Monthly Archives: July 2012

Economics Study

negative working capital

The state where a company is basically operating with no capital because the company’s liabilitiesexceed the available assets. A company cannot operate with negative working capital for an extendedperiod of time because the company will be unable to meet payment requirements on certain liabilities if the additional funds are not acquired. A company can quickly identify this state by looking at theaccounts receivable information and comparing that to accounts payable information.

export quota

Restrictions imposed on own exports by a country, either voluntarily or on the behest of other countries. Reasons for its imposition may include (1) protection of local industry from shortages of raw materials, (2) protection of local population from shortages of foodstuffs or other essential goods, (3) maintenance of international commodity prices or orderly marketing, (4)export restraint agreement with the members of a producer’s cartel (such as OPEC), or (5) export restraint agreements withconsumer countries.

fair price

Futures tradingPrice at which the demand for a certain type of futures contract matches the availability of such contracts. In case of index futures, it is based on the spot index, the cost of carrying the underlying asset until the futures contract expires (cost of carry), and the expected dividends. In case of derivatives, the fair price is the price that doesn’t allow any opportunity for profitable arbitrage. In case of common stock, it equals the spot price plus the interest costs minus the future value of the expected dividends. There are several formulas for computing the fair price of an option, such as theBlack-Scholes Option Pricing Model. also called theoretical futures price.

EconomicsFinance, General Business: See fair value.


Transfer of ownership of a property, or of benefitsinterestsliabilitiesrights under a contract (such as an insurance policy), by one party (the assignor) to another (the assignee) by signing a document called deed of assignment. Compare withnovation. See also absolute assignment and collateral assignment.



The practice of buying initial public offerings at the offering price and then reselling them once tradinghas begun, usually for a substantial profit. This is more commonly done by institutional investors thanretail investors, because institutional investors get most of the IPO shares at the offering price. Stagging is most profitable in a hot IPO market, when the price of an IPO often rises dramatically above the offering price on the first day. also called flipping

measured day work (MDW)

Production standard or quota instituted as an alternative to incentive payment or pay-for-results schemesWorkers receive a regular, guaranteed rate of pay in return for quantity and quality, based on work measurement and capabilities of theequipmentOutput falling below the required standards is paid pro rata, output exceeding the standards is rewarded with abonus.



The collective group of countries which use the Euro as their common currency. The Eurozone came into being in 1999, and originally consisted of 11 countries. As of 2009, 16 countries were part of the Eurozone. The Eurozone does not include every country in the European Union (some countries are not yet using the Euro), and does not include every country who is using the Euro (to become part of the Eurozone, the country must use the Euro as its sole legal currency). As a currency union,monetary rules are created and maintained by the European Central Bank.

cause and effect diagram

One of the seven tools of quality, it shows the relationship of all factors (causes) that lead to the given situation (effect). It identifies major causes and breaks them down into sub-causes and further sub-divisions (if any). It is usually preceded by cause-and-effect analysis. Also called fishbone diagram (because of its resemblance to a fish skeleton) or Ishikawa diagram, after its inventor Dr. Kaoru Ishikawa (1915-89) of Tokyo’s Mushasi Institute.

trailing stop loss

A complex stop-loss order in which the stop loss price is set at some fixed percentage below themarket price. If the market price rises, the stop loss price rises proportionately, but if the stock pricefalls, the stop loss price doesn’t change. This technique allows an investor to set a limit on themaximum possible loss without setting a limit on the maximum possible gain, and without requiring paying attention to the investment on an ongoing basis.

check clearing

Movement of a check from the bank in which it was deposited to the bank on which it was drawn, and the movement of itsface amount in the opposite direction. This process (called ‘clearing cycle‘) normally results in a credit to the account at the bank of deposit, and an equivalent debit to the account at the bank on which it was drawn. Also called clearing.

lateral thinking

Idea generation and problem solving technique in which new concepts are created by looking at things in novel ways. Whereas the logical (‘vertical’) thinking carries a chosen idea forward, the sideways (‘lateral’) thinking provokes fresh ideas orchanges the frame of reference. And, while vertical thinking tries to overcome problems by meeting them head-on, lateral thinking tries to bypass them through a radically different approach. The term was coined by the Maltese-born UK psychologist Dr. Edward de Bono in his 1970 book ‘Lateral Thinking.’ See also heuristics.

profit maximization

A process that companies undergo to determine the best output and price levels in order to maximize its return. The company will usually adjust influential factors such as production costssale prices, and output levels as a way of reaching its profit goal. There are two main profit maximization methods used, and they are Marginal Cost-Marginal Revenue Method and Total Cost-Total Revenue Method. Profit maximization is a good thing for a company, but can be a bad thing for consumers if the company starts to use cheaper products or decides to raise prices.

net worth

For a companytotal assets minus total liabilitiesNet worth is an important determinant of the value of a company, considering it is composed primarily of all the money that has been invested since itsinception, as well as the retained earnings for the duration of its operation. Net worth can be used todetermine creditworthiness because it gives a snapshot of the company’s investment history. also called owner’s equityshareholders’ equity, or net assets.

For an individual, the value of a person’s assets, including cash, minus all liabilities. The amount by which the individual’s assets exceed their liabilities is considered the net worth of that person.

bid and asked

Stockbroker’s quotation where ‘bid‘ refers to the highest price the buyer wants to pay, and ‘asked‘ refers to the lowest pricethe seller will accept. The difference between the two prices is called a bid and asked spread, or just a spread. Thoughcommon to all trading in securities, this term is more prevalent in over-the-counter markets.

limited liability company (LLC)

Relatively recent type of US business structure that combines the limited personal liability feature of a corporation with the single taxation feature of a partnership or sole-proprietorship firm. Its profits and tax benefits are split any way the stockholders/ shareholders (whether individuals or other firms) choose. Tax return for a LLC is filed with the taxationauthorities only for the purpose of information, and each shareholder files own tax return separately. Also called company limited by share. See also limited company.


System of administration distinguished by its (1) clear hierarchy of authority, (2) rigid division of labor, (3) written and inflexible rulesregulations, and procedures, and (4) impersonal relationships. Once instituted, bureaucracies are difficult to dislodge or change. See also Parkinson’s Law and Peter Principle.

audited financial statements

company’s financial statements which have been prepared and certified by a Certified Public Accountant (the auditor). In the U.S., the auditor certifies that the financial statements meet the requirements of the U.S. GAAP. An auditor can have an unqualified opinion, in which he or she agreeswith how the company prepared the statements, or a qualified opinion, in which he or she states which aspects of the company’s statements he or she does not agree with. In extreme cases, the auditor may express no opinion on financial statements at all, in the case that the scope of the audit was insufficient.

cost benefit analysis (CBA)

Process of quantifying costs and benefits of a decisionprogram, or project (over a certain period), and those of its alternatives (within the same period), in order to have a single scale of comparison for unbiased evaluation. Unlike thepresent value (PV) method of investment appraisal, CBA estimates the net present value (NPV) of the decision bydiscounting the investment and returns. Though employed mainly in financial analysis, a CBA is not limited to monetaryconsiderations only. It often includes those environmental and social costs and benefits that can be reasonably quantified. See also feasibility study.

Eurodollar market

The European market where US dollars can be deposited and loaned for short periods of time. In this market, loans are made in the form of Eurodollars and products are denominated in the US currency. However, because transactions are typically $1 million or more, only large institutional investorsparticipate in this market. Also, because this market is largely unregulated, banks can lend out 100 percent of the deposits they receive and therefore offer extremely attractive interest rates.

implied warranty

Integral part of every normal sales transaction, implied warranty is conferred by custom or law, and has the same effect as an express-warranty. Unless clearly negated through mutual agreement or a disclaimer, implied warranties are always present and are enforceable even if the seller (or provider or manufacturer) is unaware of, or is unable to, discover the defectin the product (good or service). The seller remains liable for the breach of warranty penalties, because such warranties are based not on the presence of an inherent fault but on the public policy of protecting the buyer or legality of the venture.

net interest income

NII. A financial measure for banks, calculated by the amount of money the bank receives from intereston assets (commercial loans, personal mortgages, etc) minus the amount of money the bank pays out for interest on liabilities (personal bank accounts, etc). Although usually calculated for banks, this figure can also be calculated for other corporations, simply by subtracting the amount of interest paid on liabilities from the amount of interest earned from assets.

factors of production

Resources required for generation of goods or services, generally classified into four major groups: (1) Land (including allnatural resources), (2) Labor (including all human resources), (3) Capital (including all man-made resources), and (4)Enterprise (which brings all the previous resources together for production). These factors are classified also asmanagementmachinesmaterials, and money (this, the 4 Ms), or other such nomenclature. More recently, knowledge has come to be recognized as distinct from labor, and as a factor of production in its own right.


discount rate

The rate at which member banks may borrow short term funds directly from a Federal Reserve Bank. The discount rate is one of the two interest rates set by the Fed, the other being the Federal funds rate. The Fed actually controls this rate directly, but this fact does not really help in policy implementation, since banks can also find such funds elsewhere. also called Federal Reserve Discount Rate.

The interest rate used in discounting future cash flows; here also called capitalization rate.

brand management

The process of maintaining, improving, and upholding a brand so that the name is associated with positive results. Brand management involves a number of important aspects such as costcustomer satisfaction, in-store presentation, andcompetition. Brand management is built on a marketing foundation, but focuses directly on the brand and how that brand can remain favorable to customers. Proper brand management can result in higher sales of not only one product, but on other products associated with that brand. For example, if a customer loves Pillsbury biscuits and trust the brand, he or she is more likely to try other products offered by the company such as chocolate chip cookies.


Refers to the sale of an asset for financiallegal or personal reasons. For corporations, divestment can refer to a company selling off a portion of its assets, such as a subsidiary, to raise capital or to focus the business on a smaller core of goods and services. For investors, divestment can be used as a social tool to protest particular corporate policies, such as a company trading with a country known for child labor abuses. Divestment can also be required of companies by the Federal Trade Commissionin order to have a merger approved. A famous example of this is the breakup of Bell System (Ma Bell) into AT&T and the Baby Bells in 1984. opposite of investment.


An itemized catalog or list of tangible goods or property, or the intangible attributes or qualities. The value of materials andgoods held by an organization (1) to support production (raw materialssubassemblieswork in process), (2) for supportactivities (repairmaintenanceconsumables), or (3) for sale or customer service (merchandisefinished goodsspare parts). Inventory is often the largest item in the current assets category, and must be accurately counted and valued at the end of each accounting period to determine a company’s profit or loss. Organizations whose inventory items have a largeunit cost generally keep a day to day record of changes in inventory (called perpetual inventory method) to ensure accurateand on-going control. Organizations with inventory items of small unit cost generally update their inventory records at the end of an accounting period or when financial statements are prepared (called periodic inventory method). The value of an inventory depends on the valuation method used, such as first-in, first-out (FIFO) method or last-in, first-out (LIFO) method. GAAP require that inventory should be valued on the basis of either its cost price or its current market price whichever is lower of the two to prevent overstating of assets and earning due to sharp increase in the inventory’s value in inflationaryperiods. The optimum level of inventory for an organization is determined by inventory analysis. Called also stock in trade, or just stock.


To classify a cost as a long-term investment, rather than charging it to current operations. Acapitalized cost does not appear on the income statement, but instead appears as a debit on the long-term assets account and a credit on the cash account of the balance sheet. However, the depreciation expense related to the capitalized cost will appear as an expense on the income statement. Since the long-term assets account is larger due to the effect of capitalization, the depreciation costs are also proportionately larger. Thus, the timing of expense recognition is changed, but eventually all expensesdo get recognized on the income statement.

balance of payments (BOP)

Set of accounts that record a country’s international transactions, and which (because double entry bookkeeping is used) always balance out with no surplus or deficit shown on the overall basis. A surplus or deficit, however, can be shown in any of its three component accounts: (1) Current accountcovers export and import of goods and services, (2) Capital account, covers investment inflows and outflows, and (3) Gold account, covers gold inflows and outflows. BOP accounting serves to highlight a country‘s competitive strengths and weaknesses, and helps in achieving balanced economic-growth.

Deming’s 14 points

Quality pioneer W. Edward Deming’s management guideposts: (1) Create constancy of purpose to achieve quality. (2) Adopt the quality way of thinking. (3) Stop depending on inspection to achieve quality. (4) End the practice of awardingbusiness to suppliers on price alone instead minimize cost by working closely with only one or two vendors. (5) Constantlyimprove every process involved in planningproduction, and service. (6) Institute on-job training for all employees. (7) Adopt and institute leadership. (8) Drive out fear from the work environment. (9) Break down barriers between the workers and the management. (10) Eliminate slogans, exhortations, and targets. (11) Eliminate quantity-quotas and targets for the workforceand management. (12) Remove barriers that rob people of their pride in workmanship, and eliminate the annual rating ormerit system. (13) Institute a vigorous program of education and self-improvement for everyone. (14) Put everyone in theorganization to work to accomplish the transformation.

interest rate

rate which is charged or paid for the use of money. An interest rate is often expressed as an annualpercentage of the principal. It is calculated by dividing the amount of interest by the amount of principal. Interest rates often change as a result of inflation and Federal Reserve Board policies. For example, if a lender (such as a bankcharges a customer $90 in a year on a loan of $1000, then the interest rate would be 90/1000 *100% = 9%.

From a consumer’s perspective, the interest rate is expressed as annual percentage yield (APY) when the interested is earned, for example, from a savings account or a certificate of deposit. When the interest is paid, for example, for a credit card, a mortgage, or a loan, the interest rate is expressed asannual percentage rate (APR).

request for proposals (RFP)

Document used in sealed-bid procurement procedures through which a purchaser advises the potential suppliers of (1)statement and scope of work, (2) specifications, (3) schedules or timelines, (4) contract type, (5) data requirements, (6)terms and conditions, (7) description of goods and/or services to be procured, (8) general criteria used in evaluationprocedure, (9) special contractual requirements, (10) technical goals, (11) instructions for preparation of technical, management, and/or cost proposals. RFPs are publicly advertised and suppliers respond with a detailed proposal, not with only a price quotation. They provide for negotiations after sealed proposals are opened, and the award of contract may not necessarily go to the lowest bidder. See also invitation to bid (ITB)request for tenders, and request for quotations.



Leave a comment

Posted by on July 30, 2012 in Study and Read


Broken Hearts are meant to be!!

Broken Hearts are meant to be!!.

Leave a comment

Posted by on July 24, 2012 in love