Balance of Payment is the summation of imports and exports made between one countries

and the other countries that it trades with.

Balance of trade: The difference in value over a period of time between a country's imports
and exports.

Base year: In the construction of an index, the year from which the weights assigned to the
different components of the index is drawn. It is conventional to set the value of an index in
its base year equal to 100.

Bill of exchange: A written, dated, and signed three-party instrument containing an

unconditional order by a drawer that directs a drawee to pay a definite sum of money to a
payee on demand or at a specified future date. Also known as a draft. It is the most
commonly used financial instrument in international trade.

Bretton Woods: An international monetary system operating from 1946-1973. The value of
the dollar was fixed in terms of gold, and every other country held its currency at a fixed
exchange rate against the dollar; when trade deficits occurred, the central bank of the deficit
country financed the deficit with its reserves of international currencies. The Bretton Woods
system collapsed in 1971 when the US abandoned the gold standard.

Call money: Price paid by an investor for a call option. There is no fixed rate for call money.
It depends on the type of stock, its performance prior to the purchase of the call option, and
the period of the contract. It is an interest bearing band deposits that can be withdrawn on 24
hours notice.

Capital account; Part of a nation's balance of payments that includes purchases and sales of
assets, such as stocks, bonds, and land. A nation has a capital account surplus when receipts
from asset sales exceed payments for the country's purchases of foreign assets. The sum of
the capital and current accounts is the overall balance of payments.

Current account: Part of a nation's balance of payments which includes the value of all
goods and services imported and exported, as well as the payment and receipt of dividends
and interest. A nation has a current account surplus if exports exceed imports plus net
transfers to foreigners. The sum of the current and capital accounts is the overall balance of
payments.

Currency appreciation: An increase in the value of one currency relative to another

currency. Appreciation occurs when, because of a change in exchange rates; a unit of one
currency buys more units of another currency. Opposite is the case with currency
depreciation.

Fiscal deficit is the gap between the government's total spending and the sum of its revenue
receipts and non-debt capital receipts. The fiscal deficit represents the total amount of
borrowed funds required by the government to completely meet its expenditure

Foreign exchange reserves: The stock of liquid assets denominated in foreign currencies
held by a government's monetary authorities (typically, the finance ministry or central bank).
Reserves enable the monetary authorities to intervene in foreign exchange markets to affect
the exchange value of their domestic currency in the market. Reserves are invested in low-
risk and liquid assets, often in foreign government securities.

Gross domestic product (GDP): Gross Domestic Product: The total of goods and services
produced by a nation over a given period, usually 1 year. Gross Domestic Product measures
the total output from all the resources located in a country, wherever the owners of the
resources live.

Gross national product (GNP) is the value of all final goods and services produced within a
nation in a given year, plus income earned by its citizens abroad, minus income earned by
foreigners from domestic production. The Fact book, following current practice, uses GDP
rather than GNP to measure national production. However, the user must realize that in
certain countries net remittances from citizens working abroad may be important to national
well being. GNP equals GDP plus net property income from abroad.

Inflation: In economics, inflation is a rise in the general level of prices of goods and services

in an economy over a period of time. When the price level rises, each unit of currency buys
fewer goods and services; consequently, inflation is also erosion in the purchasing power of
money a loss of real value in the internal medium of exchange and unit of account in the
economy.

International Monetary Fund (IMF) An autonomous international financial institution that

originated in the Bretton Woods Conference of 1944. Its main purpose is to regulate the
international monetary exchange system, which also stems from that conference but has since
been modified. In particular, one of the central tasks of the IMF is to control fluctuations in
exchange rates of world currencies in a bid to alleviate severe balance of payments problems.

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

Subsidy: A payment by the government to producers or distributors in an industry to prevent

the decline of that industry (e.g., as a result of continuous unprofitable operations) or an
increase in the prices of its products or simply to encourage it to hire more labor (as in the
case of a wage subsidy). Examples are export subsidies to encourage the sale of exports;
subsidies on some foodstuffs to keep down the cost of living, especially in urban areas; and
farm subsidies to encourage expansion of farm production and achieve self-reliance in food
production.

Treasury bill: A short-term debt issued by a national government with a maximum maturity
of one year. Treasury bills are sold at discount, such that the difference between purchase
price and the value at maturity is the amount of interest.

WTO: The World Trade Organization is a global international organization dealing with the
rules of trade between nations. It was set up in 1995 at the conclusion of GATT negotiations
for administering multilateral trade negotiations.