Finance Terminology

CRFE AN ASSIGNMENT ON FINANCIAL TERMINOLOGY
AN ASSIGNMENT ON
“FINANCIAL TERMINOLOGY”
Submitted to:
MISS SONALI PATTNAIK
Faculty, Department of Finance,
DEPARTMENT OF FINANCE, VISWASS

VISWASS
Submitted by:
MR. SANTOSH KUMAR SAHOO
MFC IInd Year
Roll No. 19
VIVEKANANDA INSTITUTE OF SOCIAL WORK AND SOCIAL SCIENCES

237, Bapuji Nagar,
Bhubaneswar-751009
Account: A record in the general ledger that is used to collect and store similar
information. For example, a company will have a Cash account in which every transaction
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involving cash is recorded. A company selling merchandise on credit will record these sales
in a Sales account and in an Accounts Receivable account.
Debtor: An individual or organization that owes a debt or has an obligation to another

party. A debtor is a person or entity that owes money. In other words, the debtor has a debt
or legal obligation to pay an amount to another person or entity. For example, if you borrow
$10,000 from a bank, you are the debtor and the bank is the creditor.
Creditor: The person or organization to whom the debtor owes money or has some other
form of legal obligation.
An individual, business or other organization to whom money or something of value is owed.

Someone who has granted credit. If a bank lends a company money, the bank is a creditor. If
a supplier sold merchandise to a company on credit, the supplier is a creditor.
Revenue: Fees earned from providing services and the amounts of merchandise sold.
Under the accrual basis of accounting, revenues are recorded at the time of delivering the
service or the merchandise, even if cash is not received at the time of delivery. Often the term
income is used instead of revenues.
For a company, this is the total amount of earnings by the company

for goods sold or services provided during a certain time period. It also includes all net
sales, exchange of assets; interest and any other increase in owner's equity and is calculated
before any expenses are subtracted.
Profit:
- An advantageous gain or return; benefit.
- The return received on a business undertaking after all operating expenses have been met.
- The return received on an investment after all charges have been paid. Often used in the
plural.
- The rate of increase in the net worth of a business enterprise in a given accounting period.
- Income received from investments or property.
- The amount received for a commodity or service in excess of the original cost.
- Best known measure of the success of an enterprise, it is the surplus remaining

after total costs are deducted from total revenue, and the basis on which tax is
computed and dividend is paid. Profit is reflected in reduction in liabilities, increase
in assets, and/or increase in owners' equity. It furnishes resources for investing in
future operations, and its absence may result in the extinction of the firm. As an
indicator of comparative performance, however, it is less valuable than return on
investment (ROI). In economics, total costs must include a cost to cover the normal
profit for the firm. Also called earnings, gain, or income.
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Expense : Money expended or cost incurred in a firm's efforts to generate revenue,

representing cost of doing business. Expenses may be in the form of
actual cash payments(such as wages and salaries), a computed 'expired' portion
(depreciation) of an asset, or an amount taken out of the firm's earnings (such as bad
debts). Expenses are summarized and charged in the firm's income statement as
deductions from the income before assessing income tax. Whereas all expenses
are costs, not all costs (such as those incurred in acquisition of income
generating assets) are expenses.
Expenditure : Actual payment of cash or cash equivalent for goods orservices, or

a charge against available funds in settlementof an obligation as evidenced by
an invoice, receipt,voucher, or other such document. A revenue expenditureis cash
used in payment for goods and services consumed in a short period. A capital
expenditure is cash used inpurchase of fixed assets that last one year or more.
Narration: Narration is a short description about the transaction written under the journal
entry for easy reference.
Debit: In double-entry bookkeeping, it’s an entry on the left-hand side of

an account record. It has the effect of decreasing a capital, liability, or revenue
account, or of increasing an asset or expense account.
Simply, debit refers to the receiving aspect of a transaction.
Credit: In double entry bookkeeping, it refers to the entry on the left-hand side of
an account record. It has the effect of decreasing an asset or expense account, or of
increasing a capital, liability, or revenue account.
Simply, credit refers to the giving aspect of a transaction.
Bookkeeping: Bookkeeping refers to the systematic recording of financial aspects

of business transactions in appropriate books of account.
Cash: Cash refers to ready money.

For accounting purposes, cash includes money in the cash pan, petty cash, cash in the
locker, bank account balance, customer checks, and marketable securities. It may also
include the un-utilized portion of an overdraft facility or line of credit.
Funds: All the financial resources of a firm, such as cash in hand,

bank balance, accounts receivable. Any change in these resources is reflected in
the firm's financial position.
Liquidity:
- General: Measure of the extent to which a person or firm has (or has the ability to
quickly put hands on) cash to meet immediate and short-term obligations.
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- Accounting: Ability of current assets to meet current liabilities.

- Investing: Ability to quickly convert an investment portfolio to cash with little or
no loss in value.
Solvency: Solvency refers to the financial soundness of an entity that allows it

to discharge its monetary obligations as they fall due. It is measured by solvency
ratios.
Fictitious Asset: Asset created by an accounting entry (and included under assets in
the balance sheet) that has no tangible existence or

realizable value but represents actual cash expenditure. The purpose of creating a
fictitious asset is to account for expenses (such as those incurred in starting a
business) that cannot be placed under any normal account heading. Fictitious assets
are written off as soon as possible against the firm's earnings.
Cost of Sales
- Manufacturing: Sum of direct material, direct labor, and factory overheads incurred in
making a product.
- Retailing: Purchase price of a merchandise. Also called cost of goods sold.
Cost of Goods Sold: An income statement figure which reflects the cost of obtaining raw
materials and producing finished goods that are sold to consumers.
Cost of Goods Sold = Beginning Merchandise Inventory + Net Purchases of Merchandise -
Ending Merchandise Inventory.
Also,
Cost of Goods Sold = Opening Stock + Net Purchases + Direct Expenses – Closing Stock
Gross Domestic Product (GDP): The total market value of all final goods and
services produced in a country in a given year, equal to
total consumer, investment and government spending,plus the value of exports,
minus the value of imports.
GDP is the value of a country's overall output of goods and services(typically during
one fiscal year) at market prices, excluding net income from abroad.
Gross National Product (GNP) : GDP of a country to

which income from abroad remittances of nationals living outside and income from
foreign subsidiaries of local firms has been added.
GNP is GDP plus the income accruing to domestic residents as
a result of investments abroad, minus the income earned in domestic markets accruing to
foreigners abroad.
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Cheque: Demand draft drawn on a bank against its maker's(drawer's) funds,

to pay the stated amount of money to the bearer or named party,
on presentment (demand) on a stated date or after. Whereas in the US a check is
always a negotiable instrument, in the UK practice (where check is spelled as
'cheque') it can be made non-negotiable by crossing.
Bank Draft : Bill of exchange drawn by a bank on itself, or on a correspondent

bank in another city or country. Bank drafts are commonly used by banks in dealings
with other banks, or when a creditor or seller is unwilling to accept an ordinary check

from a debtor or buyer in another city or country. (In local transactions a certified
check or a cashier's check serves the same purpose.) When a
customer (the drawer) requests a draft, the bank withdraws the amount of the draft
from his or her account and holds it to honor the draft on its presentment by the
drawee. Because, in normal circumstances, a draft is certain to be paid, it is generally
accepted as a cash equivalent. Also called banker's draft.
Crossed Check: Check marked with two parallel lines drawn diagonally across
its face (usually on the upper left-hand corner) with or without the words '&Co.' or 'not
negotiable' between the lines. A crossed check can only be deposited in a bank-
account and (unlike a bearer check) cannot be cashed over a bank's counter.
Capital Receipts: Capital receipts are the funds received into the businesses that are not
part of the operating activities of the establishment. Capital receipts primarily include external
assistance, market loans, small savings, and Government provident funds.
In general, Capital Receipts refers to the receipts made by selling of long-term or fixed
assets.
Revenue Receipt: It’s the receipt that is made by the performance of day to day business
activities in normal course of the business i.e., by selling of goods/services.
Capital Profit: Refers to the profit that is earned by selling of long-term or fixed assets.
Revenue Profit: Revenue profit is the normal profit that is earned by the performance of
day to day business transactions i.e, buying/selling of goods and services.
It is shown in the Profit and Loss account of the business.
Capital Loss: Capital Loss is the loss that is sustained by selling of long-term or fixed
assets like plant and machinery, etc.
Revenue Loss: Revenue Loss is the normal loss that is made due to the day to day
business transactions of the business i.e., buying and selling of goods and services.
It’s the loss that is shown in the Profit and Loss account of an organization.
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Loss: Loss refers to the unrecoverable and usually unanticipated and non-
recurring removal of, or decrease in an asset or resource. Loss arises when
a company's expenses exceed its revenues. It’s the opposite of profit.
Capital Expenditure (CAPEX) : Amount spent to acquire

or upgrade productive assets(such as buildings, machinery and equipment,
vehicles) to increase the capacity or efficiency of a firm for more than
one accounting period. Also called capital spending.
Bill:

- An invoice of charges for products and services.
- Document evidencing one party's indebtedness to another, such as an invoice.
- Draft of a proposed statute (Act Of Parliament) which must be approved by
both houses of the legislature and signed by the Head Of State (such as a President)
to become a law.
- Short name for bill of exchange which is a party's order to another party to pay a
certain sum on a certain date.
- Short name for due-bill which is a statement of money owed in securities trading.
- Short name for bill of exchange, bill of lading, or Treasury bill.
Revenue Expenditure: Cash expended in sales, revenue generation, or in maintaining

a revenue generating asset.
Negotiable Instruments: Document of title or evidence of indebtedness that is freely

(unconditionally) transferable in trading as a substitute for money.
Negotiable instruments are unconditional orders or promise to pay, and
include checks, drafts, bearer bonds, some certificates of deposit, promissory
notes, and bank notes (currency).
Bill of Exchange (BOE): A Bill of Exchange is a written, unconditional order by

one party (the drawer) to another (the drawee) to pay a certain sum, either
immediately (the sight bill) or on a fixed date (the term bill),
for payment of goods and/or services received.
Business:
- Business refers to the economic system in which goods and services are exchanged
for one another or money, on the basis of their perceived worth. Every business
requires some form of investment and a sufficient number of customers to whom
its output can be sold at profit on a consistent basis.
- A commercial activity engaged in as a means of livelihood or profit, or an entity which

engages in such activities.
- A business (also called a firm or enterprise) is a legally
recognized organization designed to provide goods and/or services to consumers. 6
Commerce: Commerce is a division of trade or production which deals with

the exchange of goods and services from producer to final consumer. It
comprises the trading of something of economic value such
as goods, services, information, or money between two or more entities.
Commerce involves trade and aids to trade which help in the exchange of goods
and services.
Company: A company is a form of business organization.

It’s a voluntary association formed and organized to carry on a business in the legal name of

the association. Types of companies include sole-proprietorship, partnership, limited liability,
etc. In Australia, Canada, and the US, the term 'corporation' is preferred instead.
Bank: Establishment authorized by a government to accept deposits, pay interest,

clear checks, make loans, act as an intermediary in financial transactions,
and provide other financial services to its customers.
A bank is a financial institution licensed by the government. Its primary activities include
borrowing and lending money.
Scheduled Banks: In India, these are banks which have been included in the Second
Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in
this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act.
As on 30th June, 1999, there were 300 scheduled banks in India having a total network of
64,918 branches. The scheduled commercial banks in India comprise of State Bank of
India and its associates (8), nationalised banks (19), foreign banks (45), private sector banks
(32), co-operative banks and regional rural banks.
Commercial Bank: A bank that offers a broad range of deposit accounts, including
checking, savings, and time deposits, and extends loans to individuals and businesses
-- in contrast to investment banking firms such as brokerage firms, which generally are
involved in arranging for the sale of corporate or municipal securities. These are the
privately owned financial institution which;
(1) accepts demand and time deposits,
(2) makes loans to individuals and organizations, and
(3) provides services such as documentary collections, international banking, trade financing.
Non-commercial Bank: The bank which doesn’t perform the activities of a commercial
bank can be treated as a Non-commercial Bank. It means it never accepts any demand and
time deposits and never provides short-term loans.
Private Banks
• a bank that is owned by a single person or a limited number of private stockholders
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• a bank that provides banking facilities to high net worth individuals.

• a bank that is not state-owned in a country where most banks are owned by the
government
Public Bank: A Public Sector bank is one in which, the Government of India holds a
majority stake. It is as good as the government running the bank.
Since the public decide on who runs the government, these banks that are fully/partially
owned by the government are called public banks.

Foreign Bank: A foreign bank is a bank with head office outside the country in which it is
located.
Accounting Principles: Accounting Principles refer to the general decision rules which
govern the development of accounting techniques. These principles guide how transactions
should be recorded and reported. Accounting principles includes accounting concepts and
accounting conventions.
Accounting Concepts: Accounting Concept are customs & tradtions which are used as a
guide for preparation of financial statements.
Following are the types of Accounting Concepts
1)Money Measurement Concept

2)Legal Aspect Concept
3)Matching Concept
4)Accrual Concept
5)Dual Aspect concept
6)Cost Concept
7)Financial period Concept
8)Business Entity Concept
9)Revenue Concept
10)Realisation Concept
Accounting Conventions: Accounting Conventions emerge out of accounting

practices commonly known as accounting principles, adopted by various organizations over a
period of time. The accountancy bodies of the world may change any of the convention to
improve the quality of accounting information.
These are the traditions and customs, it will help to accountant while preparing financial
statements honestly.
They are:
1. Convention of consevatisiam
2. Convention of fulldiscloser
3. Convention of Materiality
4. Convention of consistency
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Hybrid Basis of Accounting: This is not a system of accounting on its own. It is a

combination of the Cash Basis Accounting and Accrual Basis Accounting. This
system is based on the concept of conservatism.
Under the hybrid system of accounting, incomes are recognised as in Cash Basis Accounting
i.e. when they are received in cash and expenses are recognised on accrual basis i.e. during
the accounting period in which they arise irrespective of when they are paid.
Accrual or Mercantile Basis Accounting: Under accrual or mercantile basis

accounting, revenues are recognized and earned when they are realized or
realizable irrespective of when the cash is received.

To put it in different terms, the accrual basis of accounting asks you to take into consideration
all those incomes/gains and expenses/losses pertaining to the accounting period for which
you are trying to ascertain the profits and losses irrespective of whether the incomes are
received in cash or not and the expenses are paid out in cash or not.
Fixed Deposit: Fixed Deposit is a specific sum of money deposited in a financial institution
for a fixed term earning a pre-agreed interest rate.
Savings Deposits: "Savings deposits" means a form of demand deposit which is subject to
restrictions as to the number of withdrawals as also the amounts of withdrawals permitted by
the Bank during any specified period.
Book Value: Book Value refers to the value of an asset for accounting purposes. For
assets where depreciation is taken or reserves booked, this is often expressed as a net book
value. The book value of a company is the excess of assets over liabilities, which is
equivalent to total owner's equity.
Book value is the net worth of a company per share. That is, the sum of a company's share
capital and its free reserves divided by the number of shares. So, if a company's share capital
is Rs 20 crore (2 crore shares of a face value of Rs 10 each) and free reserves Rs 80 crore,
its book value is Rs 50 (Rs 20 crore plus Rs 80 crore divided by 2 crore).
Market Value: Market Value in general, is the price at which buyers and sellers trade
similar items in an open marketplace. In the absence of a market price, it is the estimated
highest price a buyer would be warranted in paying and a seller justified in accepting,
provided both parties were fully informed and acted intelligently and voluntarily.
Face Value: Face value is the value that is printed or written on the face of an asset,
e.g. on a bill or bond.
It is the price that is written on the share certificate. Generally dividend is declared as a
percentage on the face value of a share.
Cash Reserve Ratio (CRR)
CRR is the ratio which banks have to maintain with itself in the form of cash reserves or by
way of current account with the Reserve Bank, computed as a certain percentage of its
demand and time liabilities. The objective is to ensure the safety and liquidity of the deposits
with the banks.
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Statutory Liquidity Ratio (SLR): SLR is the ratio which every banking company shall
maintain in the form of cash, gold or unencumbered approved securities, an amount which
shall not, at the close of business on any day be less than such percentage of the total of its
demand and time liabilities as the Reserve Bank may specify from time to time.
Prime Lending Rate (PLR): It’s the interest rate that commercial banks charge to their
best, most credit-worthy customers. It is calculated by the banks themselves by taking in to
consideration the Benchmark Prime Lending Rate.
MIBOR: The interest rate at which banks can borrow funds, in marketable size, from
other banks in the Indian interbank market. The Mumbai Interbank Offered Rate (MIBOR) is

calculated everyday by the National Stock Exchange of India (NSEIL) as a weighted average
of lending rates of a group of banks, on funds lent to first-class borrowers.
MIBID: The interest rate that a bank participating in the Indian interbank market would
be willing to pay to attract a deposit from another participant bank. The MIBID is calculated
everyday by the National Stock Exchange of India (NSEIL) as a weighted average of interest
rates of a group of banks, on funds deposited by first-class depositors.
Bank Rate: The rate at which central banks lend funds to national banks.
A central bank adjusts the supply of currency within national borders by adjusting the bank
rate. When the central bank reduces the bank rate, it increases the attractiveness for
commercial banks to borrow, thus increasing the money supply. When the central bank
increases the bank rate, it decreases the attractiveness for commercial banks to borrow,
consequently decreasing the money supply.
Coupon Rate: The interest rate stated on a bond when it's issued. The coupon is
typically paid semiannually.
Zero-Coupon-Bond: A debt security that doesn't pay interest (a coupon) but is traded
at a deep discount, rendering profit at maturity when the bond is redeemed for its full face
value.
Also known as an "accrual bond".
Deferred-Revenue-Expenditure: The Expenditure which has been incurred in an

accounting period but it is applicable further periods also.
Ex. Advertisement Cost
Leasing: The Expenditure which has been incurred in an accounting period but it is
applicable further periods also.
Ex. Advertisement Cost
Hire Purchase: Hire-purchase is a contract which allows the buyer to hire the goods for a
monthly rent. A sum equal to the original full price plus interest has been paid in equal
installments, the buyer may then exercise an option to buy the goods at a predetermined
price (usually a nominal sum).
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Bridge financing: It is a method of financing, used to maintain liquidity while waiting for an
anticipated and reasonably expected inflow of cash.
Bridge financing is commonly used when the cash flow from a sale of an asset is expected
after the cash outlay for the purchase of an asset.
Venture Capital: Venture capital (also known as VC or Venture) is a type of private equity
capital typically provided for early-stage, high-potential, growth companies in the interest of
generating a return through an eventual realization event such as an IPO or trade sale of the
company.
Seed Capital: Seed capital is typically needed to setup for such preliminary operations

as market research and product development & business enterprises. Investors are often the
business founders them selves, using savings, mortgage money, or funds borrowed from
family and friends.
Euro Issues: Euro Issues by Indian Companies are permitted to raise foreign currency
resources through issue of Foreign Currency Convertible Bonds or issue of ordinary equity
shares through Global Depository Receipts (GDRs)/American Depository Receipts (ADRs) to
foreign investors .
Allotment: Allotment is a method of distributing securities to investors when an issue has

been oversubscribed.
At the end of the subscription period, the demand for a new issue can exceed the number of
shares or bonds being issued. In such cases, the underwriting bank allots the securities with
the approval of the issuer, either by lottery or on the basis of a formula. An allotment formula
usually takes into account the issuer's preferred target investor groups.
Application Money: The amount an investor must pay at the time of making an
application under a public offering of shares.
Authorized Capital: The capital of a company (sometimes referred to as the

authorised share capital or the nominal capital is the maximum amount of share capital that
the company is authorised by its constitutional documents to issue to shareholders.
Issued Capital: It refers to the portion of a company's equity that has been obtained (or
will be obtained) by trading stock to a shareholder for cash or an equivalent item of capital
value.
Voucher: A voucher is a bond which is worth a certain monetary value and which may be
spent only for specific reasons or on specific goods.
Receipt: A receipt is a written acknowledgement that a specified article or sum of money

has been received as an exchange for goods or services.
The receipt acts as the title to the property obtained in the exchange.
Finance: Finance is the science of funds management. The general areas of finance are
business finance, personal finance, and public finance.
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Finance includes saving money and often includes lending money. The field of finance deals
with the concepts of time, money and risk and how they are interrelated. It also deals with
how money is spent and budgeted.
Public Finance: Public Finance is that part of finance which hovers around the central
question of allocation of resources subjected to the budget constraint of the government or
public entities.
It is that branch of economics which identifies and appraises the means and effects of the
policies of the government.
Private Finance: It is a method to provide financial support as a part of a wider program

for privatization and deregulation driven by corporations, national governments, and
international bodies such as the World Trade Organization, International Monetary Fund, and
World Bank.
Paid up Capital: The total amount of shareholder capital that has been paid in full by
shareholders.
Called up Capital: Called-up capital is the part of a company's issued capital which the
board of directors of the company has called upon the subscribers to make payment.
Acceptance: Contractual agreement instigated when the drawee of a time draft

"accepts" the draft by writing the word "accepted". The drawee assumes responsibility as the
acceptor and for payment at maturity.
Ex: Letter of credit and banker's acceptance.
Amortization: Amortization or amortisation is the process of increasing, or accounting

for, an amount over a period of time.
Ex:- capital expenditures of certain assets under accounting rules, particularly intangible
assets, in a manner analogous to depreciation.
Depreciation: It is the reduction in the value of an asset due to usage, passage of time,
wear and tear, technological outdating or obsolescence, depletion, inadequacy, rot, rust,
decay or other such factors.
Net Asset: Known as owners equity, shareholders equity, or net worth) is the total assets
minus the total liabilities of a company or individual.
Total Asset: All the property owned by a corporation. Total assets include current
assets; fixed assets such as buildings and equipment, and other assets such as licenses and
good will.
Since many are depreciated or carried on the books at the purchase price rather than market
value, asset values can be understated on balance sheets.
Accounting Equation: From the large, multi-national corporation down to the corner
beauty salon, every business transaction will have an effect on a company’s financial
position.
1. Assets (what it owns)
2. Liabilities (what it owes to others) 12
3. Owner’s Equity (the difference between assets and liabilities)

The accounting equation (or basic accounting equation) offers us a simple way to understand
how these three amounts relate to each other. The accounting equation for a sole
proprietorship is:
Assets = Liabilities + Owner’s Equity
The accounting equation for a corporation is:
Assets = Liabilities + Stockholders’ Equity
Drawings: The money taken out of a business by its owner(s) for personal use. This is
entirely different to wages paid to a business's employees or the wages or remuneration of a
limited company's directors.

Retained Earnings: This is the amount of money held in a business after its owner(s)
have taken their share of the profits.
Retained earnings refer to the portion of net income which is retained by the corporation
rather than distributed to its owners as dividends. Retained earnings and losses are
cumulative from year to year with losses offsetting earnings. Retained earnings are reported
in the shareholders' equity section of the balance sheet.
A complete report of the retained earnings or retained losses is presented in the Statement of
retained earnings or Statement of retained losses.
Dividend: These are payments to the shareholders of a limited company.

Dividends are payments made by a corporation to its shareholder members. It is the portion
of corporate profits paid out to stockholders. When a corporation earns a profit or surplus,
that money can be put to two uses: it can either be re-invested in the business (called
retained earnings), or it can be paid to the shareholders as a dividend. Many corporations
retain a portion of their earnings and pay the remainder as a dividend.
Dividend Payout Ratio: Dividend payout ratio is the fraction of net income a firm pays to
its stockholders in dividends:
The part of the

earnings not paid
to investors is left for investment to provide for future earnings growth. Investors seeking high
current income and limited capital growth prefer companies with high Dividend payout ratio.
However investors seeking capital growth may prefer lower payout ratio because capital
gains are taxed at a lower rate. High growth firms in early life generally have low or zero
payout ratios. As they mature, they tend to return more of the earnings back to investors.
Note that dividend payout ratio is a reciprocate ratio to dividend cover, which is calculated as
EPS/DPS.
Leverage: Leverage refers to the use of debt to supplement investment. Companies

usually leverage to increase returns to stock, as this practice can maximize gains (and
losses).In macroeconomics, a key measure of leverage is the debt to GDP ratio.
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Leverage takes the form of a loan or other borrowings (debt), the proceeds of which are
(re)invested with the intent to earn a greater rate of return than the cost of interest.
Bond: A debt investment in which an investor loans money to an entity (corporate or

governmental) that borrows the funds for a defined period of time at a fixed interest rate.
Bonds are used by companies, municipalities, states and U.S. and foreign governments to
finance a variety of projects and activities.
Coupon Rate: The annual interest rate of a debt instrument. More generally, the annual
interest rate on any indebtedness. In mortgage banking, the term is used to describe the
contract interest rate on the face of a bond or note.

Hot Money: Hot money refers to funds which flow into a country to take advantage of
a favorable interest rate, and therefore obtain higher returns.
They influence the balance of payments and strengthen the exchange rate of the
recipient country while weakening the currency of the country losing the money. These funds
are held in currency markets by speculators as opposed to national banks or domestic
investors.
As such, they are highly volatile and will be shifted to another foreign exchange
market when relative interest rates make this more profitable.
Hot money is a major factor in capital flight, illicit financial flows, and the ability of
developing nations to finance their debt.
As large sums of money can move very quickly to take advantage of small
fluctuations in interest rates and currency values, countries which have difficulty raising
money through the sale of long-term bonds are particularly susceptible to short-term interest
rate pressure, particularly during periods of rapid inflation.
Deep Discount bonds: This is a bond bought at a price lower than its face value, with the
face value repaid at the time of maturity. It does not make periodic interest payments, or have
so-called "coupons," hence the term zero-coupon bond.
Merger: Merger is a combination of two companies into one larger company. Such
actions are commonly voluntary and involve stock swap or cash payment to the target.
Stock swap is often used as it allows the shareholders of the two companies to share the risk
involved in the deal.
Amalgamation: The merging of two or more businesses into single entity.

Combination of two or more firms, into either an entirely new firm or a subsidiary controlled by
one of the constituent firms.
Consolidation: Combining assets, equity, liabilities and operating accounts of a parent

firm and its subsidiaries into one financial statement.
Combining two or more firms through purchase, merger, or ownership transfer to form a new
firm.
Takeover: Assumption of control of another (usually smaller) firm through purchase of 51

percent or more of its voting shares or stock.
A takeover is the purchase of one company (the target) by another (the acquirer, or bidder). 14
The term refers to the acquisition of a public company whose shares are listed on a stock
exchange, in contrast to the acquisition of a private company.
Entity: Person, partnership, organization, or business unit which has a legal existence,
for which accounting records are kept, and about which financial statements are prepared.
Event: Occurrence happening at a determinable time and place, with or without

the participation of human agents. It may be a part of a chain of occurrences as an effect of a
preceding occurrence and as the cause of a succeeding occurrence.
Otherwisely in decision theory events means mutually exclusive (with one and only on
outcome) future occurrences that are not under thecontrol of a decision maker but

will influence the outcome of any action taken now.
Transaction: Agreement, contract, exchange, understanding,

or transfer of cash or property that occurs between two or more parties and establishes
a legal obligation.
Event that effects a change in the asset, liability, or net worth account. Transactions are
recorded first in journal and then posted to a ledger.
Exchange of goods or services between a buyer and a seller.
Yield: Annual income earned from an investment, expressed usually as

a percentage of the money invested.
Risk: Probability or threat of a damage, injury, liability,loss, or other negative

occurrence, caused by external or internal vulnerabilities, and which may be neutralized
through pre-mediated action.
Probability that an actual return on an investmentwill be lower than the expected return.
Financial risk is divided into the following general categories:
(1) Basis risk: Changes in interest rates will cause interest-bearingliabilities (deposits)
to reprice at a rate higher than that of the interest-bearing assets (loans).
(2) Capital risk: Losses from un-recovered loans will affect the financial
institution's capital base and may necessitate floating of a new stock (share) issue.
(3) Country risk: Economic and political changes in a foreign country will affect loan-
repayments from debtors.
(4) Default risk: Borrowers will not be able to repay principal and interest as arranged (also
called credit risk).
(5) Delivery risk: Buyer or seller of a financial instrument or foreign currency will not be able
to meet associated delivery obligations on their maturity.
(6) Economic risk: Changes in the state of economy will impair the debtors' ability to pay or
the potentialborrower's ability to borrow.
(7) Exchange rate risk:Appreciation or depreciation of a currency will result in a loss or
an naked-position.
(8) Interest rate risk: Decline innet interest income will result from changes
in relationshipbetween interest income and interest expense.
(9)Liquidity risk: There will not be enough cash and/or cash-equivalents to meet
the needs of depositors and borrowers.
(10) Operations risk: Failure of data processingequipment will prevent the bank from
maintaining its critical operations to the customers' satisfaction. 15
(11)Payment system risk: Payment system of a major bank will malfunction and will hinder
its payments.
(12) Political risk: Political changes in a debtor's country will jeopardize debt-
service payments.
(13) Refinancing risk: It will not be possible to refinance maturing liabilities (deposits) when
they fall due, at economic cost and terms.
(14)Reinvestment risk: It will not be possible to reinvest interest-earning assets (loans)
at current market rates.
(15) Settlement risk: Failure of a major bank will result in achain-reaction reducing
other banks' ability to honorpayment commitments.
(16) Sovereign risk: Local or foreign debtor-government will refuse to honor

its debtobligations on their due date.
(17) Underwriting risk: New issue of securities underwritten by the institution will not
be sold or its market price will drop.
Stock: A type of security that signifies ownership in a corporation and represents a

claim on part of the corporation's assets and earnings.
There are two main types of stock: common and preferred. Common stock usually
entitles the owner to vote at shareholders' meetings and to receive dividends. Preferred stock
generally does not have voting rights, but has a higher claim on assets and earnings than the
common shares. For example, owners of preferred stock receive dividends before common
shareholders and have priority in the event that a company goes bankrupt and is liquidated.
Equity capital raised through sale of shares.

Proportional part of a firm's equity capital represented by fully paid up shares. Also known as
"shares" or "equity".
Error of Commission: It is an error that occurs as a result of an action taken. In
accounting, the error occurs when one or both of the double entries are made in the correct
class of account but the wrong account within that class.
Error of Omission: It is an error which occurs as a result of an action not taken. In

accounting, the error occurs when both the entries required for a transaction are completely
omitted from the books.
Venture Capital: Is capital committed to an unproven venture. The initial, start-up money
is referred to as "seed money" and entails the greatest risk. If the project gets off the ground it
may require additional financing at additional "rounds" or the "mezzanine level" before the
company is finally brought to the market and the venture capitalist can enjoy handsome
rewards. Experienced investors in venture capital situations typically plan on turning away a
minimum of 9 out of every 10 proposals which are brought to them, and then they expect as
many failures as successes from their selected investments.
It is the startup or growth equity capital or loan capital provided by
private investors (the venture capitalists) or specialized financial
institutions (development finance houses or venture capital firms).
Cost: Cost is the amount of money that must be paid to take ownership of something;
expense or purchase price. 16
Valuation in terms of money of (1) effort, (2) material, (3)resources, (4) time
and utilities consumed, (5) risks incurred, and (6) opportunity forgone in production and
delivery of a good or service. All expenses are costs, but not all costs (such as those incurred
in acquisition of an income-generating asset) are expenses
VAT: VAT stands for Value Added Tax. It’s a indirect tax on
the domestic consumption of goods and services, except those that are zero-rated (such
as food and essential drugs) or are otherwise exempt (such as exports). It is levied at
each stage in the chain of production and distribution from raw materials to the final
sale based on the value (price) added at each stage. It is not a cost to the producer or the
distribution chain members, and whereas its full brunt is borne by the end consumer, it avoids

the double taxation (tax on tax) of a direct sales tax. Introduced by the European Economic
Community (now the European Union) in the 1970s.
Minimum Alternate Tax (MAT): The concept of Minimum Alternate Tax (MAT) was
introduced in the direct tax system to make sure that companies having large profits and
declaring substantial dividends to shareholders but who were not contributing to the Govt by
way of corporate tax, by taking advantage of the various incentives and exemptions provided
in the Income-tax Act, pay a fixed percentage of book profit as minimum alternate tax.
Priority Sector Lending: The Government of India through the instrument of

Reserve Bank of India (RBI) mandates certain type of lending on the Banks operating in India
irrespective of their origin. RBI sets targets in terms of percentage (of total money lent by the
Banks) to be lent to certain sectors, which in RBI's perception would not have had access to
organised lending market or could not afford to pay the interest at the commercial rate. This
type of lending is called Priority Sector Lending. Financing of Small Scale Industry, Small
business, Agricultural Activities and Export activities fall under this category. This is also
called directed credit in Indian Banking system.
Recession: A period of general economic decline; typically defined as a decline

in GDP for two or more consecutive quarters. A recession is typically accompanied by
a drop in the stock market, an increase in unemployment, and a decline in the housing
market. A recession is generally considered less severe than a depression, and if a recession
continues long enough it is often then classified as a depression.
Inflation: Sustained, rapid increase in the general price level, as measured by

some broad index number of prices (such as Consumer Price Index) over months or years,
and mirrored in the correspondingly decreasing purchasing power of the currency.
It indicates the overall general upward price movement of goods and services in an economy.
There are three types of inflation are there namely,
(1) Cost-push inflation is due to wage increases that cause businesses to raise prices
to cover higher labor costs, which leads to demand for still higher wages (the wage-price
spiral),
(2) Demand-pull inflation results from increasing consumer demand financed by
easier availability of credit;
(3) Monetary inflation caused by the expansion in money supply (due to printing of more
money by a government to cover its deficits).
17
Sinking Fund: Reserved created by periodically setting aside certain sums in

a custodial account (as cash or investment in marketable securities) for future replacement of
an asset or repayment of a liability.
Return on Investment (ROI): Earning power of assets measured as the ratio of the net
income (profit less depreciation) to the average capital employed (or equity capital) in
a firm or project. Expressed usually as a percentage, it is a measure of the profitability which
(while not taking the time value of money into account) indicates whether or not a firm is
using its resources in an efficient manner. For example, if the ROI of a firm (in the long run) is
lower than its cost-of-capital then the firm will be better off by liquidating its assets and
depositing the proceeds in a bank.

Tax Accounting: The method of accounting that focuses on tax issues; this includes
all activities related to filing tax returns and planning for future tax obligations.
Social Responsibility Accounting: Its a new phase to development of accounting and

its birth is to increase the social awareness of the corporate.
It’s a accounting system to determine, regulate and evaluate the social effects of business
decisions in addition to the economic effects.
Cumulative Preference Shares: Type of preferred share in which the unpaid dividend
accumulates year after year.
FDI: FDI stands for Foreign Direct Investment. It refers to the ownership of
a country's businesses or properties by entities not domiciled there.
The acquisition abroad of physical assets such as plant and equipment, with operating
control residing in the parent corporation.
Depository Receipts: These are the instruments used by companies to raise money from
the foreign financial markets by issuing in lieu of its shares.
ADR: Stands for American Depository Receipts. These are the derivative instruments issued
by non-USA based companies to raise money from the USA market by issuing to the USA
investors.
GDR: Stands for Global Depository Receipts. Global Depository Receipts are receipts
evidencing ownership in the underlying shares of a foreign company. These are the
derivative instruments issued to raise capital from foreign markets other than the USA
market. These are issued to the investors other than USA. There are so many types of GDRs
available like IDRs, JDRs, etc.
IDR: Stands for Indian Depository Receipts. These are the derivative instruments issued by
non-India based companies to raise capital from India. These are for Indian investors only. It
gives an opportunity to the Indian investors to acquire ownership of the foreign companies.
18
Bank Guarantee: Bank Guarantee is an irrevocable commitment by a bank to pay a

specified sum of money in the event that the party requesting the guarantee fails to perform
the promise or discharge the liability to a third person in case of the requestor's default.
Bad Debts: A debt that is written off and deemed uncollectible. It is a loss for the company.
Bull Market: A condition of a stock or securities market characterized by increased

buying and rising prices.

Bear Market: A market in which, in a time of falling prices, shareholders may rush to
sell their stock shares, adding to the downward momentum.
A speculative term which signifies a declining market; in other words, that the tendency of
prices is downward.
Speculator: A person who trades derivatives, commodities, bonds, equities or currencies

with a higher-than-average risk in return for a higher-than-average profit potential.
Speculators take large risks, especially with respect to anticipating future price movements, in
the hope of making quick, large gains.
Broker: An individual who is paid a commission for executing customer orders. Either a
floor broker who executes orders on the floor of the exchange, or an upstairs broker who
handles retail customers and their orders. Also, person who acts as an intermediary between
a buyer and seller, usually charging a commission. A "broker" who specializes in stocks,
bonds, commodities, or options acts as an agent and must be registered with the exchange
where the securities are traded.
Budget: A detailed schedule of financial activity, such as an advertising budget, a sales

budget, or a capital budget. Simply it is a monetary presentation of a plan.
Master Budget: Master Budget formalizes the whole budget system into one single final
document in which all the operational budgets flow; its goal is to draft the main economic and
financial statements. However, dependent upon the individual or geographic location, is
variously contains the cash budget only; or the income statement and the balance sheet
combined; or the income statement and the balance sheet and the cash budget combined.
Joint Venture: An agreement between two or more firms to undertake the same
business strategy and plan of action.
Consignee: Person or firm (usually a buyer) named by the consignor (usually a seller) in the
transportation documents (such as an air waybill or bill of lading) as the party to whose order
a consignment will be delivered at the port of destination. The consignee is considered to be
the owner of the consignment for the purpose of filing the customs declaration, and for paying 19
duties and taxes. Formal ownership (title) of the consignment, however, transfers to the
consignee only upon payment of the seller's invoice in full.
Consigner: Person or firm (usually the seller) who delivers a consignment to a carrier for
transporting it to a consignee (usually the buyer) named in the transportation documents.
Ownership (title) of the goods remains with the consigner until the consignee pays for them in
full. Also spelled as consignor.
Matching Concept: A significant relationship exists between revenue and

expenses. Expenses are incurred for the for the purpose of producing revenue. In measuring
net income for a period, revenue should be offset by all the expenses incurred in producing

that revenue. This concept of offsetting expenses against revenue on the basis of "causes
and effect" is called the Matching Concept.
Realization Concept: According to this concept revenue should be recognized at the

time when goods are sold or services are rendered. Sale is considered to be made at the
point when the property in goods passes to the buyer and he becomes legally liable to pay.
Day Book: Day Book is a written record/ledger in which transactions have been recorded
as they occurred.
Reserve: Funds set aside for emergencies or other future needs.
General Reserve: It is a reserve created by transferring certain amount of undistributed profit

for funding expansion, acquisition, paying dividends, discharging of liabilities, writing off
extraordinary and/or contingent losses, buyback and/or redemption of securities.
Revenue Reserve: THE REVENUE RESERVE IS THAT PART OF PROFIT THAT HAS
BEEN NOT GIVEN TO THE SHAREHOLDER BUT RETAINED IN THE BUSINESS FOR
FURTHER GROWTH. HENCE REVENUE RESERVE AS PAR DEFINATION IS THE PART
OF THE PROFITS RETAINED IN THE BUSINESS.
Capital Reserve: Resource created by the accumulated capital surplus (not

revenue surplus) of a firm, such as by an upward revaluation of its assets to reflect
their current market value after appreciation. Allocating such sums to capital
reserve means they are permanently invested and will not be paid as dividends.
Funded Debt: A company's debt, such as bonds, long-term notes payables or

debentures that will mature in more than one year or one business cycle. This type of debt is
classified as funded debt because it is funded by interest payments made by the borrowing
firm over the term of the loan.
Current Assets: Are those assets of a company that are reasonably expected to be
realized in cash, or sold, or consumed during the normal operating cycle of the business
(usually one year). Such assets include cash, accounts receivable and money due usually 20
within one year, short-term investments, US government bonds, inventories, and prepaid
expenses
Current Liabilities: Are liabilities to be paid within one year of the balance sheet date.
Rebate: The portion of interest on short sale proceeds that is paid out to the borrower of
a bond as an incentive for them to borrow the stock from a specific source. When a
short sale takes place, the short seller often borrows a security through a lender (who acts as
an intermediary), who in turn borrows the security from an owner of custodian. The short
sale's proceeds are then returned to the lender, who then invests the proceeds and earns
interest on them. Certain short sellers might demand a portion of this interest, in order for

them to do business with that particular lender.
Current Account: In a national economy it is a category in the balance of payments

account that includes all transactions that either contribute to national income or involve the
spending of national income.
Article of Association: Articles of association means the table of conditions under which
a joint-stock company is constituted. They apply only to the internal regulations of the
company.
The internal 'rule book' that, according to corporate legislation, every incorporated firm must
have and work by. And which, along with memorandum of association
forms the constitution of a firm. Also called articles, it is a contract (1) between
the members (stockholders, subscribers) and the firm and (2) among the members
themselves. It sets out the rights and duties of directors and stockholders individually and
in meetings. Certain statutory (obligatory) clauses (such as those dealing with
allotment, transfer, and forfeiture of shares) must be included; the other (non-obligatory)
clauses are chosen by the stockholders to make up the bylaws of the firm. A court, however,
may declare a clause ultra vires if it is deemed unfair, unlawful, or unreasonable. A copy of
the articles is lodged with the appropriate authority such as the registrar of companies.
Articles are public documents and may be inspected by anyone (usually on payment of a fee)
either at the premises of the firm and/or at the registrar's office. Lenders to the
firm take special interest in its provisions that impose a ceiling on the borrowings beyond
which the firm's management must get stockholders' approval before taking on more debt.
Memorandum of Association: Document that regulates a firm's external activities and

must be drawn up on the formation of a registered or incorporated firm. As the firm's charter it
(together with the firm's articles of association) forms the firm's constitution. Also called
'memorandum,' it gives the firm's name, names of its members (shareholders) and number
of shares held by them, and location of its registered office. It also states the firm's
(1) objectives, (2) amount of authorized share capital, (3) whether liability of its members
is limited by shares or by guaranty, and (4) what type of contracts the firm is allowed to enter
into. Almost all of its provisions (except those mandated by corporate legislation) can be
altered by the firm's members by following the prescribed procedures. The memorandum is
a public document and may be inspected (normally on payment of a fee) by anyone, usually
at the public office where it is lodged (such as the registrar of companies office).
Consolidation: The results obtained on a balance sheet when the accounts of a parent
company and its subsidiaries are combined to reflect the financial position and operating 21
results of the group as if it operated as a single entity.
Ask Price: In context of general equities, price at which a security or commodity is offered
for sale on an exchange or in the OTC Market.
Bid Price: This is the quoted bid, or the highest price an investor is willing to pay to buy a
security. Practically speaking, this is the available price at which an investor can sell shares
of stock.
Spread: The difference between the current bid and the current ask (in over-the-

counter trading) or offered (in exchange trading) of a given security.
Balance of Payment: An accounting statement of the money value of international

transactions between one nation and the rest of the world over a specific period of time. The
statement shows the sum of transactions of individuals, businesses, and government
agencies located in one nation, against those of all other nations.
Excise Duty: Ad valorem tax levied on manufacture, sale, or use of locally

produced goods (such as alcoholic drinks or tobacco products).
Audit: An examination of a company's accounting records and books conducted by an

outside professional in order to determine whether the company is maintaining records
according to generally accepted accounting principles.
Badla system: Badla a.k.a. Carry-Forward system means something in return. The
badla system of transactions has been in practice for several decades in Mumbai,
Ahmedabad and Calcutta Stock Exchanges. If an investor strongly felt that the price of a
particular share would go either, further up or further down, then, without giving or taking the
delivery, he can participate in the possible fluctuation of the share. Financing in Badla, in
effect has two aspects to it, namely the 'Seedha badla ' or 'Vyaj badla where the financiers
participate and 'Undha badla' where the stock lenders participate.
In the badla system a position is carried forward, either a short sale or a long purchase. In the
event of a long purchase, the investor may want to carry forward the transaction to the next
settlement cycle and for doing so he has to compensate the seller who has sold with an
intention of getting cash. The 'seedha badla' financier enters to lend money to the investor for
a return. This is measured as interest on the funds made available for one settlement cycle,
i.e. one week or a longer period in case of a book closure badla system.
Similarly 'undha badla' or a 'contango' charge is a return paid by the stock borrower to the
stock lender. In a short sale, when the investor wants to carry forward the transaction to the
next settlement cycle, he has to borrow the stocks to compensate the other party in the
contract. The charges paid on the borrowed stock is called a 'contango' charge or `share
badla'.
22
Beta: Beta refers to the sensitivity of the price of a stock or portfolio as compared to the
index.
The measure of a fund's or a stock's risk in relation to the market or to an alternative
benchmark. A beta of 1.5 means that a stock's excess return is expected to move 1.5 times
the market excess returns. E.g., if market excess return is 10%, then we expect, on average,
the stock return to be 15%. Beta is referred to as an index of the systematic risk due to
general market conditions that cannot be diversified away.

Alpha: One of the four classifications (with beta, gamma, and delta) of the largest and
most traded stocks on London Stock Exchange (LSE) under the 'normal market size'
classification system.
Measure of price volatility of a stock (shares). Alpha methodology tries to separate the price
movements of a particular stock from those of the stock market, and focuses on
fundamentals such as the growth rate of stock's earnings per share (EPS). A high alpha
score means the stock is expected to remain stable no matter how the stock market behaves.
Bonus Shares: Free shares of stock given to current shareholders, based upon the
number of shares that a shareholderowns. While this stock action increases the number of
shares owned, it does not increase the total value. This is due to the fact that since the total
number of shares increases, the ratio of number of shares held to number of shares
outstanding remains constant.
Right Issue: An issue of securities to the existing shareholders with the right resting
on the investor either to accept or reject the offer.
A corporation/company usually offers a rights issue to the existing shareholders an option to

buy new shares of the company at a predetermined price usually at a discount to the existing
market price in a pre fixed ratio.
Break Even Point: The sales level at which revenues equal expenses (fixed and variable).
Refers to the price at which a transaction produces neither a gain nor a loss.
Books of Account: These refer to the set of registers or books used to record day to day
transactions of a business organization.
Capital Gain: When a stock is sold for a profit, the capital gain is the difference
between the net sales price of the securities and their net cost, or original basis.
Capital Employed: Capital Employed is the value of the assets that contribute to a
company's ability to generate revenue, i.e., fixed assets plus current assets minus current
liabilities.
Capitalization:
23
1) the value of authorized or outstanding shares of stock or bonds in a business firm.

2) the process of adding earned but uncollected interest to the loan balance, a practice
prohibited in some states.
3) a method of estimating the present value of future income.
4) the total value of an owner's investments in a business.
Financial Structure
Carry Forward: Carry forward is data items that will always carry forward into subsequent
transactions. If the item is allowed per the required/conditional matrix and no entry is made,
the new transaction will reflect the data from the most current record. For example, if the new

transaction to be added is current (in sequence), the CF data item will carry forward the data
from the prior active record. If the new transaction to be added is out-of-sequence and no
entry is made, the CF data item will reflect the data from the current status record. If the item
is not allowed, the new transaction will reflect the data from the prior active record.
Cash Equivalents: The value of assets that can be converted into cash immediately, as
reported by a company. Usually includes bank accounts and marketable securities, such as
government bonds and Bankers Acceptances. Cash equivalents on balance sheets include
securities (e.g., notes) that mature within 90 days.
Day Book: Accounting book of original entry in

which transactions(such sales and/or purchases) are entered on the day they occur, for
later posting to the appropriate ledger(s).
Inventory: Goods purchased or manufactured by a business and held for production or

sale. Inventory is often subdivided into raw materials, work in progress, and finished goods.
Deferred Income: Any income that is received before it is due or before it is earned. Rent
paid in advance is an example of deferred income that is received during one accounting
period but earned in later accounting period. Interest received that applies to a subsequent
period of the loan term is also deferred income. The crediting of the income is deferred until
such time as it is earned. Until then, it is listed on a balance sheet as a current liability.
Demand Draft: Bill of exchange payable on demand that is on

presentment ('on sight'). Person or party that wrote the draft is called a drawer; the person,
party, or bank who is expected to pay it (on whom it is drawn) is called a 'drawee' or a 'payer,'
and the person or party who receives the payment is called a 'payee.' A check is a
demand draft drawn on a bank.
Demand Deposit: It refers to a deposit in an account from which a depositor may withdraw
funds immediately without prior notice, commonly known as a checking account. Since funds 24
may be withdrawn on demand in person or by presentation of a check, the account has many
of the liquid characteristics of circulating currency.
Demat Account: Demat Account is an account offered by a depository where the

transaction of securities is made. Its an account to hold securities as like cash in bank
accounts. The demat account reduces brokerage charges, makes pledging/hypothecation of
shares easier, enables quick ownership of securities on settlement resulting in increased
liquidity, avoids confusion in the ownership title of securities, and provides easy receipt of

public issue allotments. It also helps you avoid bad deliveries caused by signature mismatch,
postal delays and loss of certificates in transit. Further, it eliminates risks associated with
forgery, counterfeiting and loss due to fire, theft or mutilation. Demat account holders can
also avoid stamp duty, avoid filling up of transfer deeds, and obtain quick receipt of such
benefits as stock splits and bonuses.
Depletion: Depletion is the process of cost allocation that assigns the original cost of a
natural resource to the periods benefited. For example: a mining company purchases mineral
rights to a deposit for $5 million for a period of ten years. The cost of the natural resource, $5
million, will be depleted over the ten years of the benefit; i.e., it is the physical exhaustion of a
natural resource (e.g., timber, oil and coal).
Deposit: Deposit can mean a variety of things: a). a payment given as a guarantee that
an obligation will be met; b). the act of putting money into a bank account; c). a partial
payment made at the time of purchase with the balance to be paid later; or, d) money given
as security for an article acquired for temporary use.
Trade Discount: Amount or rate by which the catalog, list, or retail price of an item is
reduced when sold to a reseller. It is the reseller's profit margin and usually varies directly
with the quantity of the item purchased. It is allowed at the time of bulk purchase.
Cash Discount: An incentive offered to purchasers of a firm's product for payment within
a specified time period, such as ten days.
Dividend: A payment, usually in cash, that a corporation makes to its stockholders. The
dividend is the stockholders' share of the profits left after the company sets aside funds to
finance operations, expansion and modernization.
EPS: Net income divided by the number of outstanding shares of common

stock and equivalents.
Mathematically, 25
EPS= ( Profits available for Equity Share Holders/Number of Equity Shares Issued)
DPS: Dividends per Share ratio is very similar to the EPS: EPS shows what shareholders
earned by way of profit for a period whereas DPS shows how much the shareholders were
actually paid by way of dividends.
Dividends per share = Dividends paid to equity shareholders / Average number of issued
equity shares.
Burn Rate: Used in venture capital financing to refer to the rate at which a start-up

company expends capital to finance overhead costs prior to the generation of positive cash
flow.
Bank Overdraft: Bank Overdraft is,

a. a draft in excess of the credit balance within an account; or
b. a facility (usually at a bank or other financial institution) enabling an account holder
to borrow up to an agreed amount and often for an agreed time, generally more than
the account balance.
Deflation: An economic condition in which the purchasing power of money increases; a

lowering of prices, costs and expenses. Opposite of inflation.
Arbitrage: The simultaneous buying and selling of a security at two different prices in two
different markets, resulting in profits without risk. Perfectly efficient markets present no
arbitrage opportunities. Perfectly efficient markets seldom exist, but, arbitrage opportunities
are often precluded because of transactions costs.
Dumping: The sale of goods in a foreign country at less than" fair value" (a price lower
than that at which it is sold within the exporting country or to third countries), and which
thereby materially injures, or threatens to materially injure, that industry in the foreign country.
Escheat: Escheat is the reversion of property to the state (government) in the absence of
legal heirs or claimants.
Economic Value Added (EVA)

It measures the difference between the return on a companies capital and the cost of that
capital. A positive EVA indicates that value has been created for shareholders; a negative
EVA signifies value destruction.
Economic Value Added (EVA) is a tool for evaluating and selecting stocks for investment,
and also used as a measure of managerial performance. An American consultancy firm, 26
Stern Stewart is credited with the development of this tool in the late eighties. It is calculated
by subtracting the total cost of capital from the after-tax operating profits of a company.
EVA = After-tax Operating Profits – Total cost of capital

A positive EVA is deemed to be a good sign and the higher it is, the better. EVA expressed
on a per share basis facilitates comparison between companies.
Market Value Added (MVA): It is a concept used to measure the performance and value
of a firm. MVA is determined by measuring the total amount of funds that have been invested
in the company (based on capital flows) and comparing with the current value of the
securities of the company.

The funds invested include borrowings and shareholders’ funds. If the market value of
securities exceeds the funds invested, the value has been created.
Economic Order Quantity (EOQ): EOQ The acronym for Economic Order Quantity, a
term that relates to INVENTORY management. It is the optimum size of order which
minimizes the cost of purchasing and holding inventories.
Escrow: Property or money held by a third party until the agreed upon obligations of a
contract are met. The escrow mechanism is a technique of mitigating the risk to lenders and it
is used typically in infrastructure projects such as power, roads or telecom. For example, an
escrow account can be set up at a bank for depositing the payments of electricity bills.
Factoring: Sale of a firm's accounts receivable to a financial institution known as a factor.
Capital Asset Pricing Model (CAPM): An economic theory that describes the relationship
between risks and expected return, and serves as a model for the pricing of risky securities.
The CAPM asserts that the only risk that is priced by rational investors is systematic risk,
because that risk cannot be eliminated by diversification. The CAPM says that the expected
return of a security or a portfolio is equal to the rate on a risk-free security plus a risk
premium multiplied by the assets systematic risk. Theory was invented by William Sharpe
(1964) and John Lintner (1965).
Hedging: Risk management strategy used in limiting or offsetting

probability of loss from fluctuations in the prices of commodities, currencies, or securities. In
effect, hedging is a transfer of risk without buying insurance policies. It employs
various techniques but, basically, involves taking equal and opposite positions in two
different markets(such as cash and futures markets). Hedging is used also in protecting
one's capital against effects of inflation through investing in high-yield financial
instruments(bonds, notes, shares), real estate, or precious metals.
27
Income: Income is the amount of money or its equivalent received during a period of
time in exchange for labor or services, from the sale of goods or property, or as profit from
financial investments.
Insolvency: Insolvency occurs when a business is unable to pay debts as they fall due.
Intellectual Property: Intellectual Property is intangible property that is the result of

creativity, e.g. patents, trademarks or copyrights.
Letter of Credit: - A form of guarantee of payment issued by a bank on behalf of a

borrower that assures the payment of interest and repayment of principal on bond issues.
Letter of Intent: An assurance by a mutual fund shareholder that a certain amount of

money will be invested monthly, in exchange for lower sales charges. In mergers, a
preliminary merger agreement between companies after significant negotiations.
LIBOR: The London Interbank Offered Rate is the interest rate that international banks
in London charge each other for borrowing money. The interest rate used among the most
creditworthy international banks for large loans in Eurodollars. LIBOR is an important
reference number, because loans to businesses can be tied to it on a percentage basis.
Market Capitalization: The total value of all outstanding shares. Computed as shares
times current market price. Capitalization is a measure of corporate size.
It can be calculated as:
Market Value per share x Total No. of shares outstanding
Leverage: The relationship between debt and equity. A company is considered highly
leveraged if its levels of debt are high compared to its equity.
Derivatives Market: The derivatives markets are the financial markets for derivatives.
The market can be divided into two, that for exchange traded derivatives and that for over-
the-counter derivatives. The legal nature of these products is very different as well as the way
they are traded, though many market participants are active in both.
28
Put Option: An option contract that gives its holder the right (but not the obligation) to sell a
specified number of shares of the underlying stock at the given strike price, on or before the
expiration date of the contract.
Call Option: An option contract that gives its holder the right (but not the obligation) to
purchase a specified number of shares of the underlying stock at the given strike price, on or
before the expiration date of the contract.
29

Finance Terminology

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Finance Terminology

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CRFE AN ASSIGNMENT ON FINANCIAL TERMINOLOGY

DEPARTMENT OF FINANCE, VISWASS

VIVEKANANDA INSTITUTE OF SOCIAL WORK AND SOCIAL SCIENCES

Debtor: An individual or organization that owes a debt or has an obligation to another

DEPARTMENT OF FINANCE, VISWASS

For a company, this is the total amount of earnings by the company

- Best known measure of the success of an enterprise, it is the surplus remaining

Expense : Money expended or cost incurred in a firm's efforts to generate revenue,

Expenditure : Actual payment of cash or cash equivalent for goods orservices, or

DEPARTMENT OF FINANCE, VISWASS

Debit: In double-entry bookkeeping, it’s an entry on the left-hand side of

Bookkeeping: Bookkeeping refers to the systematic recording of financial aspects

Cash: Cash refers to ready money.

Funds: All the financial resources of a firm, such as cash in hand,

- Accounting: Ability of current assets to meet current liabilities.

Solvency: Solvency refers to the financial soundness of an entity that allows it

DEPARTMENT OF FINANCE, VISWASS

Gross National Product (GNP) : GDP of a country to

Cheque: Demand draft drawn on a bank against its maker's(drawer's) funds,

Bank Draft : Bill of exchange drawn by a bank on itself, or on a correspondent

DEPARTMENT OF FINANCE, VISWASS

Capital Expenditure (CAPEX) : Amount spent to acquire

DEPARTMENT OF FINANCE, VISWASS

Revenue Expenditure: Cash expended in sales, revenue generation, or in maintaining

Negotiable Instruments: Document of title or evidence of indebtedness that is freely

Bill of Exchange (BOE): A Bill of Exchange is a written, unconditional order by

- A commercial activity engaged in as a means of livelihood or profit, or an entity which

Commerce: Commerce is a division of trade or production which deals with

Company: A company is a form of business organization.

DEPARTMENT OF FINANCE, VISWASS

Bank: Establishment authorized by a government to accept deposits, pay interest,

• a bank that provides banking facilities to high net worth individuals.

DEPARTMENT OF FINANCE, VISWASS

Following are the types of Accounting Concepts

1)Money Measurement Concept

Accounting Conventions: Accounting Conventions emerge out of accounting

Hybrid Basis of Accounting: This is not a system of accounting on its own. It is a

Accrual or Mercantile Basis Accounting: Under accrual or mercantile basis

DEPARTMENT OF FINANCE, VISWASS

DEPARTMENT OF FINANCE, VISWASS

Deferred-Revenue-Expenditure: The Expenditure which has been incurred in an

DEPARTMENT OF FINANCE, VISWASS

Allotment: Allotment is a method of distributing securities to investors when an issue has

Authorized Capital: The capital of a company (sometimes referred to as the

Receipt: A receipt is a written acknowledgement that a specified article or sum of money

Private Finance: It is a method to provide financial support as a part of a wider program

DEPARTMENT OF FINANCE, VISWASS

Acceptance: Contractual agreement instigated when the drawee of a time draft

Amortization: Amortization or amortisation is the process of increasing, or accounting

3. Owner’s Equity (the difference between assets and liabilities)

DEPARTMENT OF FINANCE, VISWASS

Dividend: These are payments to the shareholders of a limited company.

The part of the

Leverage: Leverage refers to the use of debt to supplement investment. Companies

Bond: A debt investment in which an investor loans money to an entity (corporate or

DEPARTMENT OF FINANCE, VISWASS

Amalgamation: The merging of two or more businesses into single entity.

Consolidation: Combining assets, equity, liabilities and operating accounts of a parent

Takeover: Assumption of control of another (usually smaller) firm through purchase of 51

Event: Occurrence happening at a determinable time and place, with or without

DEPARTMENT OF FINANCE, VISWASS

Transaction: Agreement, contract, exchange, understanding,

Yield: Annual income earned from an investment, expressed usually as

Risk: Probability or threat of a damage, injury, liability,loss, or other negative