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 specific 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
file with the bank. The signature authorizes
that person to conduct business on behalf
of the account.
Acquiring Bank: In a merger, the bank
that absorbs the bank acquired.
Accrued interest: Interest 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 known as variable-rate mortgages. The
initial interest rate is usually below that of
conventional fixed-rate loans. The interest
rate may change over the life of the loan as
market conditions change. There is
typically a maximum (or ceiling) and a
minimum (or floor) defined in the loan
agreement. If interest rates rise, so does
the loan payment. If interest rates fall, the
loan payment may as well.
Arbitrage: Buying a financial instrument in
one market in order to sell the same
instrument at a higher price in another
market.
Adverse Action: Under the Equal Credit
Opportunity Act, a creditor's refusal to
grant credit on the terms requested,
termination of an existing account, or an
unfavorable change in an existing account.
Adverse Action Notice: The notice
required by the Equal Credit Opportunity
Act advising a credit applicant or existing
debtor of the denial of their request for
credit or advising of a change in terms
considered unfavorable to the account
holder.
AER: Annual earnings rate on an
investment.
Alteration: Any change involving an
erasure or rewriting in the date, amount, or
payee of a check or other negotiable
instrument.
Amortization: The process of reducing
debt through regular installment payments
of principal and interest that will result in
the payoff of a loan at its maturity.

Anytime Banking: With introduction of

ATMs, Tele-Banking and internet banking,
customers can conduct their business
anytime of the day and night. The 'Banking
Hours' is not a constraint for transacting
banking business.
Anywhere Banking : Refers to banking
not only by ATMs, Tele-Banking and internet
banking, but also to core banking solutions
brought in by banks where customer can
deposit his money, cheques and also
withdraw money from any branch
connected with the system. All major banks
in India have brought in core banking in
their operations to make banking truly
anywhere banking.
Annual Percentage Rate (APR): The
cost of credit on a yearly basis, expressed
as a percentage.
Annual Percentage Yield (APY): A
percentage rate reflecting the total amount
of interest paid on a deposit account based
on the interest rate and the frequency of
compounding for a 365-day year.
Annuity : A life insurance product which
pays income over the course of a set
period. Deferred annuities allow assets to
grow before the income is received and
immediate annuities (usually taken from a
year after purchase) allow payments to
start from about a year after purchase.
APR: The annual percentage rate of
interest, usually on a loan or mortgage,
usually displayed in brackets and
representing the true cost of the loan or
mortgage as it shows any additional
payments beyond the interest rate.
Application: Under the Equal Credit
Opportunity Act (ECOA), an oral or written
request for an extension of credit that is
made in accordance with the procedures
established by a creditor for the type of
credit requested.
Appraisal: The act of evaluating and
setting the value of a specific piece of
personal or real property.
Ask Price: The lowest price at which a
dealer is willing to sell a given security.
Asset-Backed Securities (ABS): A type
of security that is backed by a pool of bank
loans, leases, and other assets. Most ABS
are backed by auto loans and credit cards
these issues are very similar to mortgagebacked securities.
At-the-money: The exercise price of a
derivative that is closest to the market
price of the underlying instrument.
ATM: ATMs are Automatic Teller Machines,
which do the job of a teller in a bank
through Computer Network. ATMs are

located on the branch premises or off

branch premises. ATMs are useful to
dispense cash, receive cash, accept
cheques, give balances in the accounts and
also give mini-statements to the customers.
Authorization: The issuance of approval,
by a credit card issuer, merchant, or other
affiliate, to complete a credit card
transaction.
Automated Clearing House (ACH): A
computerized facility used by member
depository institutions to electronically
combine, sort, and distribute inter-bank
credits and debits. ACHs process electronic
transfers of government securities and
provided customer services, such as direct
deposit of customers' salaries and
government benefit payments (i.e., social
security, welfare, and veterans'
entitlements), and preauthorized transfers.
Automated Teller Machine (ATM): A
machine, activated by a magnetically
encoded card or other medium that can
process a variety of banking transactions.
These include accepting deposits and loan
payments, providing withdrawals, and
transferring funds between accounts.
Automatic Bill Payment: A checkless
system for paying recurring bills with one
authorization statement to a financial
institution. For example, 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 Clearing House (ACH).
Availability Date: Bank's policy as to
when funds deposited into an account will
be available for withdrawal.
Availability Policy: Bank'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 Credit: The difference 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 Public, Repayable on demand or
otherwise and withdraw able by cheques,
drafts, order, etc.
Bank Ombudsman: Bank Ombudsman is
the authority to look into complaints
against Banks in the main areas of
collection of cheque / bills, issue of demand
drafts, non-adherence to prescribed hours

of working, failure to honour guarantee /

letter of credit commitments, operations in
deposit accounts and also in the areas of
loans and advances where banks flout
directions / instructions of RBI. This Scheme
was announced in 1995 and is functioning
with new guidelines from 2007. This
scheme covers all scheduled banks, the
RRBs and co-operative banks.
Bancassurance: Bancassurance refers to
the distribution of insurance products and
the insurance policies of insurance
companies which may be life policies or
non-life policies like home insurance - car
insurance, medi-policies and others, by
banks as corporate agents through their
branches located in different parts of the
country by charging a fee.
Banker's Lien: Bankers lien is a special
right of lien exercised by the bankers, who
can retain goods bailed to them as a
security for general balance of account.
Bankers can have this right in the absence
of a contract to the contrary.
Basel-II: The Committee on Banking
Regulations and Supervisory Practices,
popularity known as Basel Committee,
submitted its revised version of norms in
June, 2004. Under the revised accord the
capital requirement is to be calculated for
credit, market and operational risks. The
minimum requirement continues to be 8%
of capital fund (Tier I & II Capital) Tier II
shall continue to be not more than 100% of
Tier I Capital.
Brick & Mortar Banking: Brick and
Mortar Banking refers to traditional system
of banking done only in a fixed branch
premises made of brick and mortar. Now
there are banking channels like ATM,
Internet Banking, tele banking etc.
Business of Banking : Accepting
deposits, borrowing money, lending money,
investing, dealing in bills, dealing in Foreign
Exchange, Hiring Lockers, Opening Safe
Custody Accounts, Issuing Letters of Credit,
Travelers Cheques, doing Mutual Fund
business, Insurance Business, acting as
Trustee or doing any other business which
Central Government may notify in the
official Gazette.
Bouncing of a cheque: Where an account
does not have sufficient balance to honour
the cheque issued by the customer, the
cheque is returned by the bank with the
reason "funds insufficient" or "Exceeds
arrangement. This is known as 'Bouncing
of a cheque.
Basis Point: One hundredth of 1%. A
measure normally used in the statement of

interest rate e.g., a change from 5.75% to

5.81% is a change of 6 basis points. Bear
Markets: Unfavorable markets associated
with falling prices and investor pessimism.
Bid-ask Spread: The difference between a
dealerss bid and ask price.
Bid Price: The highest price offered by a
dealer to purchase a given security.
Blue Chips: Blue chips are unsurpassed in
quality and have a long and stable record
of earnings and dividends. They are issued
by large and well-established firms that
have impeccable financial credentials.
Bond: Publicly traded long-term debt
securities, issued by corporations and
governments, whereby the issuer agrees to
pay a fixed amount of interest over a
specified period of time and to repay a
fixed amount of principal at maturity.
Book Value: The amount of stockholders
equity in a firm equals the amount of the
firms assets minus the firms liabilities and
preferred stock.
Broker: Individuals licensed by stock
exchanges to enable investors to buy and
sell securities.
Brokerage Fee: The commission charged
by a broker.
Bull Markets: Favorable markets
associated with rising prices and investor
optimism.
Call Option: The right to buy the
underlying securities at a specified exercise
price on or before a specified expiration
date.
Callable Bonds: Bonds that give the
issuer the right to redeem the bonds before
their stated maturity.
Capital Gain: The amount by which the
proceeds from the sale of a capital asset
exceed its original purchase price.
Capital Markets: The market in which
long-term securities such as stocks and
bonds are bought and sold.
Certificate of Deposits (CDs): Savings
instrument in which funds must remain on
deposit for a specified period and
premature withdrawals incur interest
penalties.
Certificate of Deposit:. Certificate of
Deposits are negotiable receipts in bearer
form which can be freely traded among
investors. This is also a money market
instrument,issued for a period ranging from
7 days to f one year .The minimum deposit
amount is Rs. 1 lakh and they are
transferable by endorsement and delivery.
Cheque: Cheque is a bill of exchange
drawn on a specified banker ordering the

banker to pay a certain sum of money to

the drawer of cheque or another person.
Money is generally withdrawn by clients by
cheques. Cheque is always payable on
demand.
Cheque Truncation: Cheque truncation
truncates or stops the flow of cheques
through the banking system. Generally
truncation takes place at the collecting
branch, which sends the electronic image
of the cheques to the paying branch
through the clearing house and stores the
paper cheques with it.
Closed-end (Mutual) Fund: A fund with a
fixed number of shares issued, and all
trading is done between investors in the
open market. The share prices are
determined by market prices instead of
their net asset value.
Collateral: A specific asset pledged
against possible default on a bond.
Mortgage bonds are backed by claims on
property. Collateral trusts bonds are backed
by claims on other securities. Equipment
obligation bonds are backed by claims on
equipment.
Commercial Paper: Short-term and
unsecured promissory notes issued by
corporations with very high credit
standings.
Common Stock: Equity investment
representing ownership in a corporation;
each share represents a fractional
ownership interest in the firm.
Compound Interest: Interest paid not
only on the initial deposit but also on any
interest accumulated from one period to
the next.
Contract Note: A note which must
accompany every security transaction
which contains information such as the
dealers name (whether he is acting as
principal or agent) and the date of contract.
Controlling Shareholder: Any person
who is, or group of persons who together
are, entitled to exercise or control the
exercise of a certain amount of shares in a
company at a level (which differs by
jurisdiction) that triggers a mandatory
general offer, 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 majority of the board of
directors of the issuer.
Convertible Bond: A bond with an option,
allowing the bondholder to exchange the
bond for a specified number of shares of
common stock in the firm. A conversion
price is the specified value of the shares for
which the bond may be exchanged. The

conversion premium is the excess of the

bonds value over the conversion price.
Corporate Bond: Long-term debt issued
by private corporations.
Coupon: The feature on a bond that
defines the amount of annual interest
income.
Coupon Frequency: The number of
coupon payments per year.
Coupon Rate: The annual rate of interest
on the bonds face value that a bonds
issuer promises to pay the bondholder. It is
the bonds interest payment per dollar of
par value.
Covered Warrants: Derivative call
warrants on shares which have been
separately deposited by the issuer so that
they are available for delivery upon
exercise.
Credit Rating: An assessment of the
likelihood of an individual or business being
able to meet its financial obligations. Credit
ratings are provided by credit agencies or
rating agencies to verify the financial
strength of the issuer for investors.
Collecting Banker: Also called receiving
banker, who collects on instruments like a
cheque, draft or bill of exchange, lodged
with himself for the credit of his customer's
account.
Consumer Protection Act: It is
implemented from 1987 to enforce
consumer rights through a simple legal
procedure. Banks also are covered under
the Act. A consumer can file complaint for
deficiency of service with Consumer District
Forum for amounts upto Rs.20 Lacs in
District Court, and for amounts above Rs.20
Lacs to Rs.1 Crore in State Commission and
for amounts above Rs.1 Crore in National
Commission.
Co-operative Bank : An association of
persons who collectively own and operate a
bank for the benefit of consumers /
customers, like Saraswat Co-operative Bank
or Abhyudaya Co-operative Bank and other
such banks.
Co-operative Society : When an
association of persons collectively own and
operate a unit for the benefit of those using
its services like Apna Bazar Co-operative
Society or Sahakar Bhandar or a Cooperative Housing Society.
Core Banking Solutions (CBS): Core
Banking Solutions is a buzz word in Indian
banking at present, where branches of the
bank are connected to a central host and
the customers of connected branches can
do banking at any breach with core banking
facility.

Creditworthiness: It is the capacity of a

borrower to repay the loan / advance in
time along with interest as per agreed
terms.
Crossing of Cheques: Crossing refers to
drawing two parallel lines across the face of
the cheque. A crossed cheque cannot be
paid in cash across the counter, and is to
be paid through a bank either by transfer,
collection or clearing. A general crossing
means that cheque can be paid through
any bank and a special crossing, where the
name of a bank is indicated on the cheque,
can be paid only through the named bank.
Customer: A person who maintains any
type of account with a bank is a bank
customer. Consumer Protection Act has a
wider definition for consumer as the one
who purchases any service for a fee like
purchasing a demand draft or a pay order.
The term customer is defined differently by
Laws, softwares and countries.
Current Account: Current account with a
bank can be opened generally for business
purpose. There are no restrictions on
withdrawals in this type of account. No
interest is paid in this type of account.
Currency Board: A monetary system in
which the monetary base is fully backed by
foreign reserves. Any changes in the size of
the monetary base have to be fully
matched by corresponding changes in the
foreign reserves.
Current Yield: A return measure that
indicates the amount of current income a
bond provides relative to its market price. It
is shown as: Coupon Rate divided by Price
multiplied by 100%.
Custody of Securities: Registration of
securities in the name of the person to
whom a bank is accountable, or in the
name of the banks nominee; plus
deposition of securities in a designated
account with the banks bankers or with
any other institution providing custodial
services.
Debit Card: A plastic card issued by banks
to customers to withdraw money
electronically from their accounts. When
you purchase things on the basis of Debit
Card the amount due is debited
immediately to the account. Many banks
issue Debit-Cum-ATM Cards.
Debtor: A person who takes some money
on loan from another person.
Demand Deposits: Deposits which are
withdrawn on demand by customers. E.g.
savings bank and current account
deposits.

Demat Account: Demat Account concept

has revolutionized the capital market of
India. When a depository company takes
paper shares from an investor and converts
them in electronic form through the
concerned company, it is called
Dematerialization of Shares. These
converted Share Certificates in Electronic
form are kept in a Demat Account by the
Depository Company, like a bank keeps
money in a deposit account. Investor can
withdraw the shares or purchase more
shares through this demat Account.
Derivative Call (Put) Warrants:
Warrants issued by a third party which
grant the holder the right to buy (sell) the
shares of a listed company at a specified
price.
Derivative Instrument: Financial
instrument whose value depends on the
value of another asset.
Discount Bond: A bond selling below par,
as interest in-lieu to the bondholders.
Dishonour of Cheque: Non-payment of a
cheque by the paying banker with a return
memo giving reasons for the non-payment.
Default Risk: The possibility that a bond
issuer will default ie, fail to repay principal
and interest in a timely manner.
Diversification: The inclusion of a number
of different investment vehicles in a
portfolio in order to increase returns or be
exposed to less risk.
Duration: A measure of bond price
volatility, it captures both price and
reinvestment risks to indicate how a bond
will react to different interest rate
environments.
Earnings: The total profits of a company
after taxation and interest.
Earnings per Share (EPS): The amount
of annual earnings available to common
stockholders as stated on a per share basis.
Earnings Yield: The ratio of earnings to
price (E/P). The reciprocal is price earnings
ratio (P/E).
E-Banking : E-Banking or electronic
banking is a form of banking where funds
are transferred through exchange of
electronic signals between banks and
financial institution and customers ATMs,
Credit Cards, Debit Cards, International
Cards, Internet Banking and new fund
transfer devices like SWIFT, RTGS belong to
this category.
EFT - (Electronic Fund Transfer): EFT is
a device to facilitate automatic
transmission and processing of messages
as well as funds from one bank branch to

another bank branch and even from one

branch of a bank to a branch of another
bank. EFT allows transfer of funds
electronically with debit and credit to
relative accounts.
Either or Survivor: Refers to operation of
the account opened in two names with a
bank. It means that any one of the account
holders have powers to withdraw money
from the account, issue cheques, give stop
payment instructions etc. In the event of
death of one of the account holder, the
surviving account holder gets all the
powers of operation.
Electronic Commerce (E-Commerce): ECommerce is the paperless commerce
where the exchange of business takes
place by Electronic means.
Endorsement: When a Negotiable
Instrument contains, on the back 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 of a cheque: Where the name
of the endorsee or transferee is not
mentioned on the instrument.
Endorsement in Full: Where the name of
the endorsee or transferee appears on the
instrument while making endorsement.
Equity: Ownership of the company in the
form of shares of common stock.
Equity Call Warrants: Warrants issued by
a company which give the holder the right
to acquire new shares in that company at a
specified price and for a specified period of
time.
Ex-dividend (XD): 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). For transactions during
the ex-dividend period, the seller will
receive the dividend, not the buyer. Exdividend status is usually indicated in
newspapers with an (x) next to the stocks
or unit trusts name.
Execution of Documents: Execution of
documents is done by putting signature of
the person, or affixing his thumb
impression or putting signature with stamp
or affixing common seal of the company on
the documents with or without signatures
of directors as per articles of association of
the company.
Face Value/ Nominal Value: The value of
a financial instrument as stated on the

instrument. Interest is calculated on

face/nominal value.
Fixed-income Securities: Investment
vehicles that offer a fixed periodic return.
Fixed Rate Bonds: Bonds bearing fixed
interest payments until maturity date.
Floating Rate Bonds: Bonds bearing
interest payments that are tied to current
interest rates.
Factoring: Business of buying trade debts
at a discount and making a profit when
debt is realized and also taking over
collection of trade debts at agreed prices.
Foreign Banks: Banks incorporated
outside India but operating in India and
regulated by the Reserve Bank of India
(RBI),. e..g., Barclays Bank, HSBC, Citibank,
Standard Chartered Bank, etc.
Forfeiting: In International Trade when an
exporter finds it difficult to realize money
from the importer, he sells the right to
receive money at a discount to a forfaiter,
who undertakes inherent political and
commercial risks to finance the exporter, of
course with assumption of a profit in the
venture.
Forgery: when a material alteration is
made on a document or a Negotiable
Instrument like a cheque, to change the
mandate of the drawer, with intention to
defraud.
Fundamental Analysis: Research to
predict stock value that focuses on such
determinants as earnings and dividends
prospects, expectations for future interest
rates and risk evaluation of the firm.
Future Value: The amount to which a
current deposit will grow over a period of
time when it is placed in an account paying
compound interest.
Future Value of an Annuity: The amount
to which a stream of equal cash flows that
occur in equal intervals will grow over a
period of time when it is placed in an
account paying compound interest.
Futures Contract: A commitment to
deliver a certain amount of some specified
item at some specified date in the future.
Garnishee Order: When a Court directs a
bank to attach the funds to the credit of
customer's account under provisions of
Section 60 of the Code of Civil Procedure,
1908.
General Lien: A right of the creditors to
retain possession of all goods given in
security to him by the debtor for any
outstanding debt.
Guarantee: A contract between guarantor
and beneficiary to ensure performance of a

promise or discharge the liability of a third

person. If promise is broken or not
performed, the guarantor pays contracted
amount to the beneficiary.
Hedge: A combination of two or more
securities into a single investment position
for the purpose of reducing or eliminating
risk.
Holder: Holder means any person entitled
in his own name to the possession of the
cheque, bill of exchange or promissory note
and who is entitled to receive or recover
the amount due on it from the parties. For
example, if I give a cheque to my friend to
withdraw money from my bank,he becomes
holder of that cheque. Even if he loses the
cheque, he continues to be holder. Finder
cannot become the holder.
Holder in due course : A person who
receives a Negotiable Instrument 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 Negotiable Instrument
Act. In the earlier example if my friend
lends some money to me on the basis of
the cheque, which I have given to him for
encashment, he becomes holder-in-due
course.
Hypothecation: Charge against property
for an amount of debt where neither
ownership nor possession is passed to the
creditor. In pledge, possession of property
is passed on to the lender but in
hypothecation, the property remains with
the borrower in trust for the lender.
Identification: When a person provides a
document to a bank or is being identified
by a person, who is known to the bank, it is
called identification. Banks ask for
identification before paying an order
cheque or a demand draft across the
counter.
Indemnifier: When a person indemnifies
or guarantees to make good any loss
caused to the lender from his actions or
others' actions.
Indemnity: Indemnity is a bond where the
indemnifier undertakes to reimburse the
beneficiary from any loss arising due to his
actions or third party actions.
Income: The amount of money an
individual receives in a particular time
period.
Index Fund: A mutual fund that holds
shares in proportion to their representation
in a market index, such as the S&P 500.
Initial Public Offering (IPO): An event
where a company sells its shares to the

public for the first time. The company can

be referred to as an IPO for a period of time
after the event.
Inside Information: Non-public
knowledge about a company possessed by
its officers, major owners, or other
individuals with privileged access to
information.
Insider Trading: The illegal use of nonpublic information about a company to
make profitable securities transactions
Insolvent: Insolvent is a person who is
unable to pay his debts as they mature, as
his liabilities are more than the assets .
Civil Courts declare such persons insolvent.
Banks do not open accounts of insolvent
persons as they cannot enter into contract
as per law.
Interest Warrant: When cheque is given
by a company or an organization in
payment of interest on deposit , it is called
interest warrant. Interest warrant has all
the characteristics of a cheque.
International Banking: involves more
than two nations or countries. If an Indian
Bank has branches in different countries
like State Bank of India, it is said to do
International Banking.
Introduction: Banks are careful in opening
any account for a customer as the
prospective customer has to be introduced
by an existing account holder or a staff
member or by any other person known to
the bank for opening of account. If bank
does not take introduction, it will amount to
negligence and will not get protection
under law.
Intrinsic Value: The difference of the
exercise price over the market price of the
underlying asset.
Investment: A vehicle for funds expected
to increase its value and/or generate
positive returns.
Investment 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.
IPO price: The price of share set before
being traded on the stock exchange. Once
the company has gone Initial Public
Offering, the stock price is determined by
supply and demand.
JHF Account : Joint Hindu Family Account
is account of a firm whose business is
carried out by Karta of the Joint family,
acting for all the family members.. The
family members have common ancestor

and generally maintain a common

residence and are subject to common
social, economic and religious regulations.
Joint Account: When two or more
individuals jointly open an account with a
bank.
Junk Bond: High-risk securities that have
received low ratings (i.e. Standard & Poors
BBB rating or below; or Moodys BBB rating
or below) and as such, produce high yields,
so long as they do not go into default.
Karta: Manager of a Hindu Undivided
Family (HUF) who handles the family
business. He is usually the eldest male
member of the undivided family.
Kiosk Banking: Doing banking from a
cubicle from which food, newspapers,
tickets etc. are also sold.
KYC Norms: Know your customer norms
are imposed by R.B.I. on banks and other
financial institutions to ensure that they
know their customers and to ensure that
customers deal only in legitimate banking
operations and not in money laundering or
frauds.
Law of Limitation: Limitation Act of 1963
fixes the limitation period of debts and
obligations including banks loans and
advances. If the period fixed for particular
debt or loan expires, one cannot file a suit
for is recovery, but the fact of the debt or
loan is not denied. It is said that law of
limitation bars the remedy but does not
extinguish the right.
Lease Financing: Financing for the
business of renting houses or lands for a
specified period of time and also hiring out
of an asset for the duration of its economic
life. Leasing of a car or heavy machinery for
a specific period at specific price is an
example.
Letter of Credit: A document issued by
importers bank to its branch or agent
abroad authorizing the payment of a
specified sum to a person named in Letter
of Credit (usually exporter from abroad).
Letters of Credit are covered by rules
framed under Uniform Customs and
Practices of Documentary Credits framed
by International Chamber of Commerce in
Paris.
Limited Companies Accounts: Accounts
of companies incorporated under the
Companies Act, 1956 . A company may be
private or public. Liability of the
shareholders of a company is generally
limited to the face value of shares held by
them.

Leverage Ratio: Financial ratios that

measure the amount of debt being used to
support operations and the ability of the
firm to service its debt.
Libor: The London Interbank Offered Rate
(or LIBOR) is a daily reference rate based
on the interest rates at which banks offer to
lend unsecured funds to other banks in the
London wholesale money market (or
interbank market). The LIBOR rate is
published daily by the British Bankers
Association and will be slightly higher than
the London Interbank Bid Rate (LIBID), the
rate at which banks are prepared to accept
deposits.
Limit Order: An order to buy (sell)
securities which specifies the highest
(lowest) price at which the order is to be
transacted.
Limited Company: The passive investors
in a partnership, who supply most of the
capital and have liability limited to the
amount of their capital contributions.
Liquidity: The ability to convert an
investment into cash quickly and with little
or no loss in value.
Listing: Quotation of the Initial Public
Offering companys shares on the stock
exchange for public trading.
Listing Date: The date on which Initial
Public Offering stocks are first traded on
the stock exchange by the public
Margin Call: A notice to a client that it
must provide money to satisfy a minimum
margin requirement set by an Exchange or
by a bank / broking firm.
Market Capitalization: The product of the
number of the companys outstanding
ordinary shares and the market price of
each share.
Market Maker: A dealer who maintains an
inventory in one or more stocks and
undertakes to make continuous two-sided
quotes.
Market Order: An order to buy or an order
to sell securities which is to be executed at
the prevailing market price.
Money Market: Market in which shortterm securities are bought and sold.
Marginal Standing Facility Rate: MSF
scheme has become effective from 09th
May, 2011 launched by the RBI. Under this
scheme, Banks will be able to borrow upto
1% of their respective Net Demand and
Time Liabilities. The rate of interest on the
amount accessed from this facility will be
100 basis points (i.e. 1%) above the repo
rate. This scheme is likely to reduce

volatility in the overnight rates and improve

monetary transmission.
Mandate: Written authority issued by a
customer to another person to act on his
behalf, to sign cheques or to operate a
bank account.
Material Alteration: Alteration in an
instrument so as to alter the character of
an instrument for example when date,
amount, name of the payee are altered or
making a cheque payable to bearer from an
order one or opening the crossing on a
cheque.
Merchant Banking : When a bank
provides to a customer various types of
financial services like accepting bills arising
out of trade, arranging and providing
underwriting, new issues, providing advice,
information or assistance on starting new
business, acquisitions, mergers and foreign
exchange.
Micro Finance: Micro Finance aims at
alleviation of poverty and empowerment of
weaker sections in India. In micro finance,
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 18 years. As
per Contract Act a minor cannot enter into
a contract but as per Negotiable Instrument
Act, a minor can draw, negotiate, endorse,
receive payment on a Negotiable
Instrument so as to bind all the persons,
except himself. In order to boost their
deposits many banks open minor accounts
with some restrictions.
Mobile Banking : With the help of MBanking or mobile banking customer can
check his bank balance, order a demand
draft, stop payment of a cheque, request
for a cheque book and have information
about latest interest rates.
Money Laundering: When a customer
uses banking channels to cover up his
suspicious and unlawful financial activities,
it is called money laundering.
Money Market: Money market is not an
organized market like Bombay Stock
Exchange but is an informal network of
banks, financial institutions who deal in
money market instruments of short term
like CP, CD and Treasury bills of
Government.
Moratorium: R.B.I. imposes moratorium
on operations of a bank; if the affairs of the
bank are not conducted as per banking
norms. After moratorium R.B.I. and
Government explore the options of

safeguarding the interests of depositors by

way of change in management,
amalgamation or take over or by other
means.
Mortgage: Transfer of an interest in
specific immovable property for the
purpose of offering a security for taking a
loan or advance from another. It may be
existing or future debt or performance of an
agreement which may create monetary
obligation for the transferor (mortgagor).
Mutual Fund: A company that invests in
and professionally manages a diversified
portfolio of securities and sells shares of
the portfolio to investors.
NABARD: National Bank for Agriculture &
Rural Development was setup in 1982
under the Act of 1981. NABARD finances
and regulates rural financing and also is
responsible for development agriculture
and rural industries.
Negotiation: In the context of banking,
negotiation means an act of transferring or
assigning a money instrument from one
person to another person in the course of
business.
Net Asset Value: The underlying value of
a share of stock in a particular mutual fund;
also used with preferred stock.
Non-Fund Based Limits: Non-Fund Based
Limits are those type of limits where banker
does not part with the funds but may have
to part with funds in case of default by the
borrowers, like guarantees, letter of credit
and acceptance facility.
Non-Resident: A person who is not a
resident of India is a non-resident.
Non-Resident Accounts: Accounts of
non-resident Indian citizens opened and
maintained as per R.B.I. Rules.
Notary Public: A Lawyer who is authorized
by Government to certify copies of
documents .
NPA Account: If interest and instalments
and other bank dues are not paid in any
loan account within a specified time limit, it
is being treated as non-performing assets
of a bank.
Off Balance Sheet Items: Those items
which affect the financial position of a
business concern, but do not appear in the
Balance Sheet E,g guarantees, letters of
credit . The mention "off Balance Sheet
items" is often found in Auditors Reports or
Directors Reports.
Offer for Sale: An offer to the public by, or
on behalf of, the holders of securities
already in issue.

Offer for Subscription: The offer of new

securities to the public by the issuer or by
someone on behalf of the issuer.
Online Banking: Banking through internet
site of the bank which is made interactive.
Open-end (Mutual) Fund: There is no
limit to the number of shares the fund can
issue. The fund issues new shares of stock
and fills the purchase order with those new
shares. Investors buy their shares from, and
sell them back to, the mutual fund itself.
The share prices are determined by their
net asset value.
Open Offer: An offer to current holders of
securities to subscribe for securities
whether or not in proportion to their
existing holdings.
Option: A security that gives the holder
the right to buy or sell a certain amount of
an underlying financial asset at a specified
price for a specified period of time.
Oversubscribed: When an Initial Public
Offering has more applications than actual
shares available. Investors will often apply
for more shares than required in
anticipation of only receiving a fraction of
the requested number. Investors and
underwriters will often look to see if an IPO
is oversubscribed as an indication of the
publics perception of the business
potential of the IPO company.
Pass Book: A record of all debit and credit
entries in a customer's account. Generally
all banks issue pass books to Savings
Bank/Current Account Holders.
Par Bond: A bond selling at par (i.e. at its
face value).
Par Value: The face value of a security.
Perpetual Bonds: Bonds which have no
maturity date.
Placing: Obtaining subscriptions for, or the
sale of, primary market, where the new
securities of issuing companies are initially
sold.
Personal Identification Number (PIN):
Personal Identification Number is a number
which an ATM card holder has to key in
before he is authorized to do any banking
transaction in a ATM .
Plastic Money: Credit Cards, Debit Cards,
ATM Cards and International Cards are
considered plastic money as like money
they can enable us to get goods and
services.
Pledge: A bailment of goods as security for
payment of a debt or performance of a
promise, e.g pledge of stock by a borrower
to a banker for a credit limit. Pledge can be
made in movable goods only.

Post-Dated Cheque: A Cheque which

bears the date which is subsequent to the
date when it is drawn. For example, a
cheque drawn on 8th of February, 2007
bears the date of 12th February, 2007.
Power of Attorney: It is a document
executed by one person - Donor or
Principal, in favour of another person,
Donee or Agent - to act on behalf of the
former, strictly as per authority given in the
document.
Portfolio: A collection of investment
vehicles assembled to meet one or more
investment goals.
Preference Shares: A corporate security
that pays a fixed dividend each period. It is
senior to ordinary shares but junior to
bonds in its claims on corporate income
and assets in case of bankruptcy.
Premium (Warrants): The difference of
the market price of a warrant over its
intrinsic value.
Premium Bond: Bond selling above par.
Present Value: The amount to which a
future deposit will discount back to present
when it is depreciated in an account paying
compound interest.
Present Value of an Annuity: The
amount to which a stream of equal cash
flows that occur in equal intervals will
discount back to present when it is
depreciated in an account paying
compound interest.
Price/Earnings Ratio (P/E): The measure
to determine how the market is pricing the
companys common stock. The
price/earnings (P/E) ratio relates the
companys earnings per share (EPS) to the
market price of its stock.
Privatization: The sale of governmentowned equity in nationalized industry or
other commercial enterprises to private
investors.
Prospectus: A detailed report published
by the Initial Public Offering company,
which includes all terms and conditions,
application procedures, IPO prices etc, for
the IPO
Put Option: The right to sell the
underlying securities at a specified exercise
price on of before a specified expiration
date.
Premature Withdrawals: Term deposits
like Fixed Deposits, Call Deposits, Short
Deposits and Recurring Deposits have to
mature on a particular day. When these
deposits are sought to be withdrawn before
maturity , it is premature withdrawal.

Prime Lending Rate (PLR): The rate at

which banks lend to their best (prime)
customers.
Priority Sector Advances : consist of
loans and advances to Agriculture, Small
Scale Industry, Small Road and Water
Transport Operators, Retail Trade, Small
Business with limits on investment in
equipments, professional and self
employed persons, state sponsored
organisations for lending to SC/ST,
Educational Loans, Housing Finance up to
certain limits, self-help groups and
consumption loans.
Promissory Note: Promissory Note is a
promise / undertaking 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.
Provisioning: Provisioning is made for the
likely loss in the profit and loss account
while finalizing accounts of banks. All banks
are supposed to make assets classification
and make appropriate provisions for likely
losses in their balance sheets.
Public Sector Bank: A bank fully or partly
owned by the Government.
Rate of Return: A percentage showing the
amount of investment gain or loss against
the initial investment.
Real Interest Rate: The net interest rate
over the inflation rate. The growth rate of
purchasing power derived from an
investment.
Redemption Value: The value of a bond
when redeemed.
Reinvestment Value: The rate at which
an investor assumes interest payments
made on a bond which can be reinvested
over the life of that security.
Relative Strength Index (RSI): A stocks
price that changes over a period of time
relative to that of a market index such as
the Standard & Poors 500, usually
measured on a scale from 1 to 100, 1 being
the worst and 100 being the best.
Repurchase Agreement: An arrangement
in which a security is sold and later bought
back at an agreed price and time.
Resistance Level: A price at which sellers
consistently outnumber buyers, preventing
further price rises.
Return: Amount of investment gain or loss.
Rescheduling of Payment: Rearranging
the repayment of a debt over a longer
period than originally agreed upon due to
financial difficulties of the borrower.
Restrictive Endorsement: Where
endorser desires that instrument is to be

paid to particular person only, he restricts

further negotiation or transfer by such
words as "Pay to Ashok only". Now Ashok
cannot negotiate the instrument further.
Right of Appropriation: As per Section
59 of the Indian Contract Act, 1972 while
making the payment, a debtor has the right
to direct his creditor to appropriate such
amount against discharge of some
particular debt. If the debtor does not do
so, the banker can appropriate the
payment to any debt of his customer.
Right of Set-Off : When a banker
combines two accounts in the name of the
same customer and adjusts the debit
balance in one account with the credit
balance in other account, it is called right of
set-off. For example, debit balance of
Rs.50,000/- in overdraft account can be set
off against credit balance of Rs.75,000/- in
the Savings Bank Account of the same
customer, leaving a balance of Rs.25,000/credit in the savings account.
Rights Issue: An offer by way of rights to
current holders of securities that allows
them to subscribe for securities in
proportion to their existing holdings.
Risk-Averse, Risk-Neutral, Risk-Taking:
Risk-averse describes an investor who
requires greater return in exchange for
greater risk.
Risk-neutral describes an investor who does
not require greater return in exchange for
greater risk.
Risk-taking describes an investor who will
accept a lower return in exchange for
greater risk.
Safe Custody: When articles of value like
jewellery, boxes, shares, debentures,
Government bonds, Wills or other
documents or articles are given to a bank
for safe keeping in its safe vault, it is called
safe custody.. Bank charges a fee from its
clients for such safe custody.
Savings Bank Account: All banks in India
are having the facility of opening savings
bank 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: Conclusion of a securities
transaction when a customer pays a
broker/dealer for securities purchased or

delivered, securities sold, and receive from

the broker the proceeds of a sale.
Short Hedge: A transaction that protects
the value of an asset held by taking a short
position in a futures contract.
Short Position: Investors sell securities in
the hope that they will decrease in value
and can be bought at a later date for profit.
Short Selling: The sale of borrowed
securities, their eventual repurchase by the
short seller at a lower price and their return
to the lender.
Speculation: The process of buying
investment vehicles in which the future
value and level of expected earnings are
highly uncertain.
Stock Splits: Wholesale changes in the
number of shares. For example, a two for
one split doubles the number of shares but
does not change the share capital.
Subordinated Bond: An issue that ranks
after secured debt, debenture, and other
bonds, and after some general creditors in
its claim on assets and earnings. Owners of
this kind of bond stand last in line among
creditors, but before equity holders, when
an issuer fails financially.
Substantial Shareholder: A person
acquires an interest in relevant share
capital equal to, or exceeding, 10% of the
share capital.
Support Level: A price at which buyers
consistently outnumber sellers, preventing
further price falls.
Teller : Teller is a staff member of a bank
who accepts deposits, cashes cheques and
performs other banking services for the
public.
Technical Analysis: A method of
evaluating securities by relying on the
assumption that market data, such as
charts of price, volume, and open interest,
can help predict future (usually short-term)
market trends. Contrasted with
fundamental analysis which involves the
study of financial accounts and other
information about the company. (It is an
attempt to predict movements in security
prices from their trading volume history.)
Time Horizon: The duration of time an
investment is intended for.
Trading Rules: Stipulation of parameters
for opening and intra-day quotations,
permissible spreads according to the prices
of securities available for trading and board
lot sizes for each security.
Trust Deed: A formal document that
creates a trust. It states the purpose and

terms of the name of the trustees and

beneficiaries.
Underwriting : is an agreement by the
underwriter to buy on a fixed date and at a
fixed rate, the unsubscribed portion of
shares or debentures or other issues.
Underwriter gets commission for this
agreement.
Underlying Security: The security
subject to being purchased or sold upon
exercise of the option contract.
Universal Banking : When Banks and
Financial Institutions are allowed to
undertake all types of activities related to
banking like acceptance of deposits,
granting of advances, investment, issue of
credit cards, project finance, venture
capital finance, foreign exchange business,
insurance etc. it is called Universal
Banking.
Valuation: Process by which an investor
determines the worth of a security using
risk and return concept.
Virtual Banking: Virtual banking is also
called internet banking, through which
financial and banking services are accessed
via internet's World Wide Web. It is called
virtual banking because an internet bank
has no boundaries of brick and mortar and
it exists only on the internet.
Warrant: An option for a longer period of
time giving the buyer the right to buy a
number of shares of common stock in
company at a specified price for a specified
period of time.
Wholesale Banking: Wholesale banking is
different from Retail Banking as its focus is
on providing for financial needs of industry
and institutional clients.
Window Dressing: Financial adjustments
made solely for the purpose of accounting
presentation, normally at the time of
auditing of company accounts.
Yield (Internal rate of Return): The
compound annual rate of return earned by
an investment
Yield to Maturity: The rate of return yield
by a bond held to maturity when both
compound interest payments and the
investors capital gain or loss on the
security are taken into account.
Zero Coupon Bond: A bond with no
coupon that is sold at a deep discount from
par value.

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ing-terms.html#ixzz34zXzPoST

Open Market operations(OMO):The

buying and selling of government securities
in the open market in order to expand or
contract the amount of money in the
banking system by RBI. Open market
operations are the principal tools of
monetary policy.
Micro Credit:It is a term used to
extend small loans to very poor people for
self-employment projects that generate
income, allowing them to care for
themselves and their families.
RTGS:The acronym RTGS stands for
Real Time Gross Settlement. RTGS system
is a funds transfer mechanism where
transfer of money takes place from one
bank to another on a real time and
ongross basis. This is the fastest possible
money transfer system through the
banking channel.Settlement in real time
means payment transaction is not
subjected to any waiting
period.The transactions are settled as soon
as they are processed. Gross settlement
means the transaction is settled on one to
one basis without bunching with any other
transaction.
Wholesale Price Index(WPI):The
Wholesale Price Index (WPI) is the index
used to measure the changes in the
average price level of goods traded in
wholesale market. A total of 435
commodity prices make up the index. It is
available on a weekly basis. It is generally
taken as an indicator of the inflation rate in
the Indian economy. The Indian Wholesale
Price Index (WPI) was first published in
1902, and was used by policy makers until
it was replaced by the Producer Price Index
(PPI) in 1978.
Consumer price Index(CPI):It is a
measure estimating the average price of
consumer goods and services purchased
by households.
Venture Capital:Venture capital is
money provided by an outside investor to
finance a new, growing, or troubled
business. The venture capitalist provides
the funding knowing that theres a
significant risk associated with the

companys future profits and cash flow.

Capital is invested in exchange for an
equity stake in the business rather than
given as a loan, and the investor hopes the
investment will yield a better-than-average
return.
Treasury Bills:Treasury Bills (T-Bills)
are short term, Rupee denominated
obligations issued by the Reserve Bank of
India (RBI) on behalf of the Government of
India. They are thus useful in
managing short-term liquidity. At present,
the Government of India issues three types
of treasury bills through auctions, namely,
91-day, 182-day and 364-day. There are no
treasury bills issued by State Governments.
Banking Ombudsmen Scheme:The
Banking Ombudsman Scheme enables an
expeditious and inexpensive forum to
bank customers for resolution of complaints
relating to certain services rendered by
banks. The Banking Ombudsman is a senior
official appointed by the Reserve Bank of
India to redress customer complaints
against deficiency in certain banking
services. The Banking Ombudsman Scheme
was first introduced in India in 1995, and
was revised in 2002. The current scheme
became operative from the 1 January 2006,
and replaced and superseded the banking
Ombudsman Scheme 2002.
Subsidy:A subsidy is a form of financial
assistance paid to a business or economic
sector. Most 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.
Debenture: A debenture is basically an
unsecured loan to a corporation. A type of
debt instrument that is not secured by
physical asset. Debentures are backed only
by the general creditworthiness
and reputation of the issuer.
i)Convertible Debentures: Any type of
debenture that can be converted into some
other security or it can be converted into
stock..
ii)Non-Convertibility Debentures(NCB): Non
Convertible Debentures are those that
cannot be converted into equity shares of
the issuing company, as opposed to
Convertible debentures.
Nonconvertible debentures normally earn a
higher interest rate than convertible
debentures do.
Hedge fund:Hedge means to reduce
financial risk. A hedge fund is an
investment fund open to a limited range of

investors and requires a very large initial

minimum investment. It is important to
note that hedging is actually the practice
of attempting to reduce risk, but the goal of
most hedge funds is to maximize return on
investment.
FCCB:A Foreign Currency Convertible
Bond (FCCB) is a type of convertible bond
issued in a currency different than the
issuers domestic currency. In other words,
the money being raised by the issuing
company is in the form of a foreign
currency. A company may issue an FCCB if
it intends to make a large investment in a
country using that foreign currency.
Capital Account
Convertibility(CAC): It is the freedom to
convert local financial assets into foreign
financial assets and vice versa at market
determined rates of exchange. This means
that capital account convertibility
allows anyone to freely move from local
currency into foreign currency and
back. The Reserve Bank of India has
appointed a committee to set out the
framework for fuller Capital Account
Convertibility. Capital account convertibility
is considered to be one of the major
features of a developed economy. It helps
attract foreign investment. capital account
convertibility makes it easier for domestic
companies to tap foreign markets.
Current Account Convertibility:It
defines at one can import and export goods
or receive or make payments for services
rendered. However, investments and
borrowings are restricted.
Arbitrage:The opportunity to buy an
asset at a low price then immediately
selling it on a different market for a higher
price.
Capitalism:Capitalism as an economy
is based on a democratic political ideology
and produces a free market economy,
where businesses are privately owned and
operated for profit; 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 market and affected
by the forces of supply and demand.
Socialism:Socialism as an economy is
based on a collectivist type of political
ideology and involves the running of
businesses to benefit the common good of
a vast majority of people rather than of
a small upper class segment of society.
Corporate 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. Corporate governance
is the set of processes, customs, policies,
laws, and institutions affecting the way a
corporation (or company) is directed,
administered or controlled.Is defined as the
general set of customs, regulations, habits,
and laws that determine to what end a firm
should be run.
Functions of RBI:
The Reserve Bank of India is the central
bank of India, was established on April 1,
1935 in
accordance with the provisions of the
Reserve Bank of India Act, 1934. The
Reserve Bank of India was set up on the
recommendations of the Hilton Young
Commission. The commission submitted its
report in the year 1926, though the bank
was not set up for nine years.To
regulate the issue of Bank Notes and
keeping of reserves with a view to securing
monetary stability in India and generally to
operate the currency and credit system of
the country to its advantage. Banker to the
Government: performs merchant banking
function for the central and the
state governments; also acts as their
banker.Banker to banks: maintains banking
accounts of all scheduled banks.
Monetary policy:A Monetary policy is
the process by which the government,
central bank, 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 objectives
oriented towards the growth and stability of
the economy.
Fiscal Policy:Fiscal policy is the use of
government spending and revenue
collection to influence the economy. These
policies affect tax rates, interest rates and
government spending, in an effort
to control the economy. Fiscal policy is an
additional method to determine public
revenue and public expenditure.
Core Banking Solutions:Core banking
is a general term used to describe the
services provided by a group of
networked bank branches. Bank customers
may access their funds and other simple
transactions from any of the member
branch offices. It will cut down time,
working simultaneously on different issues
and increasing efficiency. The platform
where communication technology and
information technology are merged to suit
core needs of banking is known as Core
Banking Solutions

E-Governance: E-Governance is the

public sectors use of information and
communication technologies with the aim
of improving information and service
delivery, encouraging citizen participation
in the decision-making process and making
government more accountable,transparent
and effective.
Right to information Act: The Right
to Information act is a law enacted by the
Parliament of India giving citizens of
India access to records of the Central
Government and State overnments.The Act
applies to all States and Union Territories of
India, except the State of Jammu and
Kashmir which is covered under a Statelevel law. This law was passed by
Parliament on 15 June 2005 and came fully
into force on 13 October 2005.
Credit Rating Agencies:The credit
rating agencies in India mainly include ICRA
and CRISIL. ICRA wasformerly referred to
the Investment Information and Credit
Rating Agency of India Limited. Their
main function is to grade the different
sector and companies in terms of
performance and offer solutions for up
gradation. The credit rating agencies in
India mainly include ICRA and CRISIL(Credit
Rating Information Services of India
Limited)
Cheque:Cheque is a negotiable
instrument instructing a Bank to pay a
specific amount from a specified account
held in the maker/depositors name with
that Bank.A bill of exchange drawn on
a specified banker and payable on
demand.Written order directing a bank to
pay money.
Demand Draft:A demand draft is an
instrument used for effecting transfer of
money. It is a Negotiable Instrument.
Cheque and Demand-Draft both are used
for Transfer of money. You can 100% trust a
DD. It is a bankers check. A check may be
dishonored for lack of funds a DD can not.
Cheque is written by an individual and
Demand draft is issued by a bank. People
believe banks more than individuals.
NBFC: A non-banking financial company
(NBFC) is a company registered under the
Companies Act, 1956 and is engaged in the
business of loans and advances, acquisition
of shares/stock/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.

NBFCs are doing functions akin to that of

banks; however there are a few differences:
(i)A NBFC cannot accept demand deposits
(demand deposits are funds deposited at a
depository institution that are payable on
demand immediately or within a very
short period like your current or savings
accounts.)
(ii) it is not a part of the payment and
settlement system and as such cannot
issue cheques to its customers; and
(iii) Deposit insurance facility of DICGC is
not available for NBFC depositors unlike in
case of banks.
NASSCOM:The National Association of
Software and Services Companies
(NASSCOM), the Indian chamber of
commerce is a consortium that serves as
an interface to the Indian software
industry and Indian BPO industry.
Maintaining close interaction with the
Government of India in formulating National
IT policies with specific focus on IT software
and services maintaining a state of the art
information database of IT software and
services related activities for use of
both the software developers as well as
interested companies overseas.
SIDBI: The Small Industries
Development Bank of India is a state-run
bank aimed to aid the growth
and development of micro, small and
medium scale industries in India. Set up in
1990 through an act of parliament, it was
incorporated initially as a wholly owned
subsidiary of Industrial Development Bank
of India.
SENSEX and NIFTY:SENSEX is the
short term for the words Sensitive Index
and is associated with the
Bombay (Mumbai) Stock Exchange (BSE).
The SENSEX was first formed on 1-1-1986
and used the market capitalization of the
30 most traded stocks of BSE. Where as
NSE has 50 most traded stocks of
NSE.SENSEX IS THE INDEX OF BSE. AND
NIFTY IS THE INDEX OF NSE.BOTH WILL
SHOW DAILY TRADING MARKS. Sensex and
Nifty both are an index. An index is
basically an indicator it indicates whether
most of the stocks have gone up or most
of the stocks have gone down.
SEBI: SEBI is the regulator for the
Securities Market in India. Originally set up
by the Government of India in 1988, it
acquired statutory form in 1992 with SEBI
Act 1992 being
passed by the Indian Parliament. Chaired
by C B Bhave.

ASSOCHAM: The Associated Chambers

of Commerce and Industry of India
(ASSOCHAM), Indias premier apex
chamber covers a membership of over 2
lakh companies and professionals across
the country. It was established in 1920 by
promoter chambers, representing all
regions of India. As an apex industry body,
ASSOCHAM represents the interests of
industry and trade, interfaces with
Government on policy issues and interacts
with counterpart international organizations
to promote bilateral economic issues.
President-Swati Piramal
NABARD:NABARD was established by
an act of Parliament on 12 July 1982 to
implement the National Bank for
Agriculture and Rural Development Act
1981. It replaced the Agricultural
Credit Department (ACD) and Rural
Planning and Credit Cell (RPCC) of Reserve
Bank of India, and Agricultural Refinance
and Development Corporation (ARDC). It is
one of the premiere agency to provide
credit in rural areas. NABARD is set up as
an apex Development Bank with a mandate
for facilitating credit flow for promotion and
development of agriculture, smallscale industries, cottage and village
industries, handicrafts and other rural
crafts.
Mutual funds: Mutual funds are
investment companies that pool money
from investors at large and offer to sell and
buy back its shares on a continuous basis
and use the capital thus raised to invest
in securities of different 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 Companies: A
company that invests its clients pooled
fund into securities that match its declared
financial objectives. Asset management
companies provide investors with more
diversification and investing options than
they would have by themselves. Mutual
funds, hedge funds and pension plans are
all run by asset management companies.
These companies earn income by
charging service fees to their clients.
Non-perfoming assets:Nonperforming assets, also called nonperforming loans, are loans,made by a
bank or finance 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 extended 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 stock exchange
which specifies the particular stock or share
which deals in frequent and regular
transactions. It helps the buyers to obtain
reasonably large amounts at any time.
Administered Price
The administrative body e.g., the
government a marketing board or a trading
group determines this price. The
competitive market force are not entitled to
determine this price. The government fixes
a price in accordance with demand supply
portion in the market.
Ad-valorem TaxAd-valorem tax is a kind of
indirect tax in which goods are taxed by
their values. In the case of ad-volorem tax,
the tax amount is calculated as the
proportion of the price of the goods. Value
added Tax (VAT) is an ad-volorem Tax.
Advanced Countries
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 know-how in their productive
activities. A strong and well organised
financial structure is found in these
advanced countries.
Amalgamation
It means merger. As and when necessity
arises two or more companies are merged
into a large organisation. This merger takes
place in order to effect economies, reduce
competition and capture market. The old
firms completely lose their identity when
the merger takes place.

Appreciation
Appreciation means an increase in the
value of something e.g., stock of raw
materials or manufactured goods. It also
includes an increase in the traded value of
a currency. It is the antonym of
Depreciation. When the prices rise due to
inflation, appreciation may occur. It causes
scarcity or increase in earning power.
Arbitrage
When a person performs functions of
middle man and buys and sells goods at a
particular time to cash the price differences
of two markets, this action is termed as
arbitrage. Purchases are made in the
market where price is low and at the same
time, goods are sold in other market where
the price are high. Thus the middleman
earns profit due to price difference in two
markets.
Arbitration
Where there is an industrial dispute, the
Arbitration comes to the force. The
judgement is given by the Arbitrator. Both
the parties have to accept and honour the
Arbitration. Arbitration is the settlement of
labour disputes that takes place between
employer and the employees.
Auction
When a commodity is sold by auction, the
bids are made by the buyers. Whose ever
makes the highest bid, gets the commodity
which is being sold. The buyers make the
bid
taking into consideration the quality and
quantity of the commodity.
Autarchy
If a country is self-sufficient, it does not
require the imports for the country.
Autarchy is an indicator of self-sufficiency. It
means that the country itself can satisfy
the needs of its population without making
imports from other countries.
Balanced Budget
When the total revenue of the government

exactly equals the total expenditure

incurred by the government, the budget
becomes a balanced budget. But it is a
conservative view point. In present days,
the welfare government has to regulate a
number of economic and social activities
which increase the expenditure burden on
the government and results in deficit
budget.
Balance of Payment
Balance 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. In 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. Balance of payment is a
comprehensive term which includes both
visible and invisible items. Balance of
payment not only include visible export and
imports but also invisible trade like
shipping, banking, insurance, tourism,
royalty, payments of interest on foreign
debts.
Balance of Trade
Balance of trade refers to the total value of
a country's export commodities and total
value of imports commodities. Thus
balance of trade includes only visible trade
i.e., movement of goods (exports and
imports of goods). Balance of trade is a part
of Balance of payment statement.
Balance Sheet
Balance sheet is a statement showing the
assets and liabilities of a business at a
certain date. Balance sheet helps in
estimating the real financial situation of a
firm.
Bank
Bank is a financial institution. It accepts
funds on current and deposit accounts. It
also lends money. The bank pays the
cheques drawn by customers against
current and deposits accounts. The bank is
a trader that deals in money and credit.

Bank Draft
Banker's draft is a negotiable claim drawn
upon a bank. Drafts are as good as cash.
The drafts cannot be returned and unpaid.
Draft is issued when a customer shows his
unwillingness to accept cheque in payment
for his services or mercantile goods. Bank
Draft is safer than a cheque.
Bank Rate
Bank Rate is the rate of discount at which
the central bank of the country discounts
first class bills. It is the rate of interest at
which the central bank lends money to the
lower banking institutions. Bank rate is a
direct quantitative method of credit control
in the economy.
Bilateralism
It implies an agreement between two
countries to extend to each other specific
privileges in their international trade which
are not extended to others.
Birth Rate
Birth Rate (or Crude Birth Rate) is number
of the births per thousand of the population
during a period, usually a year. Only live
births are included in the calculation of
birth rate.
Black Money
It is unaccounted money which is concealed
from tax authorities. All illegal economic
activities are dealt with this black Money.
Hawala market has deep roots with this
black money. Black money creates parallel
economy. It puts an adverse pressure on
equitable distribution of wealth and income
in the economy.
Blue Chip
It is concerned with such equity shares
whose purchase is extremely safe. It is a
safe investment. It does not involve any
risk.
Blue Collar Jobs
These Jobs are concerned with factory.
Persons who are unskilled and depend upon
manual jobs that require physical strain on

human muscle are said to be engaged in

Blue Collar Jobs. In the age of machinery,
such Jobs are on the decline these days.

shares or commodities in anticipation of

rising prices. This market enables the
speculators to resale such shares and make
a profit.

Brain-Drain
It means the drift of intellectuals of a
country to another country. Scientists,
doctors and technology experts generally
go to other prominent countries of the
world to better their lot and earn huge
sums of money. This Brain-Drain deprives a
country of its genius and capabilities.

Buoyancy
When the government fails to check
inflation, it raises income tax and the
corporate tax. Such a tax is called
Buoyancy. It concerns with the revenue
from taxation in the period of inflation.

Bridge Loan
A loan made by a bank for a short period to
make up for a temporary shortage of cash.
On the part of borrower, mostly the
companies for example, a business
organization wants to install a new
company with new equipments etc. while
his present installed company / equipments
etc. are not yet disposed off. Bridge loan
covers this period between the buying the
new and disposing of the old one.

Business Cycle
Business cycle (also known as trade cycle)
are species of fluctuations in the economic
activity of organised communities. It 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 five
different subphasesdepression, recovery,
full employment, prosperity (boom) and
recession.

Budget
It is a document containing a preliminary
approved plan of public revenue and public
expenditure. It is a statement of the
estimated receipt and expenses during a
fixed period, it is a comparative table giving
the accounts of the receipts to be realized
and of the expenses to be incurred.
Budget Deficit
Budget may take a shape of deficit when
the public revenue falls short to public
expenditure. Budget deficit is the difference
between the estimated public expenditure
and public revenue. The government meets
this deficit by way of printing new currency
or by borrowing.
Bull
Bull is that type of speculator who gains
with the rise in prices of shares and stocks.
He buys share or commodities in
anticipation of rising prices and sells them
later at a profit.
Bull Market
It is a market where the speculators buy

Call Money
Call money is in the form of loans and
advances which are payable on demand or
within the number of days specified for the
purpose.
Capital Budgeting
Capital 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 projects.
In other words, it is the process of
budgeting capital expenditure by means of
an annual or longer period capital budget.
Capital-labour Ratio
Latest models of machinery and equipment
raise the labour efficiency and the output is
maximized. Capitallabour ratio is the
amount of capital against the given labours
that a firm employs. Capital-labour ratio is
the ratio of capital to labour.
Capital Market
Capital market is the market which gives
medium term and long term loans. It is

different from money market which deals

only in short term loans.
Capitalism
Capitalism is an economic system in which
all means of production are owned by
private individuals Selfprofit motive is the
guiding feature for all the economic
activates under capitalism. Under pure
capitalism system economic conditions are
regulated solely by free market forces. This
system is based on Laissez-faire system
i.e., no state intervention. Sovereignty of
consumer prevails in this system.
Consumer behaves like a king under
capitalism.
Cash Reserve Ratio (CRR)
The commercial banks are required to keep
a certain amount of cash reserves at the
central bank. This percentage amount is
called CRR. It influences the commercial
banks volume of credit because variation
in CRR affects the liquidity position of the
banks and hence their ability to lend.
Census
Census gives us estimates of population.
Census is of great economic importance for
the country. It tells us the rate at which the
total population is increasing among
different age groups. In India census is
done after every 10 years. The latest
census in India has been done in 2001.
Central Bank
Central Bank may be defined as the apex
barking and monetary institution whose
main function is to control, regulate and
stabilize the banking and the monetary
system of the country in the national
interest.
Cheque
Cheque is an order in writing issued by the
drawer to a bank. If the customer has
sufficient amount in his account, the
cheque is paid by the bank. Cheques are
used in place of cash money.

Clearing bank is one which settles the

debits and credits of the commercial banks.
Even of the cash balances are lesser,
clearing bank facilitates banking operation
of the commercial bank.
Clearing House
Clearing house is an institution which helps
to settle the mutual indebtedness that
occurs among the members of its
organisation.
Closed Economy
Closed economy refers to the economy
having no foreign trade (i.e., export and
import). Such economies depend
exclusively on their own internal domestic
resources and have
no dependence on outside world.
Collusion
Producers of an industry reduce
competition among themselves to raise
their profits. They fix the price themselves
with a clear understanding in this regard.
This understanding among different firms is
called collusion.
Coinage
Art and practice of making coins is called
coinage. The metal is melted and moulded
to shape into a coin. The coinage is a
medium of exchange (money).
Collectivism
Collectivism is a belief that nation's interest
is superior to individual interest. This is the
collective thinking of the society and polity
national leaders and also communist opine
the theory of collection.
Commercial Bank
Commercial Bank is an institution of
finance. It deals with the banking services
through its branches in whole of the
country. Operation of current accounts,
deposits, granting of loans to individuals
and companies etc. are various functions of
the commercial bank.
Communism

Clearing Bank

Communism is a political and economic

system in which the state makes the major
economic decision State owns the bulk of
capital assets. Responsibility for production
and distribution lies with the state in this
system.

Cyclical UnemploymentIt is that phase of

unemployment which appears due to the
occurrence of the downward phase of the
trade cycle. Such an employment is
reduced or eliminated when the business
cycle turns up again.

Core SectorEconomy needs basic

infrastructure for accelerating
development. Development of
infrastructure industries like cement, iron
and steel, petroleum, heavy machinery etc.
can only ensure the development of the
economy as a whole. Such industries are
core sector industries.

Dear Money
Dear money is that money which can only
be borrowed at a high rate of interest. In
dear money policy, bank rate and other
rates of interest are high and as a result
borrowing becomes expensive. Dear money
policy is deliberate policy which is adopted
by the monetary authorities to check
inflation in the economy.

Corporation Tax
Death Duty
It is a tax on company's profit. It is a direct
tax which is calculated on profits after
interest payments and allowance (i.e.,
Capital allowance) have been deducted but
before dividends are allowed for.
Cost-push InflationIt arises due to an
increase in production cost. Such type of
inflation is caused by three factors : (i) an
increase in wages, (ii) an increase in the
profit margin and (iii) imposition of heavy
taxation.
Credit RationingCredit rationing takes
place when the banks discriminates
between the borrowers. Credit rationing
empowers the bank to lend to some and to
refuse to lend to others. In this way credit
rationing restricts lending on the part of
bank.
Credit SqueezeMonetary authorities
restrict credit as and when required. This
credit restriction is called credit squeeze.
Monetary authorities adopt the policy of
credit squeeze to control inflationary
pressure in the economy.
Custom DutyCustom duty is a duty that is
imposed on the products received from
exporting nations of the world. It is also
called protective duty as it protects the
home industries.

It is a direct tax which is imposed on the

estate of deceased person. Death duty or
Death Tax is a form of personal tax on
property which is levied when property
passes from one person to other at the
time of death of the former.
Death Rate
Death rate signifies the number of deaths
in a year per thousand of the population. It
is mostly known as crude death rate. Life
expectancy is important determinant of
death rate.
A country having high life expectancy will
have a high crude death rate.
DecentralisationDecentralisation means
the establishment of various unit of the
same industry at different places. Large
scale organisation or industry can not be
run at one particular place or territory. In
order to increase the efficiency of the
industry, various units at different places
are located.
Debt Service (Total)
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 IMF.

Deficit Financing
It is a practice resorted to by modern
government of spending more money than
it receives in revenue. It is a policy of
bridging a deficit between governments
expenditure and revenue. Deliberately
budgeting for a deficit is called deficit
financing. This practice was popularised by
Prof. J. M. Keynes to deal with the
depression and unemployment situations
and to stimulate economic activity. Deficit
financing, though having inflationary
effects, has now become a common
practice in all countries.
Deflation
Deflation is the reverse case of inflation.
Deflation 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.
In the deflation the general price level falls
and the value of money rises.
Devaluation
The loss of value of currency of a country
relative to other foreign currency is known
as devaluation. Devaluation is a process in
which the government deliberately
cheapens the exchange value of its own
currency in terms of other currency by
giving it a lower exchange value.
Devaluation is used for improving, the
balance of payment situation in the
country.

DissavingDissaving occurs when

expenditure exceeds income. Raising of
loans or utilization of past accumulated
savings takes place in such eventuality.
Dividend
Dividend is the amount which the company
distributes to shareholders when the profits
of the company are calculated by the board
of directors.
Economic Integration
Economic integration appears when two or
more nations coordinate themselves and
their economies are linked up. It may
exhibit itself in the form of free trade area
or a full economic union. EEC is an example
of economic integration.
Engel's Law
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.
Estate DutyIt is a tax which is levied on
the estate of a decreased person. It is also
known as death duty. The ownership of
state changes hands only after the
payments of the estate duty. It is an
progressive tax in nature.

Direct Tax
A tax is said to be a direct tax when it is not
intended to be shifted to anybody else. The
person who pays it in the first instance is
also excepted to bear it. Thus the impact
and incidence of direct tax fall on the same
person shifting of direct tax is not possible
Income Tax is a example of direct tax.

Excise Duty
It is a tax which is imposed on certain
indigenous production (e.g., petroleum
products, cigarettes etc.) of the country.
Excise duty may be imposed either to raise
revenue or to check the consumption of the
commodities on which they are imposed.
Excise duty is progressive in nature.

Disinflation

Face ValueIt refers to that normal value of

coin at which the coin circulates and is
accepted in the discharge of debit or
obligation. Broadly speaking, the face value
refers to domination stamped on a coin / or
documents when it is issued. In securities,
it refers to par value.

It refers to a process of bringing down

prices moderately from their high level
without any adverse impact on production
and employment. Thus, disinflation is an
anti-inflationary measure.

Fascism
It is a form of political system. In it every
economic consideration rests on one
criterionthe increase in the people's
standard of living. It also lays emphasis on
military
strength and prestige of the country. It is
the extreme nationalism and the ultimate
goal is self-sufficiency.
Federal EconomyIt 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. In a federal economy
both the centre and the states are
independent in the exercise of this
authority.
Fiduciary IssueGenerally bank-note are
backed by gold. But when they are not
backed by gold and government securities
replace gold, it is called fiduciary issue.
Such fiduciary issue results in inflation.
Fertility Rate
The term fertility refers to the actual
bearing of children or occurrence of births.
Fertility rate measures the average number
of the live births per 1000 women. This rate
is one of the most important and useful
aids to population projection. It helps in
assessing population trends in the
economy.
Fiscal PolicyFiscal policy is that part of
government economic policy which deals
with taxation, expenditure, borrowing, and
the management of public debt in the
economy. Fiscal policy primarily concerns
itself with the flow of funds in the economy.
Fiscal policy primarily concerns itself with
the flow of funds in the economy. It exerts a
very powerful influence on the working of
economy as a whole.
GEM
GEM (Gender Empowerment Measure) is a
composite index measuring gender
inequality in three basic dimensions of

empowermenteconomic participation and

decision making, political participation and
decision making, and power over economic
resources.
GDI
GDI (Gender Related Development Index) is
a composite index measuring average
achievement in the three basic dimensions
captured in the human development index
a long and healthy life, knowledge and a
decent standard of livingadjusted to
account for inequalities between men and
women.
Gini-coefficientIt represents the
measurement of inequality derived from
the Lorenz Curve, with every increase in
the degree of inequality, the curvature of
the Lorenz Curve also increases and
the area between the curve and 45 line
becomes larger.
The Gini-coefficient is measured as
G =Area between Lorenz Curve & 45
Line/Area above the 45 Line
Giffin Goods
Giffin goods have the positive relationship
between price and quantity demanded and
as a result demand curve of Giffin goods
slopes upward from left to right. This
phenomenon was first observed by Sir
Robert Giffin in relation to the demand for
bread by poor labours.
Gresham's Law
Bad money (if not limited in quantity)
drives good money out of circulationThis
statement was given by Sir Thomas
Gresham, the economic Adviser of Queen
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.
Gross Domestic Product (GDP)It is the
money value of all final goods and services
produced within the geographical
boundaries of the country during a given
period of time (usually a year). GDP can be
calculated both at current prices and at
constant prices. If we add net factor income

from abroad to the GDP, we get Gross

National Product (GNP).
Gross National Product (GNP)
It refers to the money value of total output
or production of final goods and services
produced by the nationals of a country
during a given period of time, generally a
year.
Gross National Product Deflator
It is a Price Index Number used to correct
the money value of Gross National Product
(GNP) for price changes so as to isolate the
changes which have taken place in the
physical output of goods and services.
Guild 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 Socialism established by artisans is
termed a Guild Socialism.
HDI
HDI (Human Development Index) is a
composite index measuring average
achievement in three basic dimensions of
human lifea long and healthy life,
knowledge and a decent standard of living.
Import Duty
Import duty is a tax on imports imposed on
an ad-valorem basis i.e., fixed in the form
of a percentage on the value of the
commodity imported.
Indirect Tax
Indirect tax is that tax which is levied on
goods or services produced or purchased.
Indirect taxes are those which are
demanded from one person in the
expectation and intention that he shall
indemnify himself at the expense to
another.
Inflation
A situation of a steady and sustained rise in
general prices is usually known as inflation.
Inflation is a state in which the value of

money is falling i.e., prices are rising.

Joint Demand
Joint demand appears in case of
complementary goods. When two
commodities are complementary to one
another and cannot be used separately,
they have joint demand. Bread and butter,
sugar and tea, pen and ink are a few
examples of joint demand. In joint demand
a change in demand of one commodity
bring about the proportionate change in
demand for the other.
Joint Sector
When a sector is jointly owned, managed
and run by both public and private sector, it
is called joint sector. This sector indicates
the partnership between the two i.e., public
and private sector.
Labour Union
Labour union represents that organisation
of workers which works for improving
working condition of labours and also for
raising their wage by adopting collective
bargaining measures with the
management of the industry in particular.
Laffer Curve
This curve is given by American economist
Prof. Arthur Laffer. It represents relationship
between total tax revenue and
corresponding tax rates.
Laissez Faire
It is a French word meaning noninterference. 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.
Life Expectancy at Birth
The number of years a newborn infant
would live if prevailing pattern of age
specific mortality rates at the time of birth
were to stay the same throughout the
childs life.

Liquidation
It refers to the termination (or winding up)
of a registered company. Liquidation takes
place because of company's insolvency. In
liquidation, assets are turned into cash for
settling outstanding debts and for
apportioning the balance, if any, amongst
the owners.
Liquidity
Assets which can easily be converted into
cash money are said to have liquidity. Land
does not possess liquidity at it takes longer
time to get converted into cash.
Liquidity Ratio
The commercial banks under banking
regulations have to maintain a certain
specified proportion of their total deposits
of various categories in liquid assets. This
maintainable proportion is called liquidity
ratio.
Lock-out
Lock-out refers to such a situation when the
management does not permit the workers
to work unless they agree to accept the
employer's term. Lock-out is the closing of
work by the management for an uncertain
period of time to put pressure on the labour
union. It is an action by the employer
equivalent to a strike by employees.
Lorentz Curve
This curve shows the degree of inequalities
of a frequency distribution in a graphical
manner. It 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.
Lump Sum Tax
Lump sum tax is a fixed amount which has
imperative nature irrespective of the
income level. This tax is not equitable in
nature.

Merit Goods
Merit 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.
Mixed EconomyIt refers to that economic
system in which both private and public
sector co-exists. Indian economy is an
example of a mixed economy.
Monetary Policy
Monetary 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 objectives of general economic
policy. It aims at regulating the flow of
currency, credit and other money
substitutes in an economy with a view to
affect the total stock of such assets as well
as to influence the demand of the
community for such assets.
Monetary Reforms
When a new currency is introduced in a
country due to hyperinflation or due to a
deliberate policy measure (such as
decimalization) it is termed as monetary
reform.
Monopoly
Monopoly refers to that market structure
where there is only one seller in the market
who controls the entire market supply and
no substitute of the product is available in
the market.
Monopsony
Monopsony is that market situation in
which there is only one single buyer of the
product in the market. In other word,
buyer's monopoly is termed as
monopsony.
Multinational Company
It is a large scale company which has its
production base in several countries and
the bulk of the production is produced in
outside nations. This company produces

more overseas
than they do in its parent country.
Increased trade and economies of scale
have encouraged such type of companies
in the recent years.
National Income
In the simplest way it can be defined as
factor income accruing to the national
residents of a country. It is the sum of
domestic factor income and net factor
income earned from abroad. Net national
product at factor cost is called national
income.
Net National Product (NNP)
When depreciation is deducted from GNP
i.e., Gross National Product, we get Net
National Product (NNP).

Poverty line is a virtual line demarcating

persons living below and above it. In India
all those persons are treated living below
poverty line who are not able to earn that
much of income which is not sufficient to
acquire food equivalent to 2100 calories
per person per day in urban areas and
2400 calories per person per day in rural
areas. As per UNDP, one US dollar (1993
PPP US $) per person per day is treated as
poverty line.
PQLI
PQLI is known as Physical Quality of Life
Index which is used to assess the level of
social development. This index was
developed by Jim Grant for The Overseas
Development Council PQLI is calculated by
using indices of (i) Adult literacy rate, (ii)
IMR, (iii) Life Expectancy.

Oligopoly
Oligopoly is that form of imperfect
competition in which there are only a few
firms in the industry (or group) producing
either homogeneous products or may be
having product differentiation in a given
line of production.

Price Mechanism

Open Economy
Open economy is that economy which is
left free and the government imposes no
restrictions on trade with areas outside that
economy.

Price Ring

Okuns Law
Arthur Okun presented an empirical
relationship between cyclical movements in
GNP and unemployment. Okun found that
an annual 25% increase in the rate of real
growth above the trend growth results in a
1% decrease in the rate of unemployment.
This relationship is known as Okuns Law.
Perfect Competition
Perfect competition is the market in which
there are many firms selling identical
products with no firm large enough relative
to the entire market to be able to influence
market price.
Poverty Line

Price mechanism signifies the working of

those market forces which establishes
equilibrium in the economy. Laissez faire
policy is the basis for theworking of price
mechanism.

It is an unofficial 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 keep the prices low. This price ring may
discourage outsiders from coming to the
auctions.
Private Sector
Private Sector is that part of the economy
which is not owned by the government and
is under the hands of private enterprise. In
other words, private sector is not under
direct government control. Private sector
includes the personal as well as the
corporate sector.
Privatisation
Privatisation is the antithesis of
nationalisation. When the government

owned public industries are denationalised

and the disinvestment process is initiated,
it is called privatisation.

taxation incidence falls more on people

having lower incomes than that of those
having higher incomes.

Public Debt
Public debt represents borrowing by the
state and public authorities. All loans taken
by the public authorities constitute public
debt.

Repressed Inflation
It 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 excess
demand. The holding down of price is
sometimes done by government as a
means of suppressing inflation.

Public Goods
Public goods are those goods which belong
to the entire community. None of the
individual of the society can be made
deprived of using these public goods.
National defence, Police, Street lighting etc.
are examples of public goods.
Public SectorPublic sector signifies those
undertakings which are owned, managed
and run by public authorities. Public sector
includes direct government enterprise, the
nationalized industries and public
corporations. In this sector of the economy
the government acts itself as an
entrepreneur.
Peril Point
It indicates that point beyond which tariff
reductions would threaten the existence of
domestic industry.
Quick Asset
Those assets are quick assets which are
liquid or nearly liquid in nature and easily
be turned into cash.
Quoted Company
That company is called quoted company
whose share prices are quoted on a stock
exchange.
Reflation
It signifies general increase in the level of
business activity in the economy. Reflation
generally involves greater government
expenditure and the easing of credit to
encourage increased production.
Regressive Tax
It is a tax in which rate of taxation falls with
an increase in income. In regressive

Reserve Asset Ratio

It is the ratio of a banks reserve assets to
its eligible liabilities.
Revolving Credit
It is a bank credit that is renewed
automatically until notice of cancellation is
received. Revolving 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 specified period, e.g., one
month.
Seasonal UnemploymentIt is that
unemployment which is caused by seasonal
variation in demand for labour by various
industries, such as agriculture, construction
and tourism. Seasonal unemployment
normally declines in spring as more outdoor
work can be undertaken.
Security
Security refers to a share, bond or
government stock that can be bought and
sold, usually on the stock exchange or on a
secondary market, and carries a right to
some form of income, either in the form of
a fixed rate of interest or dividends.
Shadow PriceIt is an imputed value for a
good based on the opportunity costs of the
resources used to produce it such values
are of particular significance in resolving
problems of resource allocating with
respect to the effect on welfare.
Share Capital
It 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. Fully paid share capital is
the amount raised by payment of the full
par value of the issued shares.
Single Tax System
It is a system in which all tax revenues are
raised from one form of taxation.
Socialism
The political doctrine that the means of
production (machines, materials and
output) should be owned by society and
specifically either by the state, as in the
case of nationalized industries or by the
workers directly, as in the case of producer
co-operatives.
Social SecurityProvision by the state out
of taxation of welfare assistance to those in
need as a result of illness, unemployment,
or old age compare national insurance
refers to social security.
Soft CurrencyA currency with limited
convertibility into gold and other
currencies, either because it is depreciating
due to balance of payments difficulties or
because controls have been placed on it to
prevent the exchange rate falling.
Special Drawing Rights (SDRs)
It is a reserve asset (known as Paper Gold)
created within the framework of the
International Monetary Fund in an attempt
to increase international liquidity, and now
forming a part of countries official reserves
along with gold, reserve positions in the IMF
and convertible foreign currencies.

It is Government economic policy

announced at reducing the cyclical and
other fluctuations that take place in a
market economy.
Stagflation
It 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
inflation.
Surplus Value
It is the difference between the amount
paid to a factor and the revenue earned by
selling the output it produced.
Tariff
It is a tax or a duty on imports, which can
be levied either on physical units, e.g., per
tonne (specific), or on value (ad-valorem).
Tariffs may be imposed for a variety of
reasons including; to raise government
revenue, to protect domestic industry from
subsidized or low-wage imports, to boost
domestic employment, or to ease a deficit
on the balance of payments.
Trade Gap
It signifies the size of the deficit (or surplus)
in the balance of trade i.e., the difference in
value between visible imports and exports.
Trade Union
It is an organisation of employees who join
together to further their interests. Trade
Unions 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. strike) or by some
less drastic form of action (i.e. go-slow,
working to rule).

Special Tax (Unit Tax)

It is a tax imposed per unit of a commodity
rather than on the value of the commodity
compare ad-valorem.

Transfer PaymentIt is a payment made by

public authority other than one made in
exchange for goods or services produced.
Transfer payments are not the part of
National Income. Examples includes
unemployment benefit and child benefits.

Stabilization Policy

Vital Statistics

Vital statistics refers to those data which

are associated with vital events of masses
like birth, death, marriage divorce etc.
VAT (Value Added Tax)
VAT seeks to tax the value added at every
stage of manufacturing and sale, with a
provision of refunding the amount of VAT
already paid at the earlier stages to avoid
double taxation. In other words, the tax
already paid can be claimed at the next
stage of value addition.
Wealth Tax
Wealth tax is that tax which is imposed on
the value of total assets but the wealth
upto a certain limit is exempted from such
tax.
Welfare State
It refers to a nation that provides to all at
least the minimum standards in respect of
education, health, housing, pensions and
other social benefits.
Wholesale Price Index
Wholesale Price Index is that index which is
calculated on the basis of wholesale prices.
It is calculated in a similar way to the Retail
Price Index.