
family members have common ancestor
and generally maintain a common
residence and are sub1ect to common
social, economic and religious regulations.
;oint Account: -hen two or more
individuals 1ointly open an account with a
ban.
;unk Bond: /igh-ris securities that have
received low ratings %i.e. 6tandard F <oorHs
((( rating or belowL or .oodyHs ((( rating
or below& and as such, produce high yields,
so long as they do not go into default.
<arta: .anager of a /indu )ndivided
:amily %/):& who handles the family
business. /e is usually the eldest male
member of the undivided family.
<iosk Banking: 5oing baning from a
cubicle from which food, newspapers,
ticets etc. are also sold.
<&) orms: Mnow your customer norms
are imposed by 0.(.!. on bans and other
fnancial institutions to ensure that they
now their customers and to ensure that
customers deal only in legitimate baning
operations and not in money laundering or
frauds.
-a# o0 -imitation: Gimitation Act of =>32
f$es the limitation period of debts and
obligations including bans loans and
advances. !f the period f$ed for particular
debt or loan e$pires, one cannot fle a suit
for is recovery, but the fact of the debt or
loan is not denied. !t is said that law of
limitation bars the remedy but does not
e$tinguish the right.
-ease 2inancing: :inancing for the
business of renting houses or lands for a
specifed period of time and also hiring out
of an asset for the duration of its economic
life. Geasing of a car or heavy machinery for
a specifc period at specifc price is an
e$ample.
-etter o0 )redit: A document issued by
importers ban to its branch or agent
abroad authorizing the payment of a
specifed sum to a person named in Getter
of *redit %usually e$porter from abroad&.
Getters of *redit are covered by rules
framed under )niform *ustoms and
<ractices of 5ocumentary *redits framed
by !nternational *hamber of *ommerce in
<aris.
-imited )om'anies Accounts: Accounts
of companies incorporated under the
*ompanies Act, =>43 . A company may be
private or public. Giability of the
shareholders of a company is generally
limited to the face value of shares held by
them.
-everage Ratio: :inancial ratios that
measure the amount of debt being used to
support operations and the ability of the
frm to service its debt.
-ibor: The Gondon !nterban +,ered 0ate
%or G!(+0& is a daily reference rate based
on the interest rates at which bans o,er to
lend unsecured funds to other bans in the
Gondon wholesale money maret %or
interban maret&. The G!(+0 rate is
published daily by the (ritish (anerHs
Association and will be slightly higher than
the Gondon !nterban (id 0ate %G!(!5&, the
rate at which bans are prepared to accept
deposits.
-imit +rder: An order to buy %sell&
securities which specifes the highest
%lowest& price at which the order is to be
transacted.
-imited )om'any: The passive investors
in a partnership, who supply most of the
capital and have liability limited to the
amount of their capital contributions.
-iquidity: The ability to convert an
investment into cash "uicly and with little
or no loss in value.
-isting: Nuotation of the !nitial <ublic
+,ering companyHs shares on the stoc
e$change for public trading.
-isting *ate: The date on which !nitial
<ublic +,ering stocs are frst traded on
the stoc e$change by the public
Margin )all: A notice to a client that it
must provide money to satisfy a minimum
margin re"uirement set by an E$change or
by a ban ; broing frm.
Market )a'itali"ation: The product of the
number of the companyHs outstanding
ordinary shares and the maret price of
each share.
Market Maker: A dealer who maintains an
inventory in one or more stocs and
undertaes to mae continuous two-sided
"uotes.
Market +rder: An order to buy or an order
to sell securities which is to be e$ecuted at
the prevailing maret price.
Money Market: .aret in which short-
term securities are bought and sold.
Marginal Standing 2acility Rate: .6:
scheme has become e,ective from @>th
.ay, ?@== launched by the 0(!. )nder this
scheme, (ans will be able to borrow upto
=E of their respective 8et 5emand and
Time Giabilities. The rate of interest on the
amount accessed from this facility will be
=@@ basis points %i.e. =E& above the repo
rate. This scheme is liely to reduce
volatility in the overnight rates and improve
monetary transmission.
Mandate: -ritten authority issued by a
customer to another person to act on his
behalf, to sign che"ues or to operate a
ban account.
Material Alteration: Alteration in an
instrument so as to alter the character of
an instrument for e$ample when date,
amount, name of the payee are altered or
maing a che"ue payable to bearer from an
order one or opening the crossing on a
che"ue.
Merc$ant Banking : -hen a ban
provides to a customer various types of
fnancial services lie accepting bills arising
out of trade, arranging and providing
underwriting, new issues, providing advice,
information or assistance on starting new
business, ac"uisitions, mergers and foreign
e$change.
Micro 2inance: .icro :inance aims at
alleviation of poverty and empowerment of
weaer sections in !ndia. !n micro fnance,
very small amounts are given as credit to
poor in rural, semi-urban and urban areas
to enable them to raise their income levels
and improve living standards.
Minor Accounts: A minor is a person who
has not attained legal age of =D years. As
per *ontract Act a minor cannot enter into
a contract but as per 8egotiable !nstrument
Act, a minor can draw, negotiate, endorse,
receive payment on a 8egotiable
!nstrument so as to bind all the persons,
e$cept himself. !n order to boost their
deposits many bans open minor accounts
with some restrictions.
Mobile Banking : -ith the help of .-
(aning or mobile baning customer can
chec his ban balance, order a demand
draft, stop payment of a che"ue, re"uest
for a che"ue boo and have information
about latest interest rates.
Money -aundering: -hen a customer
uses baning channels to cover up his
suspicious and unlawful fnancial activities,
it is called money laundering.
Money Market: .oney maret is not an
organized maret lie (ombay 6toc
E$change but is an informal networ of
bans, fnancial institutions who deal in
money maret instruments of short term
lie *<, *5 and Treasury bills of
Iovernment.
Moratorium: 0.(.!. imposes moratorium
on operations of a banL if the a,airs of the
ban are not conducted as per baning
norms. After moratorium 0.(.!. and
Iovernment e$plore the options of
safeguarding the interests of depositors by
way of change in management,
amalgamation or tae over or by other
means.
Mortgage: Transfer of an interest in
specifc immovable property for the
purpose of o,ering a security for taing a
loan or advance from another. !t may be
e$isting or future debt or performance of an
agreement which may create monetary
obligation for the transferor %mortgagor&.
Mutual 2und: A company that invests in
and professionally manages a diversifed
portfolio of securities and sells shares of
the portfolio to investors.
ABAR*: 8ational (an for Agriculture F
0ural 5evelopment was setup in =>D?
under the Act of =>D=. 8A(A05 fnances
and regulates rural fnancing and also is
responsible for development agriculture
and rural industries.
egotiation: !n the conte$t of baning,
negotiation means an act of transferring or
assigning a money instrument from one
person to another person in the course of
business.
et Asset 1alue: The underlying value of
a share of stoc in a particular mutual fundL
also used with preferred stoc.
on-2und Based -imits: 8on-:und (ased
Gimits are those type of limits where baner
does not part with the funds but may have
to part with funds in case of default by the
borrowers, lie guarantees, letter of credit
and acceptance facility.
on-Resident: A person who is not a
resident of !ndia is a non-resident.
on-Resident Accounts: Accounts of
non-resident !ndian citizens opened and
maintained as per 0.(.!. 0ules.
otary %ublic: A Gawyer who is authorized
by Iovernment to certify copies of
documents .
%A Account: !f interest and instalments
and other ban dues are not paid in any
loan account within a specifed time limit, it
is being treated as non-performing assets
of a ban.
+: Balance S$eet .tems: Those items
which a,ect the fnancial position of a
business concern, but do not appear in the
(alance 6heet E,g guarantees, letters of
credit . The mention Jo, (alance 6heet
itemsJ is often found in Auditors 0eports or
5irectors 0eports.
+:er 0or Sale: An o,er to the public by, or
on behalf of, the holders of securities
already in issue.
+:er 0or Subscri'tion: The o,er of new
securities to the public by the issuer or by
someone on behalf of the issuer.
+nline Banking: (aning through internet
site of the ban which is made interactive.
+'en-end (Mutual) 2und: There is no
limit to the number of shares the fund can
issue. The fund issues new shares of stoc
and flls the purchase order with those new
shares. !nvestors buy their shares from, and
sell them bac to, the mutual fund itself.
The share prices are determined by their
net asset value.
+'en +:er: An o,er to current holders of
securities to subscribe for securities
whether or not in proportion to their
e$isting holdings.
+'tion: A security that gives the holder
the right to buy or sell a certain amount of
an underlying fnancial asset at a specifed
price for a specifed period of time.
+versubscribed: -hen an !nitial <ublic
+,ering has more applications than actual
shares available. !nvestors will often apply
for more shares than re"uired in
anticipation of only receiving a fraction of
the re"uested number. !nvestors and
underwriters will often loo to see if an !<+
is oversubscribed as an indication of the
publicHs perception of the business
potential of the !<+ company.
%ass Book: A record of all debit and credit
entries in a customer's account. Ienerally
all bans issue pass boos to 6avings
(an;*urrent Account /olders.
%ar Bond: A bond selling at par %i.e. at its
face value&.
%ar 1alue: The face value of a security.
%er'etual Bonds: (onds which have no
maturity date.
%lacing: +btaining subscriptions for, or the
sale of, primary maret, where the new
securities of issuing companies are initially
sold.
%ersonal .denti4cation umber (%.):
<ersonal !dentifcation 8umber is a number
which an AT. card holder has to ey in
before he is authorized to do any baning
transaction in a AT. .
%lastic Money: *redit *ards, 5ebit *ards,
AT. *ards and !nternational *ards are
considered plastic money as lie money
they can enable us to get goods and
services.
%ledge: A bailment of goods as security for
payment of a debt or performance of a
promise, e.g pledge of stoc by a borrower
to a baner for a credit limit. <ledge can be
made in movable goods only.
%ost-*ated )$eque: A *he"ue which
bears the date which is subse"uent to the
date when it is drawn. :or e$ample, a
che"ue drawn on Dth of :ebruary, ?@@A
bears the date of =?th :ebruary, ?@@A.
%o#er o0 Attorney: !t is a document
e$ecuted by one person - 5onor or
<rincipal, in favour of another person,
5onee or Agent - to act on behalf of the
former, strictly as per authority given in the
document.
%ort0olio: A collection of investment
vehicles assembled to meet one or more
investment goals.
%re0erence S$ares: A corporate security
that pays a f$ed dividend each period. !t is
senior to ordinary shares but 1unior to
bonds in its claims on corporate income
and assets in case of banruptcy.
%remium (6arrants): The di,erence of
the maret price of a warrant over its
intrinsic value.
%remium Bond: (ond selling above par.
%resent 1alue: The amount to which a
future deposit will discount bac to present
when it is depreciated in an account paying
compound interest.
%resent 1alue o0 an Annuity: The
amount to which a stream of e"ual cash
'ows that occur in e"ual intervals will
discount bac to present when it is
depreciated in an account paying
compound interest.
%rice9!arnings Ratio (%9!): The measure
to determine how the maret is pricing the
companyHs common stoc. The
price;earnings %<;E& ratio relates the
companyHs earnings per share %E<6& to the
maret price of its stoc.
%rivati"ation: The sale of government-
owned e"uity in nationalized industry or
other commercial enterprises to private
investors.
%ros'ectus: A detailed report published
by the !nitial <ublic +,ering company,
which includes all terms and conditions,
application procedures, !<+ prices etc, for
the !<+
%ut +'tion: The right to sell the
underlying securities at a specifed e$ercise
price on of before a specifed e$piration
date.
%remature 6it$dra#als: Term deposits
lie :i$ed 5eposits, *all 5eposits, 6hort
5eposits and 0ecurring 5eposits have to
mature on a particular day. -hen these
deposits are sought to be withdrawn before
maturity , it is premature withdrawal.
%rime -ending Rate (%-R): The rate at
which bans lend to their best %prime&
customers.
%riority Sector Advances : consist of
loans and advances to Agriculture, 6mall
6cale !ndustry, 6mall 0oad and -ater
Transport +perators, 0etail Trade, 6mall
(usiness with limits on investment in
e"uipments, professional and self
employed persons, state sponsored
organisations for lending to 6*;6T,
Educational Goans, /ousing :inance up to
certain limits, self-help groups and
consumption loans.
%romissory ote: <romissory 8ote is a
promise ; undertaing given by one person
in writing to another person, to pay to that
person , a certain sum of money on
demand or on a future day.
%rovisioning: <rovisioning is made for the
liely loss in the proft and loss account
while fnalizing accounts of bans. All bans
are supposed to mae assets classifcation
and mae appropriate provisions for liely
losses in their balance sheets.
%ublic Sector Bank: A ban fully or partly
owned by the Iovernment.
Rate o0 Return: A percentage showing the
amount of investment gain or loss against
the initial investment.
Real .nterest Rate: The net interest rate
over the in'ation rate. The growth rate of
purchasing power derived from an
investment.
Redem'tion 1alue: The value of a bond
when redeemed.
Reinvestment 1alue: The rate at which
an investor assumes interest payments
made on a bond which can be reinvested
over the life of that security.
Relative Strengt$ .nde7 (RS.): A stocHs
price that changes over a period of time
relative to that of a maret inde$ such as
the 6tandard F <oorHs 4@@, usually
measured on a scale from = to =@@, = being
the worst and =@@ being the best.
Re'urc$ase Agreement: An arrangement
in which a security is sold and later bought
bac at an agreed price and time.
Resistance -evel: A price at which sellers
consistently outnumber buyers, preventing
further price rises.
0eturn# Amount of investment gain or loss.
Resc$eduling o0 %ayment: 0earranging
the repayment of a debt over a longer
period than originally agreed upon due to
fnancial di9culties of the borrower.
Restrictive !ndorsement: -here
endorser desires that instrument is to be
paid to particular person only, he restricts
further negotiation or transfer by such
words as J<ay to Asho onlyJ. 8ow Asho
cannot negotiate the instrument further.
Rig$t o0 A''ro'riation: As per 6ection
4> of the !ndian *ontract Act, =>A? while
maing the payment, a debtor has the right
to direct his creditor to appropriate such
amount against discharge of some
particular debt. !f the debtor does not do
so, the baner can appropriate the
payment to any debt of his customer.
Rig$t o0 Set-+: : -hen a baner
combines two accounts in the name of the
same customer and ad1usts the debit
balance in one account with the credit
balance in other account, it is called right of
set-o,. :or e$ample, debit balance of
0s.4@,@@@;- in overdraft account can be set
o, against credit balance of 0s.A4,@@@;- in
the 6avings (an Account of the same
customer, leaving a balance of 0s.?4,@@@;-
credit in the savings account.
Rig$ts .ssue: An o,er by way of rights to
current holders of securities that allows
them to subscribe for securities in
proportion to their e$isting holdings.
Risk-Averse= Risk-eutral= Risk-(aking:
0is-averse describes an investor who
re"uires greater return in e$change for
greater ris.
0is-neutral describes an investor who does
not re"uire greater return in e$change for
greater ris.
0is-taing describes an investor who will
accept a lower return in e$change for
greater ris.
Sa0e )ustody: -hen articles of value lie
1ewellery, bo$es, shares, debentures,
Iovernment bonds, -ills or other
documents or articles are given to a ban
for safe eeping in its safe vault, it is called
safe custody.. (an charges a fee from its
clients for such safe custody.
Savings Bank Account: All bans in !ndia
are having the facility of opening savings
ban account with a nominal balance. This
account is used for personal purposes and
not for business purpose and there are
certain restrictions on withdrawals from this
type of account. Account holder gets
nominal interest in this account.
Senior Bond: A bond that has priority over
other bonds in claiming assets and
dividends.
Settlement: *onclusion of a securities
transaction when a customer pays a
broer;dealer for securities purchased or
delivered, securities sold, and receive from
the broer the proceeds of a sale.
S$ort Hedge: A transaction that protects
the value of an asset held by taing a short
position in a futures contract.
S$ort %osition: !nvestors sell securities in
the hope that they will decrease in value
and can be bought at a later date for proft.
S$ort Selling: The sale of borrowed
securities, their eventual repurchase by the
short seller at a lower price and their return
to the lender.
S'eculation: The process of buying
investment vehicles in which the future
value and level of e$pected earnings are
highly uncertain.
Stock S'lits: -holesale changes in the
number of shares. :or e$ample, a two for
one split doubles the number of shares but
does not change the share capital.
Subordinated Bond: An issue that rans
after secured debt, debenture, and other
bonds, and after some general creditors in
its claim on assets and earnings. +wners of
this ind of bond stand last in line among
creditors, but before e"uity holders, when
an issuer fails fnancially.
Substantial S$are$older: A person
ac"uires an interest in relevant share
capital e"ual to, or e$ceeding, =@E of the
share capital.
Su''ort -evel: A price at which buyers
consistently outnumber sellers, preventing
further price falls.
(eller : Teller is a sta, member of a ban
who accepts deposits, cashes che"ues and
performs other baning services for the
public.
(ec$nical Analysis: A method of
evaluating securities by relying on the
assumption that maret data, such as
charts of price, volume, and open interest,
can help predict future %usually short-term&
maret trends. *ontrasted with
fundamental analysis which involves the
study of fnancial accounts and other
information about the company. %!t is an
attempt to predict movements in security
prices from their trading volume history.&
(ime Hori"on: The duration of time an
investment is intended for.
(rading Rules: 6tipulation of parameters
for opening and intra-day "uotations,
permissible spreads according to the prices
of securities available for trading and board
lot sizes for each security.
(rust *eed: A formal document that
creates a trust. !t states the purpose and
terms of the name of the trustees and
benefciaries.
>nder#riting : is an agreement by the
underwriter to buy on a f$ed date and at a
f$ed rate, the unsubscribed portion of
shares or debentures or other issues.
)nderwriter gets commission for this
agreement.
>nderlying Security: The security
sub1ect to being purchased or sold upon
e$ercise of the option contract.
>niversal Banking : -hen (ans and
:inancial !nstitutions are allowed to
undertae all types of activities related to
baning lie acceptance of deposits,
granting of advances, investment, issue of
credit cards, pro1ect fnance, venture
capital fnance, foreign e$change business,
insurance etc. it is called )niversal
(aning.
1aluation: <rocess by which an investor
determines the worth of a security using
ris and return concept.
1irtual Banking: Oirtual baning is also
called internet baning, through which
fnancial and baning services are accessed
via internet's -orld -ide -eb. !t is called
virtual baning because an internet ban
has no boundaries of bric and mortar and
it e$ists only on the internet.
6arrant: An option for a longer period of
time giving the buyer the right to buy a
number of shares of common stoc in
company at a specifed price for a specifed
period of time.
6$olesale Banking: -holesale baning is
di,erent from 0etail (aning as its focus is
on providing for fnancial needs of industry
and institutional clients.
6indo# *ressing: :inancial ad1ustments
made solely for the purpose of accounting
presentation, normally at the time of
auditing of company accounts.
&ield (.nternal rate o0 Return): The
compound annual rate of return earned by
an investment
&ield to Maturity: The rate of return yield
by a bond held to maturity when both
compound interest payments and the
investorHs capital gain or loss on the
security are taen into account.
?ero )ou'on Bond: A bond with no
coupon that is sold at a deep discount from
par value.
0ead more#
http#;;www.banersadda.com;?@=?;@?;ban
ing-terms.htmlPi$zz2CzQz<o6T
+'en Market o'erations(+M+):The
buying and selling of government securities
in the open maret in order to e$pand or
contract the amount of money in the
baning system by 0(!. +pen maret
operations are the principal tools of
monetary policy.
Micro )redit:!t is a term used to
e$tend small loans to very poor people for
self-employment pro1ects that generate
income, allowing them to care for
themselves and their families.
R(3S:The acronym R0TI6H stands for
0eal Time Iross 6ettlement. 0TI6 system
is a funds transfer mechanism where
transfer of money taes place from one
ban to another on a Rreal timeH and
onRgrossH basis. This is the fastest possible
money transfer system through the
baning channel.6ettlement in Rreal timeH
means payment transaction is not
sub1ected to any waiting
period.The transactions are settled as soon
as they are processed. RIross settlementH
means the transaction is settled on one to
one basis without bunching with any other
transaction.
6$olesale %rice .nde7(6%.):The
-holesale <rice !nde$ %-<!& is the inde$
used to measure the changes in the
average price level of goods traded in
wholesale maret. A total of C24
commodity prices mae up the inde$. !t is
available on a weely basis. !t is generally
taen as an indicator of the in'ation rate in
the !ndian economy. The !ndian -holesale
<rice !nde$ %-<!& was frst published in
=>@?, and was used by policy maers until
it was replaced by the <roducer <rice !nde$
%<<!& in =>AD.
)onsumer 'rice .nde7()%.):!t is a
measure estimating the average price of
consumer goods and services purchased
by households.
1enture )a'ital#Oenture capital is
money provided by an outside investor to
fnance a new, growing, or troubled
business. The venture capitalist provides
the funding nowing that thereHs a
signifcant ris associated with the
companyHs future profts and cash 'ow.
*apital is invested in e$change for an
e"uity stae in the business rather than
given as a loan, and the investor hopes the
investment will yield a better-than-average
return.
(reasury Bills:Treasury (ills %T-(ills&
are short term, 0upee denominated
obligations issued by the 0eserve (an of
!ndia %0(!& on behalf of the Iovernment of
!ndia. They are thus useful in
managing short-term li"uidity. At present,
the Iovernment of !ndia issues three types
of treasury bills through auctions, namely,
>=-day, =D?-day and 23C-day. There are no
treasury bills issued by 6tate Iovernments.
Banking +mbudsmen Sc$eme:The
(aning +mbudsman 6cheme enables an
e$peditious and ine$pensive forum to
ban customers for resolution of complaints
relating to certain services rendered by
bans. The (aning +mbudsman is a senior
o9cial appointed by the 0eserve (an of
!ndia to redress customer complaints
against defciency in certain baning
services. The (aning +mbudsman 6cheme
was frst introduced in !ndia in =>>4, and
was revised in ?@@?. The current scheme
became operative from the = Banuary ?@@3,
and replaced and superseded the baning
+mbudsman 6cheme ?@@?.
Subsidy:A subsidy is a form of fnancial
assistance paid to a business or economic
sector. .ost subsidies are made by the
government to producers or distributors in
an industry to prevent the decline of that
industry or an increase in the prices of its
products or to encourage it to hire more
labor.
*ebenture: A debenture is basically an
unsecured loan to a corporation. A type of
debt instrument that is not secured by
physical asset. 5ebentures are baced only
by the general creditworthiness
and reputation of the issuer.
i&*onvertible 5ebentures# Any type of
debenture that can be converted into some
other security or it can be converted into
stoc..
ii&8on-*onvertibility 5ebentures%8*(&# 8on
*onvertible 5ebentures are those that
cannot be converted into e"uity shares of
the issuing company, as opposed to
*onvertible debentures.
8onconvertible debentures normally earn a
higher interest rate than convertible
debentures do.
Hedge 0und:/edge means to reduce
fnancial ris. A hedge fund is an
investment fund open to a limited range of
investors and re"uires a very large initial
minimum investment. !t is important to
note that hedging is actually the practice
of attempting to reduce ris, but the goal of
most hedge funds is to ma$imize return on
investment.
2))B:A :oreign *urrency *onvertible
(ond %:**(& is a type of convertible bond
issued in a currency di,erent than the
issuerHs domestic currency. !n other words,
the money being raised by the issuing
company is in the form of a foreign
currency. A company may issue an :**( if
it intends to mae a large investment in a
country using that foreign currency.
)a'ital Account
)onvertibility()A)): !t is the freedom to
convert local fnancial assets into foreign
fnancial assets and vice versa at maret
determined rates of e$change. This means
that capital account convertibility
allows anyone to freely move from local
currency into foreign currency and
bac. The 0eserve (an of !ndia has
appointed a committee to set out the
framewor for fuller *apital Account
*onvertibility. *apital account convertibility
is considered to be one of the ma1or
features of a developed economy. !t helps
attract foreign investment. capital account
convertibility maes it easier for domestic
companies to tap foreign marets.
)urrent Account )onvertibility:!t
defnes at one can import and e$port goods
or receive or mae payments for services
rendered. /owever, investments and
borrowings are restricted.
Arbitrage:The opportunity to buy an
asset at a low price then immediately
selling it on a di,erent maret for a higher
price.
)a'italism#*apitalism as an economy
is based on a democratic political ideology
and produces a free maret economy,
where businesses are privately owned and
operated for proftL in capitalism, all of
the capital investments and decisions
about production, distribution, and the
prices of goods, services, and labor, are
determined in the free maret and a,ected
by the forces of supply and demand.
Socialism:6ocialism as an economy is
based on a collectivist type of political
ideology and involves the running of
businesses to beneft the common good of
a vast ma1ority of people rather than of
a small upper class segment of society.
)or'orate governance: The way in
which a company is governed and how it
deals with the various interests of
its customers, shareholders, employees
and society at large. *orporate governance
is the set of processes, customs, policies,
laws, and institutions a,ecting the way a
corporation %or company& is directed,
administered or controlled.!s defned as the
general set of customs, regulations, habits,
and laws that determine to what end a frm
should be run.
2unctions o0 RB.:
The 0eserve (an of !ndia is the central
ban of !ndia, was established on April =,
=>24 in
accordance with the provisions of the
0eserve (an of !ndia Act, =>2C. The
0eserve (an of !ndia was set up on the
recommendations of the /ilton Soung
*ommission. The commission submitted its
report in the year =>?3, though the ban
was not set up for nine years.To
regulate the issue of (an 8otes and
eeping of reserves with a view to securing
monetary stability in !ndia and generally to
operate the currency and credit system of
the country to its advantage. (aner to the
Iovernment# performs merchant baning
function for the central and the
state governmentsL also acts as their
baner.(aner to bans# maintains baning
accounts of all scheduled bans.
Monetary 'olicy:A .onetary policy is
the process by which the government,
central ban, of a country controls %i& the
supply of money, %ii& availability of money,
and %iii& cost of money or rate of interest,
in order to attain a set of ob1ectives
oriented towards the growth and stability of
the economy.
2iscal %olicy::iscal policy is the use of
government spending and revenue
collection to in'uence the economy. These
policies a,ect ta$ rates, interest rates and
government spending, in an e,ort
to control the economy. :iscal policy is an
additional method to determine public
revenue and public e$penditure.
)ore Banking Solutions:*ore baning
is a general term used to describe the
services provided by a group of
networed ban branches. (an customers
may access their funds and other simple
transactions from any of the member
branch o9ces. !t will cut down time,
woring simultaneously on di,erent issues
and increasing e9ciency. The platform
where communication technology and
information technology are merged to suit
core needs of baning is nown as *ore
(aning 6olutions
!-3overnance: E-Iovernance is the
public sectorHs use of information and
communication technologies with the aim
of improving information and service
delivery, encouraging citizen participation
in the decision-maing process and maing
government more accountable,transparent
and e,ective.
Rig$t to in0ormation Act: The 0ight
to !nformation act is a law enacted by the
<arliament of !ndia giving citizens of
!ndia access to records of the *entral
Iovernment and 6tate overnments.The Act
applies to all 6tates and )nion Territories of
!ndia, e$cept the 6tate of Bammu and
Mashmir 7 which is covered under a 6tate-
level law. This law was passed by
<arliament on =4 Bune ?@@4 and came fully
into force on =2 +ctober ?@@4.
)redit Rating Agencies:The credit
rating agencies in !ndia mainly include !*0A
and *0!6!G. !*0A wasformerly referred to
the !nvestment !nformation and *redit
0ating Agency of !ndia Gimited. Their
main function is to grade the di,erent
sector and companies in terms of
performance and o,er solutions for up
gradation. The credit rating agencies in
!ndia mainly include !*0A and *0!6!G%*redit
0ating !nformation 6ervices of !ndia
Gimited&
)$eque:*he"ue is a negotiable
instrument instructing a (an to pay a
specifc amount from a specifed account
held in the maer;depositorHs name with
that (an.A bill of e$change drawn on
a specifed baner and payable on
demand.T-ritten order directing a ban to
pay moneyK.
*emand *ra0t:A demand draft is an
instrument used for e,ecting transfer of
money. !t is a 8egotiable !nstrument.
*he"ue and 5emand-5raft both are used
for Transfer of money. Sou can =@@E trust a
55. !t is a banerHs chec. A chec may be
dishonored for lac of funds a 55 can not.
*he"ue is written by an individual and
5emand draft is issued by a ban. <eople
believe bans more than individuals.
B2): A non-baning fnancial company
%8(:*& is a company registered under the
*ompanies Act, =>43 and is engaged in the
business of loans and advances, ac"uisition
of shares;stoc;bonds;debentures;securities
issued by government, but does not include
any institution whose principal business is
that of agriculture activity, industrial
activity,
sale;purchase;construction of immovable
property.
8(:*s are doing functions ain to that of
bansL however there are a few di,erences#
%i&A 8(:* cannot accept demand deposits
%demand deposits are funds deposited at a
depository institution that are payable on
demand U immediately or within a very
short period U lie your current or savings
accounts.&
%ii& it is not a part of the payment and
settlement system and as such cannot
issue che"ues to its customersL and
%iii& 5eposit insurance facility of 5!*I* is
not available for 8(:* depositors unlie in
case of bans.
ASS)+M:The 8ational Association of
6oftware and 6ervices *ompanies
%8A66*+.&, the !ndian chamber of
commerce is a consortium that serves as
an interface to the !ndian software
industry and !ndian (<+ industry.
.aintaining close interaction with the
Iovernment of !ndia in formulating 8ational
!T policies with specifc focus on !T software
and services maintaining a state of the art
information database of !T software and
services related activities for use of
both the software developers as well as
interested companies overseas.
S.*B.: The 6mall !ndustries
5evelopment (an of !ndia is a state-run
ban aimed to aid the growth
and development of micro, small and
medium scale industries in !ndia. 6et up in
=>>@ through an act of parliament, it was
incorporated initially as a wholly owned
subsidiary of !ndustrial 5evelopment (an
of !ndia.
S!S!8 and .2(&:6E86EQ is the
short term for the words T6ensitive !nde$K
and is associated with the
(ombay %.umbai& 6toc E$change %(6E&.
The 6E86EQ was frst formed on =-=-=>D3
and used the maret capitalization of the
2@ most traded stocs of (6E. -here as
86E has 4@ most traded stocs of
86E.6E86EQ !6 T/E !85EQ +: (6E. A85
8!:TS !6 T/E !85EQ +: 86E.(+T/ -!GG
6/+- 5A!GS T0A5!8I .A0M6. 6ense$ and
8ifty both are an Tinde$K. An inde$ is
basically an indicator it indicates whether
most of the stocs have gone up or most
of the stocs have gone down.
S!B.: 6E(! is the regulator for the
6ecurities .aret in !ndia. +riginally set up
by the Iovernment of !ndia in =>DD, it
ac"uired statutory form in =>>? with 6E(!
Act =>>? being
passed by the !ndian <arliament. *haired
by * ( (have.
ASS+)HAM: The Associated *hambers
of *ommerce and !ndustry of !ndia
%A66+*/A.&, !ndiaHs premier ape$
chamber covers a membership of over ?
lah companies and professionals across
the country. !t was established in =>?@ by
promoter chambers, representing all
regions of !ndia. As an ape$ industry body,
A66+*/A. represents the interests of
industry and trade, interfaces with
Iovernment on policy issues and interacts
with counterpart international organizations
to promote bilateral economic issues.
<resident-6wati <iramal
ABAR*:8A(A05 was established by
an act of <arliament on =? Buly =>D? to
implement the 8ational (an for
Agriculture and 0ural 5evelopment Act
=>D=. !t replaced the Agricultural
*redit 5epartment %A*5& and 0ural
<lanning and *redit *ell %0<**& of 0eserve
(an of !ndia, and Agricultural 0efnance
and 5evelopment *orporation %A05*&. !t is
one of the premiere agency to provide
credit in rural areas. 8A(A05 is set up as
an ape$ 5evelopment (an with a mandate
for facilitating credit 'ow for promotion and
development of agriculture, small-
scale industries, cottage and village
industries, handicrafts and other rural
crafts.
Mutual 0unds: .utual funds are
investment companies that pool money
from investors at large and o,er to sell and
buy bac its shares on a continuous basis
and use the capital thus raised to invest
in securities of di,erent companies. The
mutual fund will have a fund manager that
trades the pooled money on a regular
basis. The net proceeds or losses are then
typically distributed to the investors
annually.
Asset Management )om'anies: A
company that invests its clientsH pooled
fund into securities that match its declared
fnancial ob1ectives. Asset management
companies provide investors with more
diversifcation and investing options than
they would have by themselves. .utual
funds, hedge funds and pension plans are
all run by asset management companies.
These companies earn income by
charging service fees to their clients.
on-'er0oming assets:8on-
performing assets, also called non-
performing loans, are loans,made by a
ban or fnance company, on which
repayments or interest payments are not
being made on time. A debt obligation
where the borrower has not paid any
previously agreed upon interest and
principal repayments to the designated
lender for an e$tended period of time. The
nonperforming asset is therefore not
yielding any income to the lender in the
form of principal and interest payments.
Active Market
This is a term used by stoc e$change
which specifes the particular stoc or share
which deals in fre"uent and regular
transactions. !t helps the buyers to obtain
reasonably large amounts at any time.
Administered %rice
The administrative body e.g., the
government a mareting board or a trading
group determines this price. The
competitive maret force are not entitled to
determine this price. The government f$es
a price in accordance with demand supply
portion in the maret.
Ad-valorem (a7Ad-valorem ta$ is a ind of
indirect ta$ in which goods are ta$ed by
their values. !n the case of ad-volorem ta$,
the ta$ amount is calculated as the
proportion of the price of the goods. Oalue
added Ta$ %OAT& is an ad-volorem Ta$.
Advanced )ountries
Advanced countries are countries which are
industrially advanced, having high national
and per capita income and ensure high rate
of capital formation. These countries
possess highly developed infrastructure
and apply most updated and advanced
technical now-how in their productive
activities. A strong and well organised
fnancial structure is found in these
advanced countries.
Amalgamation
!t means RmergerH. As and when necessity
arises two or more companies are merged
into a large organisation. This merger taes
place in order to e,ect economies, reduce
competition and capture maret. The old
frms completely lose their identity when
the merger taes place.
A''reciation
Appreciation means an increase in the
value of something e.g., stoc of raw
materials or manufactured goods. !t also
includes an increase in the traded value of
a currency. !t is the antonym of
5epreciation. -hen the prices rise due to
in'ation, appreciation may occur. !t causes
scarcity or increase in earning power.
Arbitrage
-hen a person performs functions of
middle man and buys and sells goods at a
particular time to cash the price di,erences
of two marets, this action is termed as
arbitrage. <urchases are made in the
maret where price is low and at the same
time, goods are sold in other maret where
the price are high. Thus the middleman
earns proft due to price di,erence in two
marets.
Arbitration
-here there is an industrial dispute, the
Arbitration comes to the force. The
1udgement is given by the Arbitrator. (oth
the parties have to accept and honour the
Arbitration. Arbitration is the settlement of
labour disputes that taes place between
employer and the employees.
Auction
-hen a commodity is sold by auction, the
bids are made by the buyers. -hose ever
maes the highest bid, gets the commodity
which is being sold. The buyers mae the
bid
taing into consideration the "uality and
"uantity of the commodity.
Autarc$y
!f a country is self-su9cient, it does not
re"uire the imports for the country.
Autarchy is an indicator of self-su9ciency. !t
means that the country itself can satisfy
the needs of its population without maing
imports from other countries.
Balanced Budget
-hen the total revenue of the government
e$actly e"uals the total e$penditure
incurred by the government, the budget
becomes a balanced budget. (ut it is a
conservative view point. !n present days,
the welfare government has to regulate a
number of economic and social activities
which increase the e$penditure burden on
the government and results in defcit
budget.
Balance o0 %ayment
(alance of payment of a country is a
systematic record of all economic
transactions completed between its
residents and the residents of remaining
world during a year. !n other words, the
balance of payment shows the relationship
between the one country's total payment to
all other countries and its total receipts
from them. (alance of payment is a
comprehensive term which includes both
visible and invisible items. (alance of
payment not only include visible e$port and
imports but also invisible trade lie
shipping, baning, insurance, tourism,
royalty, payments of interest on foreign
debts.
Balance o0 (rade
(alance of trade refers to the total value of
a country's e$port commodities and total
value of imports commodities. Thus
balance of trade includes only visible trade
i.e., movement of goods %e$ports and
imports of goods&. (alance of trade is a part
of (alance of payment statement.
Balance S$eet
(alance sheet is a statement showing the
assets and liabilities of a business at a
certain date. (alance sheet helps in
estimating the real fnancial situation of a
frm.
Bank
(an is a fnancial institution. !t accepts
funds on current and deposit accounts. !t
also lends money. The ban pays the
che"ues drawn by customers against
current and deposits accounts. The ban is
a trader that deals in money and credit.
Bank *ra0t
(aner's draft is a negotiable claim drawn
upon a ban. 5rafts are as good as cash.
The drafts cannot be returned and unpaid.
5raft is issued when a customer shows his
unwillingness to accept che"ue in payment
for his services or mercantile goods. (an
5raft is safer than a che"ue.
Bank Rate
(an 0ate is the rate of discount at which
the central ban of the country discounts
frst class bills. !t is the rate of interest at
which the central ban lends money to the
lower baning institutions. (an rate is a
direct "uantitative method of credit control
in the economy.
Bilateralism
!t implies an agreement between two
countries to e$tend to each other specifc
privileges in their international trade which
are not e$tended to others.
Birt$ Rate
(irth 0ate %or *rude (irth 0ate& is number
of the births per thousand of the population
during a period, usually a year. +nly live
births are included in the calculation of
birth rate.
Black Money
!t is unaccounted money which is concealed
from ta$ authorities. All illegal economic
activities are dealt with this blac .oney.
/awala maret has deep roots with this
blac money. (lac money creates parallel
economy. !t puts an adverse pressure on
e"uitable distribution of wealth and income
in the economy.
Blue )$i'
!t is concerned with such e"uity shares
whose purchase is e$tremely safe. !t is a
safe investment. !t does not involve any
ris.
Blue )ollar ;obs
These Bobs are concerned with factory.
<ersons who are unsilled and depend upon
manual 1obs that re"uire physical strain on
human muscle are said to be engaged in
(lue *ollar Bobs. !n the age of machinery,
such Bobs are on the decline these days.
Brain-*rain
!t means the drift of intellectuals of a
country to another country. 6cientists,
doctors and technology e$perts generally
go to other prominent countries of the
world to better their lot and earn huge
sums of money. This (rain-5rain deprives a
country of its genius and capabilities.
Bridge -oan
A loan made by a ban for a short period to
mae up for a temporary shortage of cash.
+n the part of borrower, mostly the
companies for e$ample, a business
organization wants to install a new
company with new e"uipments etc. while
his present installed company ; e"uipments
etc. are not yet disposed o,. (ridge loan
covers this period between the buying the
new and disposing of the old one.
Budget
!t is a document containing a preliminary
approved plan of public revenue and public
e$penditure. !t is a statement of the
estimated receipt and e$penses during a
f$ed period, it is a comparative table giving
the accounts of the receipts to be realized
and of the e$penses to be incurred.
Budget *e4cit
(udget may tae a shape of defcit when
the public revenue falls short to public
e$penditure. (udget defcit is the di,erence
between the estimated public e$penditure
and public revenue. The government meets
this defcit by way of printing new currency
or by borrowing.
Bull
(ull is that type of speculator who gains
with the rise in prices of shares and stocs.
/e buys share or commodities in
anticipation of rising prices and sells them
later at a proft.
Bull Market
!t is a maret where the speculators buy
shares or commodities in anticipation of
rising prices. This maret enables the
speculators to resale such shares and mae
a proft.
Buoyancy
-hen the government fails to chec
in'ation, it raises income ta$ and the
corporate ta$. 6uch a ta$ is called
(uoyancy. !t concerns with the revenue
from ta$ation in the period of in'ation.
Business )ycle
(usiness cycle %also nown as trade cycle&
are species of 'uctuations in the economic
activity of organised communities. !t is
composed of period of good trade
characterised
by rising prices and low unemployment,
alternating with period of bad trade
characterised by falling prices and high
unemployment. Every trade cycle have fve
di,erent subphases7depression, recovery,
full employment, prosperity %boom& and
recession.
)all Money
*all money is in the form of loans and
advances which are payable on demand or
within the number of days specifed for the
purpose.
)a'ital Budgeting
*apital budgeting represents the process of
preparing budget for a period of a year or
even for several years allocating capital
outlays for the various investment pro1ects.
!n other words, it is the process of
budgeting capital e$penditure by means of
an annual or longer period capital budget.
)a'ital-labour Ratio
Gatest models of machinery and e"uipment
raise the labour e9ciency and the output is
ma$imized. *apitallabour ratio is the
amount of capital against the given labours
that a frm employs. *apital-labour ratio is
the ratio of capital to labour.
)a'ital Market
*apital maret is the maret which gives
medium term and long term loans. !t is
di,erent from money maret which deals
only in short term loans.
)a'italism
*apitalism is an economic system in which
all means of production are owned by
private individuals 6elfproft motive is the
guiding feature for all the economic
activates under capitalism. )nder pure
capitalism system economic conditions are
regulated solely by free maret forces. This
system is based on RGaissez-faire systemH
i.e., no state intervention. 6overeignty of
consumer prevails in this system.
*onsumer behaves lie a ing under
capitalism.
)as$ Reserve Ratio ()RR)
The commercial bans are re"uired to eep
a certain amount of cash reserves at the
central ban. This percentage amount is
called *00. !t in'uences the commercial
banHs volume of credit because variation
in *00 a,ects the li"uidity position of the
bans and hence their ability to lend.
)ensus
*ensus gives us estimates of population.
*ensus is of great economic importance for
the country. !t tells us the rate at which the
total population is increasing among
di,erent age groups. !n !ndia census is
done after every =@ years. The latest
census in !ndia has been done in ?@@=.
)entral Bank
*entral (an may be defned as the ape$
baring and monetary institution whose
main function is to control, regulate and
stabilize the baning and the monetary
system of the country in the national
interest.
)$eque
*he"ue is an order in writing issued by the
drawer to a ban. !f the customer has
su9cient amount in his account, the
che"ue is paid by the ban. *he"ues are
used in place of cash money.
)learing Bank
*learing ban is one which settles the
debits and credits of the commercial bans.
Even of the cash balances are lesser,
clearing ban facilitates baning operation
of the commercial ban.
)learing House
*learing house is an institution which helps
to settle the mutual indebtedness that
occurs among the members of its
organisation.
)losed !conomy
*losed economy refers to the economy
having no foreign trade %i.e., e$port and
import&. 6uch economies depend
e$clusively on their own internal domestic
resources and have
no dependence on outside world.
)ollusion
<roducers of an industry reduce
competition among themselves to raise
their profts. They f$ the price themselves
with a clear understanding in this regard.
This understanding among di,erent frms is
called collusion.
)oinage
Art and practice of maing coins is called
coinage. The metal is melted and moulded
to shape into a coin. The coinage is a
medium of e$change %money&.
)ollectivism
*ollectivism is a belief that nation's interest
is superior to individual interest. This is the
collective thining of the society and polity
national leaders and also communist opine
the theory of collection.
)ommercial Bank
*ommercial (an is an institution of
fnance. !t deals with the baning services
through its branches in whole of the
country. +peration of current accounts,
deposits, granting of loans to individuals
and companies etc. are various functions of
the commercial ban.
)ommunism
*ommunism is a political and economic
system in which the state maes the ma1or
economic decision 6tate owns the bul of
capital assets. 0esponsibility for production
and distribution lies with the state in this
system.
)ore SectorEconomy needs basic
infrastructure for accelerating
development. 5evelopment of
infrastructure industries lie cement, iron
and steel, petroleum, heavy machinery etc.
can only ensure the development of the
economy as a whole. 6uch industries are
core sector industries.
)or'oration (a7
!t is a ta$ on company's proft. !t is a direct
ta$ which is calculated on profts after
interest payments and allowance %i.e.,
*apital allowance& have been deducted but
before dividends are allowed for.
)ost-'us$ .n@ation!t arises due to an
increase in production cost. 6uch type of
in'ation is caused by three factors # %i& an
increase in wages, %ii& an increase in the
proft margin and %iii& imposition of heavy
ta$ation.
)redit Rationing*redit rationing taes
place when the bans discriminates
between the borrowers. *redit rationing
empowers the ban to lend to some and to
refuse to lend to others. !n this way credit
rationing restricts lending on the part of
ban.
)redit Squee"e.onetary authorities
restrict credit as and when re"uired. This
credit restriction is called credit s"ueeze.
.onetary authorities adopt the policy of
credit s"ueeze to control in'ationary
pressure in the economy.
)ustom *uty*ustom duty is a duty that is
imposed on the products received from
e$porting nations of the world. !t is also
called protective duty as it protects the
home industries.
)yclical >nem'loyment!t is that phase of
unemployment which appears due to the
occurrence of the downward phase of the
trade cycle. 6uch an employment is
reduced or eliminated when the business
cycle turns up again.
*ear Money
5ear money is that money which can only
be borrowed at a high rate of interest. !n
dear money policy, ban rate and other
rates of interest are high and as a result
borrowing becomes e$pensive. 5ear money
policy is deliberate policy which is adopted
by the monetary authorities to chec
in'ation in the economy.
*eat$ *uty
!t is a direct ta$ which is imposed on the
estate of deceased person. 5eath duty or
5eath Ta$ is a form of personal ta$ on
property which is levied when property
passes from one person to other at the
time of death of the former.
*eat$ Rate
5eath rate signifes the number of deaths
in a year per thousand of the population. !t
is mostly nown as crude death rate. Gife
e$pectancy is important determinant of
death rate.
A country having high life e$pectancy will
have a high crude death rate.
*ecentralisation5ecentralisation means
the establishment of various unit of the
same industry at di,erent places. Garge
scale organisation or industry can not be
run at one particular place or territory. !n
order to increase the e9ciency of the
industry, various units at di,erent places
are located.
*ebt Service ((otal)
The sum of principal repayments and
interest actually paid in foreign currency,
goods and services on longterm debt
%having maturity of more than one year&,
interest paid on shortterm debt and
repayments to !.:.
*e4cit 2inancing
!t is a practice resorted to by modern
government of spending more money than
it receives in revenue. !t is a policy of
bridging a defcit between governments
e$penditure and revenue. 5eliberately
budgeting for a defcit is called defcit
fnancing. This practice was popularised by
<rof. B. .. Meynes to deal with the
depression and unemployment situations
and to stimulate economic activity. 5efcit
fnancing, though having in'ationary
e,ects, has now become a common
practice in all countries.
*e@ation
5e'ation is the reverse case of in'ation.
5e'ation is that state of falling prices which
occurs at that time when the output of
goods and services increases more rapidly
than the volume of money in the economy.
!n the de'ation the general price level falls
and the value of money rises.
*evaluation
The loss of value of currency of a country
relative to other foreign currency is nown
as devaluation. 5evaluation is a process in
which the government deliberately
cheapens the e$change value of its own
currency in terms of other currency by
giving it a lower e$change value.
5evaluation is used for improving, the
balance of payment situation in the
country.
*irect (a7
A ta$ is said to be a direct ta$ when it is not
intended to be shifted to anybody else. The
person who pays it in the frst instance is
also e$cepted to bear it. Thus the impact
and incidence of direct ta$ fall on the same
person shifting of direct ta$ is not possible
!ncome Ta$ is a e$ample of direct ta$.
*isin@ation
!t refers to a process of bringing down
prices moderately from their high level
without any adverse impact on production
and employment. Thus, disin'ation is an
anti-in'ationary measure.
*issaving5issaving occurs when
e$penditure e$ceeds income. 0aising of
loans or utilization of past accumulated
savings taes place in such eventuality.
*ividend
5ividend is the amount which the company
distributes to shareholders when the profts
of the company are calculated by the board
of directors.
!conomic .ntegration
Economic integration appears when two or
more nations coordinate themselves and
their economies are lined up. !t may
e$hibit itself in the form of free trade area
or a full economic union. EE* is an e$ample
of economic integration.
!ngel,s -a#
This law was formulated by Ernst Engel.
This law states that, with given taste and
preference, the portion of income spend on
food diminishes as income increases.
According to this law, smaller a person's
income, the greater the proportion of it that
he will spend on food and vice versa.
!state *uty!t is a ta$ which is levied on
the estate of a decreased person. !t is also
nown as death duty. The ownership of
state changes hands only after the
payments of the estate duty. !t is an
progressive ta$ in nature.
!7cise *uty
!t is a ta$ which is imposed on certain
indigenous production %e.g., petroleum
products, cigarettes etc.& of the country.
E$cise duty may be imposed either to raise
revenue or to chec the consumption of the
commodities on which they are imposed.
E$cise duty is progressive in nature.
2ace 1alue!t refers to that normal value of
coin at which the coin circulates and is
accepted in the discharge of debit or
obligation. (roadly speaing, the face value
refers to domination stamped on a coin ; or
documents when it is issued. !n securities,
it refers to par value.
2ascism
!t is a form of political system. !n it every
economic consideration rests on one
criterionUthe increase in the people's
standard of living. !t also lays emphasis on
military
strength and prestige of the country. !t is
the e$treme nationalism and the ultimate
goal is self-su9ciency.
2ederal !conomy!t refers to a federation
which is an association of two and more
states. A federal state is a union of state in
which authority is divided between the
federal %or central& government and the
state governments. !n a federal economy
both the centre and the states are
independent in the e$ercise of this
authority.
2iduciary .ssueIenerally ban-note are
baced by gold. (ut when they are not
baced by gold and government securities
replace gold, it is called fduciary issue.
6uch fduciary issue results in in'ation.
2ertility Rate
The term fertility refers to the actual
bearing of children or Roccurrence of birthsH.
:ertility rate measures the average number
of the live births per =@@@ women. This rate
is one of the most important and useful
aids to population pro1ection. !t helps in
assessing population trends in the
economy.
2iscal %olicy:iscal policy is that part of
government economic policy which deals
with ta$ation, e$penditure, borrowing, and
the management of public debt in the
economy. :iscal policy primarily concerns
itself with the 'ow of funds in the economy.
:iscal policy primarily concerns itself with
the 'ow of funds in the economy. !t e$erts a
very powerful in'uence on the woring of
economy as a whole.
3!M
IE. %Iender Empowerment .easure& is a
composite inde$ measuring gender
ine"uality in three basic dimensions of
empowerment7economic participation and
decision maing, political participation and
decision maing, and power over economic
resources.
3*.
I5! %Iender 0elated 5evelopment !nde$& is
a composite inde$ measuring average
achievement in the three basic dimensions
captured in the human development inde$7
a long and healthy life, nowledge and a
decent standard of living7ad1usted to
account for ine"ualities between men and
women.
3ini-coeAcient!t represents the
measurement of ine"uality derived from
the RGorenz *urve,H with every increase in
the degree of ine"uality, the curvature of
the Gorenz *urve also increases and
the area between the curve and C4V line
becomes larger.
The Iini-coe9cient is measured asU
I WArea between Gorenz *urve F C4V
Gine;Area above the C4V Gine
3iAn 3oods
Ii9n goods have the positive relationship
between price and "uantity demanded and
as a result demand curve of Ii9n goods
slopes upward from left to right. This
phenomenon was frst observed by 6ir
0obert Ii9n in relation to the demand for
bread by poor labours.
3res$am,s -a#
T(ad money %if not limited in "uantity&
drives good money out of circulationKUThis
statement was given by 6ir Thomas
Iresham, the economic Adviser of Nueen
Elizabeth. This law states that people
always want to hoard good money and
spend bad money when two forms of
money are in circulation at the same time.
3ross *omestic %roduct (3*%)!t is the
money value of all fnal goods and services
produced within the geographical
boundaries of the country during a given
period of time %usually a year&. I5< can be
calculated both at current prices and at
constant prices. !f we add net factor income
from abroad to the I5<, we get RIross
8ational <roductH %I8<&.
3ross ational %roduct (3%)
!t refers to the money value of total output
or production of fnal goods and services
produced by the nationals of a country
during a given period of time, generally a
year.
3ross ational %roduct *e@ator
!t is a <rice !nde$ 8umber used to correct
the money value of Iross 8ational <roduct
%I8<& for price changes so as to isolate the
changes which have taen place in the
physical output of goods and services.
3uild Socialism
This form of socialism accepts the
leadership of artisans. The operation of the
whole economy specially the management
and control of industries lies in the hands of
artisans 6ocialism established by artisans is
termed a Iuild 6ocialism.
H*.
/5! %/uman 5evelopment !nde$& is a
composite inde$ measuring average
achievement in three basic dimensions of
human life7a long and healthy life,
nowledge and a decent standard of living.
.m'ort *uty
!mport duty is a ta$ on imports imposed on
an ad-valorem basis i.e., f$ed in the form
of a percentage on the value of the
commodity imported.
.ndirect (a7
!ndirect ta$ is that ta$ which is levied on
goods or services produced or purchased.
!ndirect ta$es are those which are
demanded from one person in the
e$pectation and intention that he shall
indemnify himself at the e$pense to
another.
.n@ation
A situation of a steady and sustained rise in
general prices is usually nown as in'ation.
!n'ation is a state in which the value of
money is falling i.e., prices are rising.
;oint *emand
Boint demand appears in case of
complementary goods. -hen two
commodities are complementary to one
another and cannot be used separately,
they have 1oint demand. (read and butter,
sugar and tea, pen and in are a few
e$amples of 1oint demand. !n 1oint demand
a change in demand of one commodity
bring about the proportionate change in
demand for the other.
;oint Sector
-hen a sector is 1ointly owned, managed
and run by both public and private sector, it
is called 1oint sector. This sector indicates
the partnership between the two i.e., public
and private sector.
-abour >nion
Gabour union represents that organisation
of worers which wors for improving
woring condition of labours and also for
raising their wage by adopting Rcollective
bargainingH measures with the
management of the industry in particular.
-a:er )urve
This curve is given by American economist
<rof. Arthur Ga,er. !t represents relationship
between total ta$ revenue and
corresponding ta$ rates.
-aisse" 2aire
!t is a :rench word meaning Rnon-
interferenceH. This doctrine was popularised
by classical economists who gave the view
that government should interfere as little
as possible in the economic activities of the
individuals.
-i0e !7'ectancy at Birt$
The number of years a newborn infant
would live if prevailing pattern of age
specifc mortality rates at the time of birth
were to stay the same throughout the
childHs life.
-iquidation
!t refers to the termination %or winding up&
of a registered company. Gi"uidation taes
place because of company's insolvency. !n
li"uidation, assets are turned into cash for
settling outstanding debts and for
apportioning the balance, if any, amongst
the owners.
-iquidity
Assets which can easily be converted into
cash money are said to have li"uidity. Gand
does not possess li"uidity at it taes longer
time to get converted into cash.
-iquidity Ratio
The commercial bans under baning
regulations have to maintain a certain
specifed proportion of their total deposits
of various categories in li"uid assets. This
maintainable proportion is called li"uidity
ratio.
-ock-out
Goc-out refers to such a situation when the
management does not permit the worers
to wor unless they agree to accept the
employer's term. Goc-out is the closing of
wor by the management for an uncertain
period of time to put pressure on the labour
union. !t is an action by the employer
e"uivalent to a strie by employees.
-orent" )urve
This curve shows the degree of ine"ualities
of a fre"uency distribution in a graphical
manner. !t is a curve on a graph which
shows the cumulative proportion of a
statistical population against this
cumulative share of some characteristic.
This curve is commonly used to depict
income distribution showing the cumulative
percentage of people from the poorest up
and their cumulative share of national
income.
-um' Sum (a7
Gump sum ta$ is a f$ed amount which has
imperative nature irrespective of the
income level. This ta$ is not e"uitable in
nature.
Merit 3oods
.erit goods refer those goods that are very
essential to the society as a whole and
hence the government ensures their
availability to all consumers, regardless of
their ability to pay to reasonable price.
Mi7ed !conomy!t refers to that economic
system in which both private and public
sector co-e$ists. !ndian economy is an
e$ample of a mi$ed economy.
Monetary %olicy
.onetary policy comprises all measures
applied by the monetary authorities with a
view to produce a deliberate impact on the
nature and volume of money so as to
achieve the ob1ectives of general economic
policy. !t aims at regulating the 'ow of
currency, credit and other money
substitutes in an economy with a view to
a,ect the total stoc of such assets as well
as to in'uence the demand of the
community for such assets.
Monetary Re0orms
-hen a new currency is introduced in a
country due to hyperin'ation or due to a
deliberate policy measure %such as
decimalization& it is termed as monetary
reform.
Mono'oly
.onopoly refers to that maret structure
where there is only one seller in the maret
who controls the entire maret supply and
no substitute of the product is available in
the maret.
Mono'sony
.onopsony is that maret situation in
which there is only one single buyer of the
product in the maret. !n other word,
Rbuyer's monopolyH is termed as
monopsony.
Multinational )om'any
!t is a large scale company which has its
production base in several countries and
the bul of the production is produced in
outside nations. This company produces
more overseas
than they do in its parent country.
!ncreased trade and economies of scale
have encouraged such type of companies
in the recent years.
ational .ncome
!n the simplest way it can be defned as
Rfactor income accruing to the national
residents of a country.H !t is the sum of
domestic factor income and net factor
income earned from abroad. 8et national
product at factor cost is called national
income.
et ational %roduct (%)
-hen depreciation is deducted from I8<
i.e., Iross 8ational <roduct, we get 8et
8ational <roduct %88<&.
+ligo'oly
+ligopoly is that form of imperfect
competition in which there are only a few
frms in the industry %or group& producing
either homogeneous products or may be
having product di,erentiation in a given
line of production.
+'en !conomy
+pen economy is that economy which is
left free and the government imposes no
restrictions on trade with areas outside that
economy.
+kunBs -a#
Arthur +un presented an empirical
relationship between cyclical movements in
I8< and unemployment. +un found that
an annual ?X4E increase in the rate of real
growth above the trend growth results in a
=E decrease in the rate of unemployment.
This relationship is nown as +unHs Gaw.
%er0ect )om'etition
<erfect competition is the maret in which
there are many frms selling identical
products with no frm large enough relative
to the entire maret to be able to in'uence
maret price.
%overty -ine
<overty line is a virtual line demarcating
persons living below and above it. !n !ndia
all those persons are treated living below
poverty line who are not able to earn that
much of income which is not su9cient to
ac"uire food e"uivalent to ?=@@ calories
per person per day in urban areas and
?C@@ calories per person per day in rural
areas. As per )85<, one )6 dollar %=>>2
<<< )6 Y& per person per day is treated as
poverty line.
%C-.
<NG! is nown as <hysical Nuality of Gife
!nde$ which is used to assess the level of
social development. This inde$ was
developed by Bim Irant for The +verseas
5evelopment *ouncil <NG! is calculated by
using indices of %i& Adult literacy rate, %ii&
!.0, %iii& Gife E$pectancy.
%rice Mec$anism
<rice mechanism signifes the woring of
those maret forces which establishes
e"uilibrium in the economy. Gaissez faire
policy is the basis for theworing of price
mechanism.
%rice Ring
!t is an uno9cial syndicate by which the
prices are controlled with the prior
understanding among the traders. These
dealers under a price ring decide not to
over-bid one another at the public auction
to eep the prices low. This price ring may
discourage outsiders from coming to the
auctions.
%rivate Sector
<rivate 6ector is that part of the economy
which is not owned by the government and
is under the hands of private enterprise. !n
other words, private sector is not under
direct government control. <rivate sector
includes the personal as well as the
corporate sector.
%rivatisation
<rivatisation is the antithesis of
nationalisation. -hen the government
owned public industries are denationalised
and the disinvestment process is initiated,
it is called privatisation.
%ublic *ebt
<ublic debt represents borrowing by the
state and public authorities. All loans taen
by the public authorities constitute public
debt.
%ublic 3oods
<ublic goods are those goods which belong
to the entire community. 8one of the
individual of the society can be made
deprived of using these public goods.
8ational defence, <olice, 6treet lighting etc.
are e$amples of public goods.
%ublic Sector<ublic sector signifes those
undertaings which are owned, managed
and run by public authorities. <ublic sector
includes direct government enterprise, the
nationalized industries and public
corporations. !n this sector of the economy
the government acts itself as an
entrepreneur.
%eril %oint
!t indicates that point beyond which tari,
reductions would threaten the e$istence of
domestic industry.
Cuick Asset
Those assets are "uic assets which are
li"uid or nearly li"uid in nature and easily
be turned into cash.
Cuoted )om'any
That company is called "uoted company
whose share prices are "uoted on a stoc
e$change.
Re@ation
!t signifes general increase in the level of
business activity in the economy. 0e'ation
generally involves greater government
e$penditure and the easing of credit to
encourage increased production.
Regressive (a7
!t is a ta$ in which rate of ta$ation falls with
an increase in income. !n regressive
ta$ation incidence falls more on people
having lower incomes than that of those
having higher incomes.
Re'ressed .n@ation
!t is a state in which aggregate demand is
greater than the total supply of goods and
services in an economy, but prices are
prevented from rising to eliminate e$cess
demand. The holding down of price is
sometimes done by government as a
means of suppressing in'ation.
Reserve Asset Ratio
!t is the ratio of a banHs reserve assets to
its eligible liabilities.
Revolving )redit
!t is a ban credit that is renewed
automatically until notice of cancellation is
received. 0evolving credits may be
sanctioned for an unlimited amount in total
but with a limit on
the amount that may be drawn at any one
time or within a specifed period, e.g., one
month.
Seasonal >nem'loyment!t is that
unemployment which is caused by seasonal
variation in demand for labour by various
industries, such as agriculture, construction
and tourism. 6easonal unemployment
normally declines in spring as more outdoor
wor can be undertaen.
Security
6ecurity refers to a share, bond or
government stoc that can be bought and
sold, usually on the stoc e$change or on a
secondary maret, and carries a right to
some form of income, either in the form of
a f$ed rate of interest or dividends.
S$ado# %rice!t is an imputed value for a
good based on the opportunity costs of the
resources used to produce it such values
are of particular signifcance in resolving
problems of resource allocating with
respect to the e,ect on welfare.
S$are )a'ital
!t is the amount of money raised by a
company by issuing shares. The authorized
share capital is the amount that a company
is allowed to issue as laid down in its
Articles of Association. The issued share
capital is the amount actually issued i.e.,
the number of issued shares multiplied by
their par value. :ully paid share capital is
the amount raised by payment of the full
par value of the issued shares.
Single (a7 System
!t is a system in which all ta$ revenues are
raised from one form of ta$ation.
Socialism
The political doctrine that the means of
production %machines, materials and
output& should be owned by society and
specifcally either by the state, as in the
case of nationalized industries or by the
worers directly, as in the case of producer
co-operatives.
Social Security<rovision by the state out
of ta$ation of welfare assistance to those in
need as a result of illness, unemployment,
or old age compare national insurance
refers to social security.
So0t )urrencyA currency with limited
convertibility into gold and other
currencies, either because it is depreciating
due to balance of payments di9culties or
because controls have been placed on it to
prevent the e$change rate falling.
S'ecial *ra#ing Rig$ts (S*Rs)
!t is a reserve asset %nown as R<aper IoldH&
created within the framewor of the
!nternational .onetary :und in an attempt
to increase international li"uidity, and now
forming a part of countries o9cial reserves
along with gold, reserve positions in the !.:
and convertible foreign currencies.
S'ecial (a7 (>nit (a7)
!t is a ta$ imposed per unit of a commodity
rather than on the value of the commodity
compare ad-valorem.
Stabili"ation %olicy
!t is Iovernment economic policy
announced at reducing the cyclical and
other 'uctuations that tae place in a
maret economy.
Stag@ation
!t is a state of the economy in which
economic activity is slowing down, but
wages and prices continue to rise. The term
is a blend of the words stagnation and
in'ation.
Sur'lus 1alue
!t is the di,erence between the amount
paid to a factor and the revenue earned by
selling the output it produced.
(ari:
!t is a ta$ or a duty on imports, which can
be levied either on physical units, e.g., per
tonne %specifc&, or on value %ad-valorem&.
Tari,s may be imposed for a variety of
reasons includingL to raise government
revenue, to protect domestic industry from
subsidized or low-wage imports, to boost
domestic employment, or to ease a defcit
on the balance of payments.
(rade 3a'
!t signifes the size of the defcit %or surplus&
in the balance of trade i.e., the di,erence in
value between visible imports and e$ports.
(rade >nion
!t is an organisation of employees who 1oin
together to further their interests. Trade
)nions negotiate on behalf of their
members in collective bargaining with
employers, and in the event of a dispute
may put pressure on employers by
withdrawing labour %i.e. strie& or by some
less drastic form of action %i.e. go-slow,
woring to rule&.
(rans0er %ayment!t is a payment made by
public authority other than one made in
e$change for goods or services produced.
Transfer payments are not the part of
8ational !ncome. E$amples includes
unemployment beneft and child benefts.
1ital Statistics
Oital statistics refers to those data which
are associated with vital events of masses
lie birth, death, marriage divorce etc.
1A( (1alue Added (a7)
OAT sees to ta$ the value added at every
stage of manufacturing and sale, with a
provision of refunding the amount of OAT
already paid at the earlier stages to avoid
double ta$ation. !n other words, the ta$
already paid can be claimed at the ne$t
stage of value addition.
6ealt$ (a7
-ealth ta$ is that ta$ which is imposed on
the value of total assets but the wealth
upto a certain limit is e$empted from such
ta$.
6el0are State
!t refers to a nation that provides to all at
least the minimum standards in respect of
education, health, housing, pensions and
other social benefts.
6$olesale %rice .nde7
-holesale <rice !nde$ is that inde$ which is
calculated on the basis of wholesale prices.
!t is calculated in a similar way to the 0etail
<rice !nde$.