finance key terms

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KEY TERMS

1. Abnormal Loss :Abnormal loss is not inherent. It has no concern with the nature of

goods. Abnormal loss may arise due to theft, fire accident etc. Such losses should not

be allowed to effect the consignment accounts, or profits on consignment. The value

of closing stock is also effected in case of abnormal loss. Abnormal loss may occur

either in the godown of the consignee or in transit.

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3. Acceptance : After a bill is drawn by the drawer, it has got to be accepted by the

drawee. Without such acceptance, a bill has got no value. Acceptance should be

given by the drawee across the face of the bill.

4. Accounting:Accounting concerned with the maintenance of accounts. It includes the

preparation of records and reports based on the recorded data. It also includes

interpretation of the reports. Accountancy helps the interested parties to know the

state of affairs of the business. According to R. N. Anthony, Accounting system is a

means of collecting, summarising, analysing and reporting in monetary terms, the

information about the business. Accounting is known as Language of Business.

5. Account Sales : A statement submitted by the consignee to the consignor giving

account of the sale proceeds, details of various expenses incurred and the

commission due to him.

6. Accounting Concepts: Accounting concepts are the assumptions upon which the

accounting is based. They are also known as Generally Accepted Accounting

Principles. The accounting concepts include (I) money measurement concept; (ii)

business entity concept; (iii) Cost concept; (iv) going concern concept; (v) dual aspect

concept; (vi) matching concept; (vii) accounting period concept.

7. Accounting Conventions: Conventions mean customs or traditions which are useful

as a guide to the preparation and presentation of accounts. This include: (a)

Convention of conservatism; (b) Convention of materiality; (c) Convention of

consistency; (d) Convention disclosure.

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

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receivable from the other party at an agreed rate. It takes the form of an account with

some additional columns for due date, number of days, interest, product, etc. In fact,

it is a copy of the ledger.

9. Accounting cycle:An Accounting Cycle is a complete sequence beginning with therecording of the transactions and ending with the preparation of final accounts. It

includes journalizing, posting and balancing the ledger, preparation of trial balance

and finally the preparation of financial statements.

10. Accounting Equation: American Accountants have derived the rules of debit andcredit through accounting equation which is given below:

Assets = Equities or outside liability + Owners equity.

The equation is based on the principle that accounting deals with property

and rights to property and the sum of the properties owned is equal to the sum of

rights to the properties. The properties owned by a business are called assets and

the rights to properties are known as liabilities of the business. The accounting

equation is:

Assets = Liabilities + Capital.

11. Accounting Period: A period of twelve months for which accounts are usually kept.

It may be calendar year or financial year. In case of new business, certain times,

accounting period may be less than twelve months.

12. Accounting Standards:Accounting standard are the policy documents. They will be

issued by recognised Accounting Bodies. They relate to various aspects of

measurement, treatment and disclose of accounting transactions. The purpose of

measurement, treatment and disclose of accounting transactions. The purpose ofthese standards is to standardise the information relating to financial statements.

13. Accounting Standard Committee: The international Accounts Standards

Committee (IASC) was established on 29th June 1973. The IASC so far issued 39

International Accounting Standards (IAS). In India, the Accounting Standards

International Accounting Standards (IAS). In India, the account Standards Board

(ASB) was constituted by Institute of Charted Accountants of India (ICAI) on April 21,

1977. So far this Board issued 15 accounting standards.

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14. Adjusting Entries: Sometimes it becomes necessary to make entries foradjustments at the end of the year. Prepaid expenses, outstanding expenses,

depreciation etc., will be shown by way of adjustment entries in the journal proper.

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

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

17. Analytical Petty Cash Book: In business, the petty payments are numerous. Theyare entered in a petty cash book in a columnar form. There will be a separate column

for each head of petty expense and a column for the total. Every petty payment is

entered in both these columns. Thus, provision is made in the petty cash book to

show the details of the payments. Such a book showing an analysis of the payments

is called Analytical or Columnar petty cash book.

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

19. Assets: The valuable things owned by the business are known as assets. These arethe properties owned by the business. The assets are classified into four types. They

are: (I) Fixed assets (land and Buildings, Plant , machinery etc.) (ii) Current assets

(Cash, stock, debtors etc) (iii) Fictitious assets (preliminary expenses) (iv) Intangible

assets (goodwill, patents etc.)

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

21. Assurance : The term Assurance is applied to contracts, where the risk insuredagainst is certain to happen; but the time of its happening is uncertain. Technically

speaking a life insurance should be called Life Assurance.

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

23. Average Due Date : It is the date on which a single payment may be made in onesingle amount in the place of several amounts due on different dates, without loss of

interest to either party (debtor or creditor)/

Average Due date = Starting Date Total Products / Total Amount

24. Bad debts: Sometimes, a debtor may not be able to pay the debt, partially orcompletely. The debts that cannot be recovered from the debtors are called bad

debts. They are treated as a loss to the firm.

25. Balance Method: Under this method all balances of each account will be shownagainst the debit or credit side in the Trial Balance. If an account has no balance then

it will not be shown in the trial balance. This method is more convenient and

commonly used.

26. Balance Sheet: Balance sheet is a statement which shows the financial position of abusiness on a particular date. The left side of the balance sheet is called liabilities

side. The right side is called assets side. The total liabilities side and the total of

assets side of the balance sheet should be the same.

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

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

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

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30. Bank :A bank is an institution accepting for the purpose of lending or investment indeposit money from public, repayable on demand or otherwise, withdrawal by

cheque, drafts, order or otherwise.

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

32. Bank Reconciliation Statement: Bank Reconciliation statement can be defined as astatement which reconciles the balances as per cash book and the balance as per

pass book showing the causes of difference between the two. It is prepared with a

view to find out the causes responsible for the difference between the balances of

cash book and pass book and to reconcile the balance.

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

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

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

the bill means the non-payment of the bill.

36. Bills Payable Book: When the trader purchases goods from others, he will accept

the bills and return them to the drawer. All such bills accepted by the trader are

known as bills payable. Bills payable book is used to record all the bills or promissory

notes accepted.

37. Bills of Exchange : An instrument in writing containing an unconditional order,

signed by the maker directing a certain person to pay a certain sum of money on

demand or after a specified period to a certain person or his order.

38. Bill of Lading : A receipt for goods, signed by the master or agent of a ship,

acknowledging their receipt on board and undertaking their delivery to the consigneeunder specified conditions.

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

business.

40. Bonded warehouse : These are warehouses licenced by the Government. They

accept imported goods for storage before the payment of customs duty.

41. Book Keeping: Book keeping involves the chronological recording of financial

transactions in a set of books in a systematic manner. The object of book keeping is

to prepare original books of Accounts. It is restricted to journal, subsidiary books and

ledger accounts only. Accountancy begins where book keeping ends.

42. Capital: It is that part of wealth which is used for further production. Thus, capitalconsists of all current assets and fixed assets. Cash in hand, cash at Bank, buildings,

Plant and furniture etc., are the capital of the business. Capital is classified as fixed

capital and working capital.

43. Capital Receipts: Capital receipts are those receipts which are received on selling of

capital assets. For example, sale proceeds of fixed assets or amount raised throughloans, issue of shares. All capital receipts are to be shown at the liabilities side of the

balance sheet.

44. Capital Expenditure: Amount spent on acquiring of capital assets is termed ascapital expenditure. For example, amount spent on buying of plant and machinery. All

items relating to capital expenditure are to be shown at the assets side of the balance

sheet only.

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

entrance fees etc.

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

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47. Card Punch : A device which punches holes or perforates cards upon instructionfrom a computer.

48. Cash discount: Cash discount is an incentive given to debtors for making promptpayment of the amount due from them. Similarly, cash discount may also be received

by the trader while making an early payment to the creditors. It is not deducted from

the selling price of the goods because allowing of discount is not certain. Cash

discount will be recorded in the books of accounts as an income when it is received

and as an expense when it is allowed to the creditors.

49. Cash Book: Cash book is a principal book as well as the subsidiary book. It is a bookof original entry as the transactions are recorded for the first time from the original

documents. It is a ledger in a sense that it is designed in the form of cash account. It

records each receipts on the debit side and cash payments on the credit side. Thus,

the cash book fulfils the functions of both Ledger and Journal.

50. Cash Memo: Cash Memo is issued on cash sale. Cash memo Book is printed. It

contains cash memos in duplicate. The original copy of the Cash Memo is given tothe customer who pays cash on account of cash sales. The carbon copy is used as

an office copy of Cash Memos.

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

52. Central Bank : It is the apex bank. It acts as a banker to Government, banker tobanks. It frames various policies affecting the monetary policy of the economy.

Reserve Bank of India is the Central Bank of our country.

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

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

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55. Chronological Filing :A filing system under which documents are filed according todate.

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

goods also.

57. Clerical Errors : These errors arise because of mistakes committed in the ordinarycourse of the accounting work. The clerical errors are of three types. They are : (a)

Errors of omission (b) Errors of commission (c) Compensating errors.

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

59. Closing Stock: It is the value of the unsold goods at the end of the trading period.Closing stock is valued at the cost price or the market price, which ever is lower. It

should be noted that the closing stock of the current year, will be the opening stock

for the next year.

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

61. Common Carrier (Public carrier) : Transportation agencies that offer services to thegeneral public.

62. Compensating Errors : A group of errors wherein the effect of one error is counterbalanced (compensated) by the effect of the other errors. Such errors do not effect

the agreement of trial balance.

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

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recording a number of transactions is termed as Compound Journal Entry. In case of

compound entry the total of all debits should be equal to the total of all credits.

64. Computer: An electronic machine used to process data quickly.

65. Consignment : Goods sent by a producer or a trader to his agents for sale on theirbehalf and at their risk. The process of sending goods on this basis by one firm to

another to sale is known as consignment. There are two parties in consignment. Viz.,

Consignor and Consignee.

66. Consignment Note : Form to be filled in while sending goods through passengertrain.

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

The consignor prepares consignment account and consignee account.

68. Consignee :A person to whom the goods are sent on consignment basis. For sellingthe goods the on consignment, the consignee gets commission. He finalize the

account of the consignment by sending the account sales along with the money due

to the consignor.

69. Contingent Liabilities: These are not the real liabilities. Future events can onlydecide whether it is really a liability or not. Due to their uncertainty, these liabilities are

termed as contingent (doubtful) liabilities. Ex: Dispute in a Court relating to the

payment of taxes.

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

71. Contra Entry: The transactions relating to cash and bank balances are to be

recorded in the cash book at the same time and hence contra entries are necessary.In Latin contra means the other side. Contra entry means the recording of debit and

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credit of a transaction at a time in the cash book. Contra entry is necessary when

cash is deposited in the bank; cheque received is not sent to bank for deposit on the

same day; and when cash is withdrawn for office purpose.

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

lading or Charter party.

73. Co-operative Banks : These are formed on the principle of co-operating to extendcredit facilities to farmers, public etc.

74. Cost Concept: Usually all the transactions will be recorded at cost in the books.

However, at the end of every year the Accountant shows the reduced value of the

asset, after providing for depreciation. This approach is preferred because it is difficult

and time consuming to ascertain the market values. Further, it becomes very difficult

to know the market values as they change from time to time.

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

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

bought.

77. Credit Note: While returning the goods, the customers will send the debit note alongwith the goods. When the trader receives goods so returned he verifies the goods

with the debit note. After satisfying himself the customers account will be credited.

Then a letter containing this information is sent to the customer. It is called credit

note. The credit note is just like debit note. For identification sake credit note and

debit note will be printed in different colours.

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

outstanding expenses etc. are current liabilities.

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

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

81. Days of Grace : While calculating due date of the bill, three days of grace have to becompulsorily added. Initially 3 days of grace were allowed to the drawee as a matter

of sympathy and kindess but it became a practice. It has now become a law.

According to Indian Negotiable Instrument Act, the drawee can avail of 3 days of

grace as a matter of legal right. However, days of grace are not allowed to bills

payable at sight.

82. Debit Note: When goods are received from the supplier, suppliers account iscredited. When the goods are returned, the suppliers account is debited. So in the

case of purchase returns a debit note is prepared. It should contain the details of

goods returned. Generally, the debit note will be made in duplicate. One will be sent

to the supplier, and other will be kept as an office copy.

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

84. Deferred Revenue Expenditure: An expenditure that is normally heavy and itsbenefit is likely to be available for more than one year is referred to as deferred

revenue expenditure. For example, expenditure incurred on advertisement, cost of

shifting the plant and Machinery to a new site.

85. Del Credere Commission : commission paid by the consignor to the consignee for

bearing the risk of bad debts arising out of credit sales made by him on behalf of the

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consignor. Generally the Del credere commission is to be calculated on the total

sales. Unless, otherwise mentioned that it is to be calculated on credit sales only.

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

87. Depreciation: The permanent and continuous diminution in the quality, quantity orvalue of an asset. Generally, depreciation is applicable only for fixed asset.

Depreciation is caused by use, passage of time or obsolescence. There are several

methods available for calculating depreciation. They include (1) Straight Line Method

(2) Written down Value Method etc.

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

89. Depletion : The term depletion is used in respect of the extraction of naturalresources from wasting assets such as quarries, mines etc. It refers to the reduction

in the available quantity of he material. It is a method of computing the depreciationon wasting assets.

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

91. Dictating Machine :A machine used to dictate letters.

92. Diminishing Balance Method : It is also known as Reducing Balance Method orWritten Down Value method. Under this method, the amount of depreciation is a fixed

percentage calculated on reducing value of the asset. The amount of depreciation

goes on decreasing every year.

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93. Direct Expenses: Direct expenses are the expenses incurred in purchasing ormanufacturing goods. They include: carriage, freight duties, wages, factory lighting

and insurance etc.

94. Discount: Discount in cash book means cash discount only. In double column andtriple column cash book there will be a column for discount in the debit and credit

sides of cash book. Discount allowed will be shown in the debit side and discount

received will be shown in the credit side of the cash book. Finally, the discount will be

shown in the credit side of the cash book. Finally, the discount received and discount

allowed are totalled separately.

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

96. Donations : Donation is the charity given by an individual or an institution for a non-profit organization. Donations can be of two types. They are : (1) General Donations

and (2) Specific Donations. General Donation is to be treated as revenue income and

is to be credited to Income and Expenditure account. If the amount is substantial is to

be taken to the liabilities side of the balance sheet as capital receipt. Specific

donations are treated as capital receipts. Hence, they are to be shown on the

liabilities side of the Balance Sheet.

97. Double Column Cash Book: This book has two amount columns on each side, onefor discount and the other for cash. Discount column on debit side represents loss

being discount allowed to customers. Similarly discount column on credit side

represents gain being discount received. Two column cash book may also bemaintained with discount and bank columns only.

98. Double Entry System: Double entry system is a scientific way of presentingaccounts. As such all the business concerns feel it convenient to prepare the

accounts under double entry system. Under dual aspect concept, the Accountant

deals with the two aspects of business transactions i.e., (I) receiving aspect and (ii)

giving aspect. Receiving aspect is known as Debit aspect and giving aspect is

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known is Credit aspect. In double entry book-keeping system these two aspects are

recorded facilitating the preparation of trial balance and the final accounts therefrom.

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

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

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

102. Drawings: Cash or goods withdrawn by the proprietor from business for hispersonal or household use is termed as drawings.

103. Dual Aspect Concept: This concept throws light on the point that each transaction

has two fold affect the receiving of the benefit and giving of the benefit. The

receiving aspect is termed as debit, where as the giving aspect as credit. Therefore,

for every debit, there will be corresponding credit. There is a famous dictum that

every receiver is also a giver and every giver is also a receiver. The dual aspect

concept also leads to the following accounting equation.

Capital + Outside Liabilities = Assets

104. Due Date : The due date of a bill of exchange is the date when the amount of the bill

is payable by the drawee. It is also called the maturity date. The date of maturity will

be determined according to the tenure of the bill adding three days of grace.

105. Duplicator :A machine used to reproduce multiple copies of documents.

106. Duty Drawback : Sometimes, goods which are imported into a country are

reexported. In this case, the import duty, already charged, is refunded. This is known

as customs draw-back.

107. Earned premium : The portion of an insurance premium for which protection has

already been provided by the insurer.

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108. Earnest Money : A deposit made towards the purchase of real property. In some

locales it is viewed synonymously with the Binder. Other places consider it as an

additional deposit towards the purchase. Here, the amount can be quite large. Often it

would accompany a signed sales contract prior to the closing or settlement.

109. Earnings : The amount of profit a company realizes after all costs, expensed and

taxes have been paid. It is calculated by subtracting business, depreciation, interest

and tax costs from revenues. Earnings are the supreme measure of value as far as

the market is concerned. The market rewards both fast earnings growth and stable

earnings growth. Earnings are also called profit or net income.

110. Earnings per share : A widely used indicator of the return on equity investments.

Any figure quoted represents the total amount of a companys earnings (after

deductions) divided by the number of ordinary shares it has issued.

111. Earnings yield : A companys per-share earnings expressed as a percentage of its

stock price. This provides a yardstick for comparing stocks with bonds, as well as with

other stocks.

112. Ebit : Earnings before interest and taxes. Ebit is calculated by subtracting costs of

sales and operating expenses from revenues. The figures are often used to gauge

the financial performance of companies with high levels of debt and interest

expenses.

113. Economic indicators : Key statistics used to analyze business conditions and make

forecasts. Among them are the unemployment rate, inflation rate, factory utilization

rate and balance of trade.

114. Economic Life : The time period over which an assets NPV is maximized. Economic

life can be less than absolute physical life for reasons of technological obsolescence,

physical life for reasons of technological obsolescence, physical deterioration, or

product life cycle.

Economic Order Quantity (EOQ) : The order quantity that minimizes total inventory costs.

A total inventory cost is the sum of ordering, carrying and stock-out costs.

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115. Economic risk : In project financing, the risk that the projects output will not be

salable at a price that will cover the projects operating and maintenance costs and its

debt service requirements.

116. Electrostat : A machine, which produces exact copies of original documents.

117. Effective income tax rate : The income tax provision shown on an income statement

divided by pretax income. This differs from the statutory rate because of deductions,

credits, and exclusions.

118. Effective interest rate : The cost of credit on a yearly basis expressed as a

percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually

a higher amount than the interest rate stipulated in the note.

119. Effective Margin (EM) : Used with SAT performance measures, the amount equal to

the net earned spread, or margin of income, on assets in excess of financing costs for

a given interest rate and prepayment rate scenario.

120. Efficient capital market : A market which new information is very quickly reflected

accurately in share prices.

121. Efficient market : Economy in which prices correctly reflect all relevant information.

122. Elliott wave theory : Technical market timing strategy that predicts price movements

on the basis of historical price wave patterns and their underlying psychological

motives. Robert Prechter is a famous Elliott Wave theorist.

123.Electronic trading : The process whereby customers or their representatives candirectly enter orders and receive reports and statement via the internet. It can also

include trading with terminals over dedicated telephone lines.

124. Embedded option : An option whose characteristics are implied but not explicitly

specified. One notable example is the option granted a mortgagor (home owner) by

the lender. The mortgagor has the right to prepay the mortgage at any time but is not

required to do so in any specified manner.

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125. Emerging markets : A term which broadly categorizes countries in the midst of

developing their financial markets and economic infrastructures. This development is

viewed in terms of freer, more liquid markets, which facilitate trade. Privatization of

former state owned or administered businesses is a key factor in this process.

126. Endorsement : The term endorsement is derived from the Latin word endorsum,

which means on the back. It means putting ones signature on the back of a bill to

transfer it to another.

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

payment of his debt.

128. Endorsee :A person in whose favour the bills receivable is transferred.

129. Endowment : A life assurance policy related to a mortgage designed to pay off the

amount originally borrowed at the end of the mortgage term. An endowment policy

will pay you a fixed amount on a set date or if you die before that date, in other words

its both a way of saving and life insurance. People often use endowments to repay

interest only mortgages. The drawback of them is that it is often unclear how much

you are having to pay in charges and the plans are often very rigid, so if you start an

endowment and then decide to cancel it, you might not get back what you paid in.

130. Entrance Fees : The fees collected at the time of admission of a member into the

organization is known as Entrance fees. The Entrance fees is to be posted in the

debit side of the Receipt and Payments Account. Entrance fees may be treated as

capital income or revenue income. Sometimes, a part of it may be treated as capital

income.

131. Entrepot Trade : When a trader purchase goods from one country and sells the

same goods to another country; it is called entrepot trade.

132. Equities :Another word for stocks and shares.

133. Equity : Ownership interest possessed by shareholders in a corporation stocks as

opposed to bonds. It is the part of a companys net worth that belongs to

shareholders.

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

investors.

135. Equity hedge funds : Try to long position themselves in stronger or outperform

issues while selling short weaker or poorer prospect securities. Variations of this are :

trading large cap issues versus small caps; using derivatives for enhanced returns;

specializing in program trading; or using leverage to magnify returns.

136. Franco or Rendu Price : It means that all the charges paid by the exporter upto and

including delivery to the buyers warehouses.

137. Error : A mistake in terms of quantity, type of order, side of market (purchase or

sale), security, or other condition of a trade.

138. Errors of Commission : When a transaction is incorrectly recorded in the books of

account, it is called error of commission. Examples of such errors include errors on

account of wrong balancing of an account, wrong posting, wrong carrying forwards,

wrong totaling etc. errors of commission affect the agreement of Trial Balance.

139. Errors disclosed by trial balance: There are a number of errors, which ifcommitted, will lead to the disagreement of trial balance. These include: wrong

totaling or wrong casting of the subsidiary books, posting of the wrong amount,

posting an amount on the wrong side of the accounts, omission of an account from

ledger accounts, omission of an amount from the trial balance, carry forward errors,

error in balancing the amount.

140. Errors not disclosed by Trial Balance: The trial balance will agree even ifthese errors are there in the accounts. These errors are: errors of omission, errors of

commission, compensatory errors and errors of principle.

141. Errors of Omission : When a transaction is wholly or partially omitted to berecorded in the subsidiary books, it is called an error of omission. Complete omission

involves the non-recording of any transaction in the original books of accounts. Partial

omission is done when a transaction is recorded in the primary book but not posted to

the ledger.

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142. Error of Principle : Errors involving violation of accounting principle aretermed as Errors of Principle. For example, treating capital expenditure as revenue

expenditure or vice versa.

143. Escalation : Refers to the increase in benefit (usually annual) payable during the

payment term of an insurance claim that is not settled via a lump sum payment. For

example, claims under an Income Protection Policy might escalate annually in line

with the Retail Price Index.

144. Escalator Clause : A clause in a contract providing for increases in costs such as

labor expense and materials.

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

heirs or claimants.

146. Escrow : (1) A procedure whereby a disinterested third party handles legal

documents and funds on behalf of a seller and buyer. (2) Money that is kept by the

mortgage company to ensure that taxes can be paid in full when due.

147. Estate : Strictly, an interest in land, but generally used to mean the total (land,

chattels, investments, etc) owned by an individual.

148. Estate taxes : Taxes levied by the federal and state governments on the transfer of

your assets after you die.

149. Euro : The European Single Currency.

150. Eurobonds : Bonds issued and traded outside the country whose currency they are

denominated in, and outside the regulations of a single country; usually bonds issued

by a non-European company for sale in Europe. Also called global bonds.

151. Eurocurrency : A deposit in a bank outside the depositors country of origin. Most

deposits are U.S. dollar deposits, although nearly all major Western currencies are

represented.

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152. Eurodollars : U.S currency held in banks outside the United States, mainly in

Europe, and commonly used for settling international transactions. Some securities

are issued in Eurodollars that is, with a promise to pay interest in dollars deposited

in foreign bank accounts.

153. Euromarkets :A general term for the Eurobond and Euroloan markets.

154. European Union (EU) :An economic association of European countries founded by

the Treaty of Rome in 1957as a common market for six nations. It was known as the

European Community before 1993 and is currently comprised of 15 European

countries. Its goals are a single market for goods and services without any economic

barriers and a common currency with one monetary authority.

155. EX : Derived from Latin and refers to Without or not included.

156. Exchange Banks :An exchange bank is mainly concerned with buying and selling of

foreign exchange. They also provide finance to the import and export trade.

157. Ex gratia payment : Latin for from favour. A payment by an insurer to an insured

for which here is no liability under the contract.

158. Exchange : A centralized place for trading securities and commodities, usually

involving an auction process. Examples include the New York Stock Exchange

(NYSE) and the American Stock Exchange (AMEX).

159. Exchange Fund : Investment vehicle introduced in 1999 that appeals to wealthy

investors with large holdings in a single stock who want to diversity without paying

capital gains taxes. These funds allow investors to exchange their stock for shares inthe diversified portfolio of stocks in a tax-free transaction.

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

currency.

161. Exchange Rate Mechanism (ERM) : The methodology by which members of the

EMS maintain their currency exchange rates within an agreed-upon range with

respect to other member countries.

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162. Exchange rate risk :Also called currency risk; the risk that an investments value will

change because of currency exchange rates.

163. Exchange ratio : The number of new shares in an acquiring firm that are timed for

each outstanding share of an acquired firm.

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

the country.

165. Exchange risk : The variability of a firms value that results from unexpected

exchange rate changes, or the extent to which the present value of a firm is expected

to change as a result of a given currencys appreciation or depreciation.

166. EX-dividend : A period of time immediately before a dividend is paid, during which

new investors in the stock are not entitled to receive the dividend. A stocks price is

revised lower to reflect the dividend value on the first day of this period. On that day,

a stock is said to go ex-dividend. Usually indicated in newspapers with an x next to

the stocks or mutual funds name.

167. Ex-dividend Date : Date on which the value of the income or capital gains

distribution is deducted from the price of a funds shares.

168. Ex-factory : Where a sellers responsibility ends when the buyer at point of origin.

This can also be written as ex-warehouse, ex-works, etc.

169. Exhaust price : The low price at which a broker must liquidate a clients holding in a

stock purchased in a margin account in order to meet a margin call when the client

cannot meet the call.

170. Expectations theory of forward exchange rates : A theory of foreign exchange

rates that states that the expected future spot foreign exchange rate t-periods from

now equals the current t-period forward exchange rate.

171. Expected volatility : The forward looking aspect of volatility or variability.

172. Expense : Goods or services purchased directly for the running of the business. Thisdoes not include goods bought for re-sale or any items of a capital nature.

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173. Expense Ratio : The percentage of mutual fund assets deducted each year for

expenses, which include management fees, operating costs, administrative fees,

12b-1 fees and all other costs incurred by the fund. Recently, the average expense

ratio for domestic equity funds was 1.4%. for fixed-income funds it was 1.1%.

International funds have higher expense ratios, averaging around 1.9%. There is no

reason to buy funds with expenses ratios higher than that. Sometimes the funds

management may elect to waive part of the expenses charged to shareholders in

order to boost returns. But this is usually a temporary waiver, so be careful because

such funds often raise their expenses once the waiver period ends.

174. Exposure netting : Offsetting exposures in one currency with exposures in the same

or another currency, when exchange rates are expected to move in such a way that

losses or gains on the first exposed position should be offset by gains or losses on

the second currency exposure.

175. Export Houses : Purchase goods locally and export them to foreign countries on

their account and risk instructing their branch offices or agents to whom they consign

the goods to sell on their behalf.

176. Export Trade : When a trader of one country sells goods to the traders of other

countries, this trade is called Export Trade.

177. Ex-rights : Refers to a transaction which the new purchaser of a stock is not entitled

to participate in the recently declared rights offering. The mechanics are similar to ex-

dividend conditions. Here, the exclusion point in time is known as the ex-rights date.

178.Ex-stock dividends : The time period between the announcement of a stockdividend and its actual payment. The buyer of shares during this time period does is

not entitled to the dividend.

179. Extension risk : For mortgage backed securities, the risk that rising interest rates

may slow down mortgage repayment. Because investors money is tied up in the

securities, they may miss the opportunity to earn a higher rate of interest on a

different investment.

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

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181. External Market : Also referred to as the international market, the offshore market,

or, more popularly, the Euromarket. A mechanism for trading securities that at

insurance (1) are offered simultaneously to investors in a number of countries and (2)

are issued outside the jurisdiction of any single country.

182. F.O.B : It is one of the most commons export terms meaning free on board. Under a

F.O.B. quotation the exporter will deliver the goods free on board a ship as per

contract.

183. F.O.R : It means free on rail. The price quoted includes cost of goods plus packing

charges plus the cost of carrying goods to a railway station and loading them into

wagons.

184. Face value : Just like it sounds : The value a bond has printed on its face, usually

$1,000. Also known as par value, it represents the amount of principal owed at

maturity. The bonds actual market value may be higher or lower. When a bonds

market price fluctuates, it has an impact on its yield. If the price drops below the

bonds face value, its yield goes up. If the price rises above face value, the yield goes

down.

185. Factors : Companies that buy accounts receivable, which are debts for merchandise

or services bought on credit. Factors assume the job of collecting the money due.

186. Facultative reinsurance :A type of reinsurance in which the reinsurer can accept or

reject any risk presented by an insurance company seeking reinsurance.

187.Fair value : Viewed as the indifference point from a modeling perspective as towhether to buy or sell an instrument or market. If the market price were higher than

fair value it would suggest selling the security. If the security was trading at less than

fair value it would suggest buying it. When coupled with related derivative

instruments, the approach becomes an arbitrage one.

188. Far month : Used in the context of option or futures to refer to the trading month of

the contract that is farthest away. Antithesis of nearest month.

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189. FASB : The Financial Accounting Standards Board. The Private organization

responsible for establishing the standards for financial accounting and reporting in the

United States.

190. Favourable Balance: Favourable balance as per cash book means debitbalance. On the other hand, favourable balance as per pass book means credit

balance.

191. Fax : Fascimile transmission or communication.

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

193. FICCI : It is a Federation of Indian Industrialists. The office of the organizationis located at Delhi.

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

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

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

196. Filing : The process of classifying, arranging and sorting out records forfuture use.

197. Fill or Kill order (FOK) : A trading order that is canceled unless executed within a

designated time period. A market or limited price order that is to be executed in its

entirety as son as it is represented in the trading crowed, and, if not so executed, is to

be treated as canceled. For purposes of this definition, a stop is considered an

execution. Equivalent to AON and IOC simultaneously.

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198. Final Accounts: Final accounts are primarily prepared for ascertaining theoperational result and the financial position of the business. They consist of (1)

Trading and Profit and Loss a/c , (2) Balance Sheet

199. Finance : 1 management of (esp. public) money. 2 monetary support for an

enterprise. 3 (in pl.) money resources of a State, company, or person.

200. Finance Charge : The total cost borne by a borrower to obtain credit. It includes

interest, points, and fees.

201. Finance company : Company providing money, esp. for hire purchase transactions.

202. Financial accounting : The area of accounting concerned with reporting financial

information to interested external parties.

203. Financial Accounting Standards Board (FASB) : The Financial Accounting

Standards Board is an independent board responsible for establishing and

interpreting generally accepted accounting principles (or GAAP). U.S. companies that

adhere to GAAP are said to be more transparent and easier to analyze financially

than companies in many foreign countries. In fact, the differences in accounting

standards makes it difficult to compare the earnings of companies in different

countries.

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

or commission.

205. Financial Analysis : Also called securities analysts and investment analysts.

Professional who analyze financial statements, interview corporate executives, and

attend trade shows, in order to write reports recommending either purchasing, selling,

or holding various stocks.

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

budgeted amounts.

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

loan contracts.

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208. Financial Planning : Evaluating the investing and financing options available to a

firm. Planning includes attempting to make optimal decisions, projecting the

consequences of these decisions for the firm in the form of a financial plan, and then

comparing future performance against that plan.

209. Financial Policy : Criteria describing a corporations choices regarding its debt/

equity mix, currencies of denomination, maturity structure, method of financing

investment projects, and hedging decisions with a goal of maximizing the value of the

firm to some set of stockholders.

210. Financial Ratio : The result of dividing one financial statement item by another.

Ratios help analysts interpret financial statements by focusing on specific

relationships.

211. Financial Reporting Release (FRR) : The policy releases and pronouncements from

the sec (securities and exchange commission).

212. Financial results : Usually refers to the summary financial statements provided in

compliance to the gap guidelines. They can cover any periods, but usually cover

either : single month, quarter, or annual periods.

213. Financial risk : The risk that the cash flow of an issuer will not be adequate to meet

its financial obligations. Also referred to as the additional risk that a firms stockholder

bears when the firm uses debt and equity.

214. Financial statements: Summary of accounting information such as Profitand Loss Account and Balance Sheet prepared at the end of an accounting period.

These are also called Final Accounts.

215. Financial strategy : Practices a firm adopts to pursue its financial objectives.

216. Financial structure : The way in which a companys assets are financed, such as

short-term borrowings, long-term debt, and ownership equity. Financial structure

differs from capital structure in that capital structure accounts for long-term debt and

equity only.

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217. Financial tables : Tables found in newspapers listing prices, dividends, yields, price-

earnings ratios, trading volume, and other important data on stocks, bonds, mutual

funds, and futures contracts.

218. Firewall : The legal barrier between banking and broker / dealer operations within a

financial institution created to prevent the exchange of inside information.

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

cycle for the cash flow window.

220. First mortgage : A type of mortgage that through a lien gives precedence to the

lender of the first mortgage over all other lenders in case of default.

221. Financial year : 1. Any year connected with finance, such as a companys

accounting period or a year for which budgets are made up. 2. A specific period

relating to corporation tax, i.e. the year beginning 1st April. Corporation-tax rates are

fixed for specific financial years by the Chancellor in his budget; if a companys

accounting period falls into two financial years the profits have to be apportioned to

the relevant financial years to find the rates of tax applicable.

222. First in-First Out (FIFO) : Basis for calculating the tax impact of mutual fund profits

and losses that assumes shares sold are the oldest shares owned.

223. First-in First-out : The accounting technique whereby the first items in inventory are

paired against the first items sold out of inventory. Speculative futures transactions

are treated this way. Securities transactions can be treated this way in the absence of

further instructions.

224. Fiscal policy : Influencing the direction of an economy through the use of taxation.

225. Fiscal year : The 12-month period that a corporation or government uses for book

keeping purposes. A companys fiscal year is often, but not necessarily, the same as

the calendar year. A seasonal business will frequently select a fiscal rather than a

calendar year so that its year-end figures will show it in its most liquid condition,

which also means having less inventory to verify physically. The fiscal year of theU.S. government ends September 30. Abbreviated as FY.

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226. Fixed Assets: These assets are acquired for long term use in thebusiness. They are not meant for resale. Land and Buildings, plant and Machinery,

vehicles and furniture etc., are some of the examples of fixed assets.

227. Fixed Capital: A method of maintaining capital accounts of partners wheretwo accounts viz., capital account and current account, are prepared for recording

transactions relating to each partner.

228. Fixed charge : Those expenses incurred each time a batch of product is produced.

Primarily consists of ordering cost for the raw material, engineering costs for machine

setup and preparation for the production run, and work order processing cost; also

known as setup cost.

229. Fixed costs : Operating expenses that are incurred to provide facilities and

organization that are kept in readiness to do business without regard to actual

volumes of production and sales. Fixed costs remain relatively constant until changed

by managerial decision. Within general limits they do not vary with business volume.

Examples of fixed costs consist of rent, property taxes, and interest expense.

230. Fixed exchange rate :A countrys decision to tie the value of its currency to another

countrys currency, gold (or another commodity), or a basket of currencies.

231. Fixed expenses (costs) : Expenses of the business that remain constant over the

short term and do not fluctuate with the sales volume.

232. Fixed-charge coverage ratio : A measure of a firms ability to meet its fixed-chargeobligations : The ratio of (net earnings before taxes plus interest charges paid plus

long-term lease payments) to (interest charges paid plus long-term lease payments).

233. Fixed rate : A guaranteed rate that is normally set just below the standard variable

rate and is guaranteed for a certain period of time. If the standard variable rate falls

below the fixed rate you will still have to pay the fixed rate. Once the fixed rate period

ends you will normally pay the lenders variable rate. Sometimes there are

redemption penalties associated with this type of deal.

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234. Fixed rate mortgages : Mortgages with a fixed interest rate. You payment fo9r

principal and interest will not change for the life of the loan. Your monthly payment

may changer if taxes or insurance rates change.

235. Fixed-income security : A security that pays a fixed rate of return. This usually

refers to government, corporate or municipal bonds, which pay a fixed rate of interest

until the bonds mature, and to preferred stock, paying a fixed dividend. Since fixed-

income investments guarantee you an annual payout, they are inherently less risky

than stocks, which do not.

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

Capital, loans, debentures, mortgage etc., are its examples.

237. Fixed-rate mortgage :A type of mortgage where the interest rate does not fluctuate

with general market conditions. Fixed-rate mortgages tend to have higher original

interest rates than adjustable rate mortgages (or ARMs) do because lenders are not

protected against a raise in the cost of money when they make a fixed-rate loan.

238. Flat scale : The pattern for new issues where shorter and longer-term yields

display very little difference over the bonds maturity range.

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

progressive tax.

240. Flat market : A term structure whereby the various delivery months are basically

trading at the same price level or yield.

241. Flexible mortgage :A feature of some mortgages that gives you freedom to change

the amount and frequency of your mortgage payments

242. Flip or to flip : Refers to a trade executed within a relatively short timeframe.

243. Flipper :A trader who takes quick advantage of a profit. It often refers to individuals :

not financial institutions : who quickly sell their Initial Public Offering (IPO) positions.

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244. Float : The number of outstanding shares in a corporation available for trading by the

public. A small float means the stock will be more volatile, since a large order to buy

or sell shares can influence the stocks price dramatically. A large float will mean a

stock is less volatile. Since small capitalization stocks tend to have less shares

outstanding than larger companies, their float is smaller and they tend to be more

volatile. The same is true for closely-held companies.

245. Floating rate : Refers tot he condition whereby exchange rates are relatively free to

change. It can also refer to an interest rate which changes relatively quickly or

frequently.

246. Floating rate contract : An guaranteed investment instrument whose interest

payment is tied to some variable (floating) interest rate benchmark, such as a

specific-maturity Treasury yield.

247. Floor broker :A member of an exchange who executes orders for others.

248. Floor Trader : A member of an exchange who trades for his or her own personal

account.

249. Floatation (Rotation) cost : The costs associated with creating capital through the

issue of new stocks or bonds, including the compensation earned by the investment

banker plus legal, accounting and printing expenses.

250. Fluctuating Capitals : A method of maintaining capital accounts of partners where

only one account viz., capital account is prepared for recording all transactions

relating to each partner.

251. Flux : The Flow Uncertainty Index. It refers to a financial model developed for the

National Association of Insurance Commissioners to qualify the relative risk or

variability of CMOs over a range of interest rate scenarios.

252. FOB (Free-On-Board) destination : A business term meaning that the seller of

merchandise bears the shipping costs and maintains ownership until the merchandise

is delivered to the buyer.

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253. Foreclosure : Legal process by which a mortgagor of real property is deprived of his

interest in that property due to failure to comply with terms and conditions of the

mortgage.

254. Foreign draft : This is similar to a bankers draft, but is in a foreign currency. Foreign

drafts take around 5 days to arrive depending on where it is sent.

255. Foreign exchange : Refers to currencies other than the United States dollar. It also

refers to transactions, activities, and operations for trading, hedging, and investing in

multiple currencies.

256. Foreign exchange market : Market in which foreign currencies are bought and sold

and exchange rates between currencies are determined. The exchange rate is the

price at which one countrys currency can be converted into another. Some exchange

rates are fixed by agreement, but most are determined by supply and demand on the

exchange market.

257. Foreign market beta : A measure of foreign market risk that is derived from the

capital asset pricing model.

258. Foreign trade or International trade : It refers to the exchange of goods and

services between citizens, business firms or governments of different countries.

259. Forensic accounting : Forensic accounting provides for an accounting analysis that

is suitable to a court of law which will form the basis for discussion, debate and

ultimately dispute resolution. Forensic accounting encompasses investigative

accounting and litigation support. Forensic accounts utilize accounting, auditing and

investigative skills when conducting an investigation. Equally critical is the ability torespond immediately and to communicate financial information clearly and concisely

in a courtroom setting.

260. Forward : A market similar to futures in terms of deferred deliveries. However,

notable differences include the lack of contract standardization, the lack of a central

clearing house, the potential for substantial counterpart risk, but it allows contractual

term customization and deliveries at times, points and grades other than those listed

for futures contracts. It is also used to refer to the bank currency market.

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261. Forward exchange rate : A currency exchange contract that traders have agreed

upon for a future date. The forward rate is usually for one, two, three or six months

and referred to 30-day forward, 60-day forward, etc.

262. Forwarding Note : Form to be filled in while sending goods through goods train.

263. Forward pricing : Practice mandated by the SEC that open-end investment

companies establish all incoming buy and sell orders on the next net asset valuation

of fund shares.

264. Forward rate :A projection of future interest rates calculated from either spot rates or

the yield curve.

265. Forward trading : Trade, usually at the current price, in which actual delivery and

settlement is made at a future date. Forward trade occurs in the commodity, foreign

exchange, stock, bond and futures markets.

266. Fractal market hypothesis : The fractal market hypothesis states that (1) a market

consists of many investors with different investment horizons, and (2) the information

set that is important to each investment horizon is different. As long as the market

maintains this fractal structure, with no characteristic time scale, the market remains

stable. When the markets investment horizon becomes uniform, the market becomes

unstable because everyone is trading based upon the same information set. Theory

due to Ed Peters.

267. Franking Machine :A machine used to stamp outgoing mail.

268.Free delivery : Securities industry procedure whereby delivery of securities sold ismade to the buying customers bank without requiring immediate payment; thus a

credit agreement of sorts. Antithesis of delivery vs. payment.

269. Free on Board (FOB) : Implies that distribution services like transport and handling

performed on goods up to the customs frontier are included in the price.

270. Free trade Zone (FTZ) : An area, usually a port of entry, designated by the country

for duty-free entry of goods. As long as the goods do not go into the country from the

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ftz, no duty is assessed. While in the ftz, goods may be processed, packaged,

serviced or displayed.

271. Freed up : A term used to indicate that an underwriting syndicates members are no

longer restricted to the fixed price agreed upon in the agreement among underwriters

and are permitted to trade the security on a free market basis.

272. Free riding : Has several meanings. It can refer to a customer account which

engaged in purchases and sales without paying for the securities. There are several

exceptions for some markets which may permit day-trading waivers or no

reconciliation until final settlement or reciprocal closeout of position. It can refer to an

underwriter withholding a portion of a hot issue for the benefit of its own account.

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

or transactions.

274. Freehold : If you buy a property which is freehold it means that both the land and the

property is yours, unlike leasehold where the land would not belong to you.

275. Friendly takeover :An acquisition of one company by another in which the boards of

both companies agree to the terms of the transaction.

276. Front office : The area or function which relates to trading, investing, or sales

activities for a financial firm. Orders start here, flow through the middle office, if any,

and get processed by the back office.

277. Front-end load : Refers to charges which are imposed upon the purchase or

acquisition of an investment position. Many times these charges are on a slidingscale. Sometimes, these charges are viewed as impediments for early withdrawals.

They are called front-end because they occur at the beginning of the investment

process.

278. Frozen account : Occurs when a client fails to pay for securities within the allotted

time. Subsequent transactions can only occur if the account has sufficient funds or

securities on deposit to complete the transactions. The frozen status or freeze can be

removed only after the account complies with existing rules and regulations for anestablished time frame.

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279. Full cost recovery : Adjusting fees/ prices for goods/ services to where all cost o

operations and maintenance are covered for supplying the given goods or services.

280. Full disclosure concept: This concept deals with the convention that all information

which is of material importance should be disclosed in the accounting statements.

The Companies Act 1956 makes it compulsory to provide all the information in the

prescribed form.

281. Full- service brokers : Brokers who execute buy and sell orders, research

investments, help investors develop and meet investment goals and give advice to

investors. They charge commissions for their work. During a bull market, when stocks

are going up consistently, good ideas are a dime a dozen. But when the markets turn

choppy, solid advice can save you. Some full-service firms offer a range of good

mutual funds, estate-planning services and tax advice. A broker will set up a financial

profile for you based on your assets, income and goals and advise you

appropriately. All of this, of course, will cost you a lot more than using a bare bones

discount broker.

282. Fund : General term for any investment vehicle which pools together the money of

many small individual investors and invests it in certain markets and securities

according to a defined set of investment aims and objectives. Covers such

investments as unit trusts, investment trusts and pension plans.

283. Fund manager : A fund manager is employed to invest money for (amongst other

things) unit trusts and investment trusts. Fund managers aim to outperform their

chosen index by buying shares, which they think will do particularly well. They can

also choose to keep a percentage of their fund in cash if theyre not optimistic aboutthe outlook for the stock market. Naturally, fund managers get paid to do this, so

charges for an actively managed fund tend to be higher than for an index tracker.

284. Fundamental analysis : Fundamental analysis asserts that a stocks price is

determined by the future course of its earnings and dividends. The fundamental

analyst tries to determine what the intrinsic value of a stocks underlying business is

by looking at its financial statements and its competitive position within its industry. if

this intrinsic value is greater than the market price of the stock, the stock is said to beundervalued. In other words, the company has greater earning potential than its stock

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price would indicate. Fundamental analysis is the antithesis of technical analysis,

which focuses on stock-price movements instead of underlying earnings potential.

285. Fundamentals : Usually refers to the underlying economic factors affecting a

particular market, country or sector and will include such aspects as industrial output,

wages and raw materials costs, currency strength or weaknesses, trade balance and

so on.

286. Future : A term used to designate all contract covering the sale of financial

instruments or physical commodities for future delivery on a commodity exchange.

287. Future value : The amount of money than an investment made today (the present

value) will grow to by some future date. Since money has time value, we naturally

expect the future value to be greater than the present value. The difference between

the two depends on the number of compounding periods involved and the going

interest rate.

288. Futures :An agreement to buy or sell a set amount of a commodity or security in a

designated future month at a price agreed upon today by the buyer and seller. A

futures contract differs from an option because an option is the right to buy or sell,

whereas a futures contract is the promise to actually make a transaction. A future is

part of a class of securities called derivatives, so named because such securities

derive their value from the worth of an underlying investment.

289. Future Contracts : Instruments predicated on a cash commodity or currency, a

financial instrument, or an index. These are standardized contracts which are traded

on organized exchanges. Also, these contracts are subject to industry and exchange

regulations and government regulatory bodies and laws. The standardization is oneof the key factors which differentiates these instruments from forward contracts. Other

factors are the standardization of margin or performance bond procedures and the

high degree of anonymous offset. Futures contracts can be offset by a trade opposite

to the initial transaction, and EFP, or a good delivery. Good deliveries can be satisfied

by either the delivery of the actual commodity or financial instrument or by a final

cash payment for Cash Settlement markets.

290. Futures option :An option on a futures contract.

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291. G-7 : The Group of Seven Nations. The membership consists of Britain, Canada,

France, Germany, Italy, Japan, and the United States of America.

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

acquired by the remaining partners.

293. Generally accepted Accounting Principles: They are also known as Basic

Accounting Concepts. These are the fundamental ideas or basic assumptions

underlying the theory and practice of accounting. They are the broad working rules for

all accounting activities. They are developed and accepted by the accounting

profession. These principles bring uniformity in the practice of accounting.

294. Gamma : The second derivative of an option. It measures the expected change in

the delta given a change in the underlying instrument.

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

categories or buckets.

296. Gearing : A measure of exposure. It relates the number of warrants that can be

purchased for the same price of the stock. For example, if the stock is trading at 150

and the warrants are trading at 30, then the gearing is 5.00 or 5-to 1.

297. GEM (Growing Equity Mortgage) : Mortgage in which annual increases in monthly

payments are used to reduce outstanding principal and to shorten the term of the

loan.

298. General Accounting : Involves the basic principles, concepts and accounting

practice, recording, financial statement preparation, and the use of accountinginformation in management.

299. General Agreement on Tariffs and Trade (GATT) :A trade part ratified in 1994 that

cut tariffs world-wide, reduced agricultural subsidies, standardized copyright and

patent protection and set up arbitration panes. GATT was also an institution that

oversaw international trade issues. The institution changed its name to the World

Trade Organization after the trade pact was ratified.

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

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301. Generally Accepted Accounting Principles (GAAP) : Guidelines that explain what

should be done in specific accounting situations as determined by the Financial

Accounting Standards Board. U.S. companies that adhere to GAAP are said to be

more transparent and easier to analyze financially than companies in many foreign

countries. In fact, the differences in accounting standards make it difficult to compare

the earnings of companies in different countries.

302. Generally Accepted Auditing Standards (GAAS) : In the us, GAAS are the broad

rules and guidelines set down by the auditing standards board of the American

institute of certified public accountants (aicpa). In carrying out work for a client, a

certified public accountant would apply the generally accepted accounting principles

(GAAP); if they fail to do so, they can be held to be in violation of the aicpas code of

professional ethics.

303. General-purpose Financial statements : The financial reports intended for use by a

variety of external groups; they include the balance sheet, the income statement, and

the statement of cash flows.

304. Global funds : A fund that invests in stocks located throughout the world while

maintaining a percentage of assets. Global funds tend to be the safest foreign-stock

investments, but thats because they typically lean on better-known stocks.

305. Global depository receipt : A receipt denoting ownership of foreign-based

corporation stock shares which are traded in numerous capital markets around the

world.

306.Globalization : The name for the process of increasing the connectivity andinterdependence of the worlds markets and businesses. In its literal sense,

globalization is a social change, an increased connectivity among societies and their

elements due to transculturation; the explosive evolutions of transport and

communication technologies to facilitate international cultural and economic

exchange are examples of globalization.

307. Going Concern Concept: It is assumed that the business will continue for a long

time. With this assumption fixed assets are recorded in the books at their originalcost. Keeping this assumption in view, prepaid expenses are not treated as the

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expenses of the year in which they are incurred. It is assumed that the business

derives benefit out of it (prepaid expenses) in the years to come.

308. Gold bars : Bars with a minimum content of 99.5% gold, which may be held by

central banks or traded by ihnvestors.

309. Gold bond : Bonds issued by gold-mining companies and backed by gold. The

bonds make interest payments based on the level of gold prices.

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

gold bars.

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

bullion.

312. Gold standard : A monetary system based on gold. The basic currency unit to a

country is pegged to a specified amount of gold.

313. Goodwill : Goodwill refers to the reputation or good name of a firm. It is a force which

makes the old customers to go to the same shop again and again. It is this force

which makes the old customers to go to the same shop again and again. It is this

force which facilitates the firms to earn over and above the normal profits. Thus,

goodwill is the present value of a firms anticipated excess earnings.

314. Grace period : The specified period after a premium payment is due, in which the

policyholder may make such payment, and during which the protection of the policy

continues.

315. Grantor :A person who, by a written instrument, transfers to another interest in land.

316. Great depression : The world-wide economic hard times, which began after the

stock market collapse on October 28, 1929, and continued through most of the

1930s.

317. Gray knight : In a merger or acquisitions, a gray knight is an acquiring company that

outbids a while knight in pursuit of its own best interests, although it is friendlier thana hostile bidder.

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318. Gray List : Formal roster of stocks that can be traded by the block desks, but not in

risk arbitrage because an investment bank is involved with the company on nonpublic

activity. A stocks presence on this list should never be conveyed to anyone outside

the trading area, much less outside the firm.

319. Gray market : Describes the sale of securities that have not officially been issued to

firms other than the underwriting syndicate. This type of market serves as a good

indicator of demand for a new issue in the public market.

320. Great Call : Used in the context of general equities. Potential customer who may

have an interest in participating in a particular trade if customers pass inquiry or

activity is any indication.

321. Greater fool theory :An investment notion that even when a stock is fully valued by

conventional standards, there is room for upward movement because there are

enough buyers to push prices farther upward purely on speculation or hype.

322. Green :A mortgage backed securities term which indicates mortgage which are not

seasoned yet. Typically, a mortgage that is less than 30 months old is considered

green.

323. Gross Domestic Product (GDP) : The total value of goods and services produced

by a nation. The GDP is made up of consumer and government purchases, private

domestic investments and net exports of goods and services. In the U.S. it is

calculated by the Commerce Department every quarter, and it is the main measure of

economic output. Because GDP measures national output, and strong output isindicative of a healthy economy, bond prices react negatively to strong GDP data. A

strong economy ignites inflationary fears, which is a negative for bond prices.

Equities, on the other hand, tend to perform well when GDP is rising since earnings-

growth prospects are better during economic expansions.

324. Gross margin : A companys profitability after the costs of production have been

paid. Gross margin is calculated by dividing gross income (revenue after production

costs are subtracted) by revenue and then multiplying by 100. The result is expressedas a percentage. Gross margin shows you how profitable the basic business of a

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company is a before administrative costs, taxes and depreciation have been taken

out. Operating markets may paint a truer picture of a companys profitability.

325. Gross Margin percentage : The gross margin from an income statement divided by

net sales revenue.

326. Gross National Product (GNP) : The dollar value of all goods and services

produced in a nations economy. Unlike gross domestic product, it includes goods

and services produced abroad.

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

sold is the gross profit. If cost of goods sold is more than net sales, it results in gross

loss. Gross profit / loss will be transferred from trading account to profit and loss

account.

328. Gross profit Margin analysis : Indicates what the companys pricing policy is and

what the true mark-up margins are. Calculated by : revenue cost of goods sold /

revenue.

329. Gross spread : The difference between the price that investors are charged for a

security and the amount of proceeds that are paid to the issuer. In the securities-

underwriting business, those proceeds are the total amount of fees that a company

pays to an underwriting group in connection with a public offering of its stock or

bonds. This includes the selling concession paid to members of the underwriting

group and the underwriting and management fees that are paid to the securities firms

in charge of the offering.

330. Group life insurance : Group life is designed to pay a benefit, in either lump sum

form or as a dependants pension, on the death of the member.

331. Growth fund : As its name implies, this type of fund tends to look for the fastest

growing companies on the market. Growth mangers are willing to take more risk and

pay a premium for their stocks in an effort to build a portfolio of companies with

above-average earnings momentum or price appreciation. Growth stock funds usually

have higher return volatility than most funds. This means that if the market declines, a

growth funds return will tend to decline more than the overall market. On the upside,

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if the market rallies, growth funds typically outperform most market measures such as

the S & P500. A growth fund invests in stocks of all market capitalization ranges

small, medium and large.

332. Growth phase :A phase of development during which a company experiences rapid

earnings growth as it produces new products and expands market share.

333. Growth Rates : Compound annual growth rate for the number of full fiscal years

shown. If there is a negative or zero value for the first or last year, the growth is N.M.

334. Hard asset : Also known as a tangible asset, a hard asset is one whose value

depends on particular physical properties. These include reproducible assets such as

buildings or machinery and non-reproducible assets such as buildings or machinery

and non-reproducible assets such as land, a presence, such as goodwill or a

copyright, are called intangible assets. An industrial company with a lot of hard assets

(factories, machinery, etc) is best valued by its price-to-book ratio. But companies

that have a lot of intangible intellectual assets (such as software makers or

pharmaceutical companies) should be valued by other means.

335. Hedge : The act of protecting a position. Hedges can be either Long or Short.

Hedges are often done with derivative products. A Long Hedge refers to a position

whereby a derivative contract is purchased to protect against a short actual position.

A short Hedge is a position whereby a derivative is sold to protect against a long

actual position.

336. Hedge fund : A private investment partnership, owned by wealthy individuals and

institutions, which is allowed to use aggressive strategies the are unavailable to

mutual funds, including short selling, leverage, program trading, swaps, arbitrage andderivatives.

337. Hedging : A strategy designed to reduce investment risk using call options, put

options, short selling or futures contracts. A hedge can help lock in existing profits.

Examples include a position in a futures market to offset the position held in a cash

market, holding a security and selling that security short and a call option against a

shorted stock. A perfect hedge eliminates the possibility for a future gain or loss. An

imperfect hedge insures against a portion of the loss.

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338. Hedging paradox : When favorable basis movements do not guarantee a favourable

global result for the hedge. Also, it can occur when the basis behavior is unfavorable

yet the hedge is still beneficial.

339. Hedge ratio (delta) : For options, ratio between the change in an options theoretical

value and the change in price of the underlying stock at a given point in time. For

convertibles, percentage of a convertible bond representing the number of underlying

common shares sold against the shares into which bonds are convertible. If a

preferred is convertible into 2000 common shares, a 75% hedge ratio would be short

(long) 1500 common for every 1000 preferred long (short).

340. Hedge wrapper :An options strategy in which an investor with a long position in an

underlying stock buys an out-of-the-money put and sells an out-of-the-money call.

The hedge wrapper defines a range where the stock will be sold at expiration of the

option, which way the stock moves.

341. Hedged Portfolio: A portfolio consisting of a long position in the stock and a long

position in the put option on the stock, so as to be risk less and produce a return that

equals the risk-free interest rate.

342. Hedged position : A hedged position occurs if you own a second asset that should

move in the opposite way the first asset would react to changes in the market. For

example, you own a stock and a put and / or a call on the stock.

343. Hemline theory : A theory that sotck prices move in the same direction as the

hemlines of womens dresses. For example, short skirts (1920s and 1960s) are

symbolic of bullish markets and long skirts (1930s and 1940s) are symbolic of bearish

markets.

344. Herstatt risk : The risk of loss in foreign exchange trading that one party will deliver

foreign exchange but the counter party financial institution will fail to complete its end

of the contract. this is also referred to as settlement risk.

345. High flyer : High-priced and highly speculative stock that moves up and down

sharply over a short period. Generally glamorous in nature due to the capital gains

potential associated with them; also used to describe any high-priced stock.Antithesis of sleeper.

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346. High price : The highest (intraday) price of a stock over the past 5

finance key terms

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