Glossary – Business Ethics and Corporate Governance


Advanced Countries   Countries having high national and per capita income that ensure high rate of capital formation. These countries possess highly developed infrastructure and apply most updated and advanced technical know-how in their productive activities. A strong and well-organized financial structure is the characteristic of advanced countries.

Ad Valorem Tax    A type of indirect tax in which goods are taxed by their values. In the case of ad valorem tax, the tax amount is calculated as the proportion of the price of the goods. Value Added Tax (VAT) is an ad valorem tax.

Arbitrage    When the middle-man buys and sells goods at a particular time to cash the price difference of two markets, then this action is termed as arbitrage. Purchases are done when prices are low in one market and then sold in another market where the prices are high in order to earn the profit due to the price difference in the two markets.

Arbitration    Settlement of claims, differences or disputes between one member and another and between a member and their clients, authorities, clerk’s sub-brokers, etc, through appointed arbitrators. It is a quasi-judicial process that is faster and is an inexpensive way of resolving a dispute. The stock exchange facilitates the process of arbitration between the members and their clients. The disputes between the parties are resolved through arbitration in accordance with the bye-laws of the exchange.

Auction    It is a mechanism utilized by the exchange to fulfill its obligation to a counter party member when a member fails to deliver good securities or make the payment. Through auction, the exchange arranges to buy good securities and deliver them to the buying broker or arranges to realize the cash and pay it to the selling broker.

Bad Delivery    Delivery of a share certificate together with a deed of transfer, which does not meet the requirements of title transfer from seller to buyer, is called a bad delivery in the market.

Bad Delivery Cell    When a delivery of shares turns out to be bad because of company objection etc., the investor can approach the bad delivery cell of the stock exchange through his broker for correction or replacement with good delivery.

Balance Sheet    A statement showing the assets and liabilities of a business at a certain date. Balance sheet helps in estimating the real financial situation of a firm.

Balanced Budget    When the total revenue of the government exactly equals the total expenditure incurred by the government, the budget becomes a balanced budget. It is a conservative viewpoint, as most of the times, a welfare government has to regulate a number of economic and social activities; this increases the expenditure burden on the government and results in deficit budget.

Balanced Business Score Card    A system of corporate performance evaluation based on identified key performance areas.

Balanced Growth    It refers to a programme of coordinated growth of all sectors of the economy. Generally speaking, developing nations plan a balanced growth of their economies.

Bank    A financial institution that accepts funds on saving, current and fixed deposit accounts, and lends money. The bank pays cheques drawn by customers against their accounts. It can be termed as a trader that deals in money and credit.

Bank Draft    A negotiable claim drawn upon a bank. Drafts are as good as cash. The drafts cannot be returned unpaid. A draft is issued when a customer shows their unwillingness to accept cheque in payment for their services or mercantile goods. A bank draft is safer than a cheque.

Bank Rate    The rate of discount at which the central bank of the country discounts first-class bills. It is the rate of interest at which the central bank lends money to the lower banking institutions. Bank rate is a direct quantitative method of credit control in the economy.

Barter System    It is a primitive system of transaction involving exchange of ‘goods for goods’.

Base Year    Reference year in the past, i.e. a year chosen to be the basis for comparison of the value of a particular variable with the value of that variable in another year. For example, if we are comparing the price level in 2005 with that in 2004, then 2004 is the base year. A base year should be a normal year in terms of economic performance.

Bearer of Options    Money is a bearer of options, as it gives the freedom to its possessor to either keep it or to spend it on any commodity that is for sale.

Bid and Offer    Bid is the price of a share a prospective buyer is prepared to pay for a particular scrip. Offer is the price at which a share is offered for sale.

Bilateral Monopoly    It refers to that market situation where there is only one buyer of a commodity or service as exists in a nationalized industry. This buyer is the sole employer of a particular type of labour, the suppliers of which are all members of a trade union. The bargaining between employers and employees then would be between two monopolists.

Bills of Exchange    A document acknowledging an amount of money owned in consideration for goods received.

Blue Chip    Equity shares whose purchase is very safe. It is a safe investment as it does not involve any risk.

Bond    A negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan.

Bonus Shares    Shares issued by companies to their shareholders free of cost by capitalisation of accumulated reserves from the profits earned in the earlier years.

Break-even Price    The price at which firms make zero abnormal profits.

Bridge Loan    Loan made by a bank for a short period to make up for a temporary shortage of cash. Bridge loan covers the period between the buying of a new company/equipment and disposing of the old one.

Brokerage    Brokerage is the commission charged by the broker for purchase/sale transaction done through him. The maximum brokerage chargeable as stipulated by SEBI is at present 2.5 per cent of the trade value.

Budget    A document containing a preliminary approved plan of public revenue and public expenditure. It is a statement of the estimated receipts and expenses during a given period, normally one year. In India, the union budget is presented during the last day of February every year, preceded by the railway budget and the tabling of economic survey.

Budget Deficit    It is the difference between the total expenditure on one hand, and current revenue and net internal and external capital receipts of the government. It has to be financed by net internal and external capital receipts.

Bull    A bull is the speculator who gains with the rise in prices of shares and stocks. They buy shares or commodities in anticipation of rising prices and sell them later at a profit.

Bull Market    A market where the speculators buy shares or commodities in anticipation of rising prices. This market enables speculators to resell such shares and make a profit.

Business Cycle    Also known as Trade Cycle, it refers to an alternate expansion and contraction in overall business activity in a wave-like rythmic cycle in a capitalist economy. The four phases of the business cycles are recovery, prosperity, recession and depression.

Call Money    It is a form of loans and advances which is payable on demand or within the number of days specified for the purpose.

Capacity Building    Programmes to create awareness and impart skills to make persons, groups or organizations capable of undertaking targeted initiatives.

Capital Budgeting    The process of preparing the budget for a period of a year or more than one year allocating capital outlays for various investment projects. In other words, it is the process of budgeting capital expenditure by means of an annual or longer period capital budget.

Capital Consumption Allowance    Monetary value assigned to the rate of depreciation of a physical asset in one year.

Capital Expenditure    It consists mainly of expenditure on acquisition of assets such as land, buildings, machinery, equipment, investments in shares, etc. and loans and advances granted by the central government to the state and the union territory governments, government companies, corporations and other parties.

Capital Formation    It is also known as capital accumulation. It means increasing the additions to the existing supply of capital goods in a country. It represents the addition of new capital stock to existing stock after deducting depreciation, damage and other physical deterioration of the existing capital stock. Economic progress in a country depends upon its rate of capital formation. India’s capital formation at 28 per cent (2004) is one of the highest among developing economies and higher than those of the USA and UK.

Capital Market    It is a market for long-term debt and equity shares. In the capital market the capital funds of both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges. Capital market can be further divided into primary and secondary markets.

Capital Receipts    Items included in capital receipts are loans raised by the government from the public (also called market loans), borrowings by the government from the Reserve Bank of India and other parties through the sale of treasury bills, loans received from foreign governments and other international bodies (for example, World Bank, Asian Development Bank etc.), recoveries of loans granted to state and union territory governments and other parties, small savings and deposits in the public provident fund (PPF), etc.

Capital-intensive Industry    It refers to that industry which uses large amounts of capital equipment in relation to its labour force for its output.

Capitalism    It is an economic system in which all the means of production are owned by private individuals. Profit motive is the guiding feature for all economic activities under capitalism. Under pure capitalism, economic conditions are regulated solely by free market forces. This system is based on ‘Laissez-faire’, i.e. no state intervention. Sovereignty of consumer is a feature of this system. Consumer is considered a king under capitalism.

Carry Forward Trading    Carry forward trading has evolved in response to local needs in India and it refers to the trading in which the settlement is postponed to the next account period on payment of contango charges (known as vyaj badla) in which the buyer pays interest on borrowed funds or the backwardation charges (known as undha badla) in which the short seller pays a charge for borrowing securities.

Cartel    It is a monopolistic organization established for the purpose of restricting the output of member-firms in order to keep up the price of their products. The cartels first made their appearance in Germany.

Cash Reserve Ratio (CRR)    The portion of net demand and time liabilities every bank is required to deposit with the Reserve Bank of India.

Central Bank    The apex banking and monetary institution whose main function is to control, regulate and stabilise the banking and the monetary system of the country in the national interest. The Indian central bank is the Reserve Bank of India.

Central Planning    It refers to that system of economic planning where the state determines what shall be produced, how much shall be produced and how shall it be produced. It is the state which allocates factors of production to the various industries for productive purposes. Socialism and central planning often go hand in hand. Central planning is now being increasingly followed even in non-socialist societies.

Cheque    A cheque is an order in writing issued by the drawer to a bank. If the customer has sufficient funds in his account, the cheque is paid by the bank. Cheques are used in place of cash.

Circuit Breakers    It is a mechanism by which a stock exchange temporarily suspends the trading in a security when its prices are volatile and tend to breach the price band.

Clearing    A clearing refers to the process by which all transactions between members are settled through multilateral netting.

Clearing Bank    A clearing bank is one which settles the debits and credits of commercial banks.

Clearing House    A Clearing House is an institution which helps to settle the mutual indebtedness that occurs among the members of its organization.

Closed Economy    A closed economy refers to an economy having no foreign trade (i.e. export and import). Such economies depend exclusively on their own internal domestic resources and have no dependence on outside world.

Collective Bargaining    It refers to negotiations between employers’ association and workers’ trade union in an industry. The workers can bargain more effectively if they combine together into a powerful trade union. Employers too prefer collective bargaining, as individual bargaining with each worker is a cumbersome process.

Collusion    Producers of an industry reduce competition among themselves to raise their profits. They fix the price themselves with a clear mutual understanding. This understanding among different firms is called collusion.

Command and Control Regime    An economic system in which all economic activities are based on inflexible regulations, directions, rigorous monitoring and verification.

Commercial Bank    A commercial bank is an institution of finance. It deals in banking services through its branches in the entire country. Operation of current accounts, deposits, granting of loans to individuals and companies etc. are the various functions of the commercial bank.

Commercial Paper    A short-term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary. It is usually issued by companies with a high credit standing in the form of a promissory note redeemable at par to the holder on maturity and therefore does not require any guarantee. Commercial paper is a money market instrument issued for a tenure of 90 days.

Commercial Revenue    The revenue received by the government in the form of prices paid for government-supplied commodities and services, i.e. revenues derived from the government from their public enterprises.

Company Objection    When an investor sends the certificate along with the transfer deed to the company for transfer, and the registration is rejected because of signature difference or if the shares are fake, forged or stolen etc., the company returns the shares along with a letter, which is termed as a company objection.

Competition    It refers to that market situation in which rival firms try to increase their profits at one another’s expense.

Complementarity    It is a relationship between the demands for two goods, which are in joint demand. The extent of this complementarity varies from commodities, which will always be demanded in the same proportion to goods where they can be varied to some extent.

Compliance    Acting within the requirements of laws and regulations.

Constant Returns to Scale    These are present when a proportionate increase in all inputs leads to the same proportionate increase in the output.

Consumer’s Equilibrium    Consumer’s equilibrium with respect to the purchase of one good is attained when the difference between total utility in terms of money and the total expenditure on it is maximised.

Consumers’ Sovereignty    This concept means that in a capitalist society, it is the consumer who decides what goods shall be produced and in what quantities. Every time a consumer buys a commodity, he is, in fact, voting for the continued production of that commodity. But in an abnormal time, consumers’ sovereignty becomes a myth.

Consumption Function    The relationship between consumption and income.

Convertible Bond    A bond giving the investor the option to convert the bond into equity at a fixed conversion price.

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

Corporate Citizen    A corporate is likened to a resident of a country, and is presumed to have rights as also obligations towards the nation.

Corporate Social Responsibility    It refers to corporates engaging in pursuits of rendering services to the welfare of the community at large, apart from enhancing long-term shareholder value. In recent times, CSR has become an important and integral part of corporate activities.

Corporate Volunteering    Permitting and facilitating employees to undertake social service for brief periods or intermittently.

Corporation Tax    It is a tax on company’s profit. It is a direct tax which is calculated on profits after interest payments and allowance (i.e. capital allowance) have been deducted but before dividends are allowed for.

Corporatization of Stock Exchanges    Corporatization is the process of converting the organizational structure of the stock exchange from non-corporate to a corporate structure. Traditionally, some of the stock exchanges in India were established as ‘Association of Persons’, e.g. BSE, ASE and MPSE. Corporatization of such exchanges is the process of converting them into incorporated companies.

Cost-benefit Analysis    It refers to that analysis with the help of which we allocate scarce resources among competing uses in an efficient manner by equating marginal social cost with marginal social benefits.

Coupons    Tokens for payment of interest attached to bearer securities.

Credit Money    This refers to money, whose value is greater than the commodity value of the material from which the money is made.

Credit Rationing    It takes place when the banks discriminate between the borrowers. It empowers the bank to lend to some and to refuse to lend to others. In this way, credit rationing restricts lending on the part of the bank.

Credit Squeeze    Monetary authorities restrict credit as and when required. This credit restriction is called credit squeeze. Monetary authorities adopt the policy of credit squeeze to control inflationary pressure on the economy.

Cum-bonus    The share is described as cum-bonus when a purchaser is entitled to receive the current bonus.

Cum-rights    The share is described as cum-rights when a purchaser is entitled to receive the current rights.

Cumulative Convertible Preference Shares    A type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company.

Cumulative Preference Shares    A type of preference shares on which dividend accumulates if remains unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares.

Currency Appreciation    A situation in which there is a decrease in the domestic currency price of the foreign currency.

Currency Depreciation    A situation in which there is an increase in the domestic currency price of the foreign currency.

Customs Duty    A duty that is imposed on the products received from exporting nations of the world. It is also called protective duty as it protects the home industries.

Cut-throat Competition    It refers to discriminatory and unfair price-cuts made by a large firm in order to injure the interest of smaller firms. The large firm may resort to price reductions only in those areas where rival firms are operating while maintaining the normal price elsewhere.

Day Order    A day order is an order which is valid for the day on which it is entered. If the order is not matched during the day, at the end of the trading day, the order gets cancelled automatically.

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

Debentures    Bonds issued by a company bearing a fixed rate of interest usually payable half-yearly on specific dates and principal amount repayable on particular date on redemption are known as debentures. Debentures are normally secured/charged against the asset of the company in favour of the debenture holder.

Deficit Financing    It is a practice resorted to by modern governments, of spending more money than they receive in revenue, by deliberately budgeting for a deficit. The government incurs the deficit budget, either to deal with a depression and serious unemployment as in Western capitalist countries or to break the vicious circle of poverty and underdevelopment as in underdeveloped countries.

Deflation    Deflation is the opposite of inflation. Deflation is that state of falling prices which occurs at the time when the output of goods and services increases more rapidly than the volume of money in the economy. During deflation, the general price level falls and the value of money rises.

Deflationary Gap    It is the difference between the actual level of aggregate demand and the level of aggregate demand required to establish the full-employment equilibrium. It is a measure of the amount of aggregate demand deficiency.

Delisting of Securities    The term ‘delisting’ of securities means permanent removal of securities of a listed company from a stock exchange. As a consequence of delisting, the securities of that company would no longer be traded at that stock exchange.

Dematerialization    Dematerialization is the process by which shares in the physical paper form are cancelled and credit in the form of electronic balances are maintained on highly secure systems at the depository.

Demutualization of Stock Exchange    Demutualization refers to the transition process of an exchange from a ‘mutually-owned’ association to a company ‘owned by shareholders’. In other words, transforming the legal structure of an exchange from a mutual form to a business corporation form is referred to as demutualisation. The above, in effect, means that after demutualisation, the ownership, the management and the trading rights at the exchange are segregated from one another.

Denationalization    It means returning a nationalised industry back to private enterprise as occurred in Great Britain in the case of iron and steel industry.

Depreciation    The value of the existing capital stock that has been consumed or used up in the process of producing output.

Devaluation    It means reducing the value of a nation’s currency relative to gold or to the value of a hard currency like the US dollar which would increase a country’s physical exports and decrease its physical imports, provided other countries do not devalue their currencies.

Direct Tax    Those taxes that are levied on the property and income of persons and those that are paid directly by the consumers to the state. Income tax, interest tax, wealth tax, corporation tax are all examples of direct taxes.

Disinvestment    Also known as negative investment, this term was coined by Lord Keynes to refer to the sale of investment. Britain sold off her overseas investments during the Second World War to secure foreign currency to pay for her imports. National output expands only when fresh investment exceeds disinvestments.

Dividend    A dividend is the amount which the company distributes to shareholders when profits of the company are calculated by the board of directors.

Dominant Firm    A business concern so powerful that smaller concerns in the industry are afraid of taking independent action in trade policy.

Double Counting    Counting a product two or more times is called double counting. Double counting will over-estimate the value of a country’s income.

Double-entry Accounting    An accounting principle requiring funds that come in to be entered in an account that shows where they came from and also in an account that shows where they are put. Funds that go out are entered in an account that shows for what they are spent and also in an account that shows where they came from.

Dumping    It means selling goods abroad at a lower price than is charged for them in the home market; it is an example of discriminating monopoly.

Economic Issues    Economic issues include, for example, wages and benefits, labour productivity, job creation, expenditures on outsourcing, expenditures on research and development, and investment in training and other forms of human capital. Economic issues include, but are not limited to, financial information.

Economic Planning    It refers to government direction of the economic growth of a country. Modern economic planning is of two types: (i) partial economic planning and (ii) total economic planning. The former is designed to smoothen economic fluctuations in a capitalistic economy and is resorted to in private enterprise countries, such as the UK and USA The latter refers to the determination by a supreme government authority (say the Planning Commission) of the quantity and quality of goods to be produced by the country. This type of planning is resorted to in socialist countries.

Edifar    ‘Electronic Date Information Filing and Retrieval System’ (EDIFAR) is a Web site launched by SEBI in association with National Informatics Center (NIC) in July 2002 to facilitate filing of certain material information/documents/statements by the listed companies on line in the EDIFAR Web site EDIFAR would enable electronic filling of information in a standard format by the companies and expedite dissemination of information to various classes of market participants like investors, regulatory organization, research institutions, etc.

Environment    The living and non-living surroundings, natural or man-made, which make life on earth possible. Environmental issues include, for example, impacts of processes, products and services on air, water, land, biodiversity and human health.

Environmental Audit    An investigation of processes and procedures of a company or site with respect to its compliance with applicable laws and regulations and impacts on environment conditions.

Environmental Impact Assessment    An assessment of the impacts on the natural or human environment of a proposed project or development, usually performed by an environmental consultant.

Environmental Management System    The combination of arrangements for assessing, monitoring and recording a company’s environmental impact.

Environmental Reporting    Internal or external reporting of environmental performance. Can take the form of an addition to a company’s annual report, or form part of a separate document.

Equilibrium    The equilibrium between aggregate demand and aggregate supply occurs, when at a particular price level, the aggregate demand is equal to the aggregate supply. It is the point at which the total output of goods and services produced equals the total demand for those goods and services.

Equity Shares    An equity share, commonly referred to as ordinary share, also represents the form of fractional ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holders of such shares are members of the company and have voting rights. A company may issue such shares with differential rights as to voting, payment of dividend etc.

Ex-bonus    The share is described as exbonus when a purchaser is not entitled to receive the current bonus, the right to which remains with the seller.

Excise Duty    It is a tax imposed on total cost incurred by a firm. It is a tax which is imposed on certain indigenous production (e.g., soft drinks, matches, cigarettes, etc.) of the country. Excise duty may be imposed either to raise revenue or to check the consumption of the commodities on which they are imposed. Excise duty is progressive in nature.

Ex-rights    The share is described as ex-rights when a purchaser is not entitled to receive the current rights, the right to which remains with the seller.

Final Goods    Those that are meant for final use by consumers or firms. These goods are not required to enter into further stages of production or resale to change their form and content. They are finished goods meant only for final consumption or investment.

Financial Intermediaries    Institutions that receive funds from savers and lend them to borrowers. These include depository institutions such as banks and non-depository institutions such as mutual funds, pension funds, etc.

Fiscal Deficit    The difference between the total expenditure of the government and the revenue receipts plus those capital receipts which are not in the nature of borrowing, but which finally accrue to the government.

Fiscal Discipline    It is realized when the government exercises control over expenditures, given the quantum of revenues.

Fiscal Policy    It is that part of government economic policy which deals with taxation, expenditure, borrowing, and the management of public debt in the economy. Fiscal policy primarily concerns itself with the flow of funds in the economy. It exerts a very powerful influence on the working of economy as a whole.

Fixed Deposits    These are deposits for a fixed term varying from a few days to a few years. The rate of interest will vary, with a small rate for a minimum period to a higher rate for a longer period.

Forfeitures    Penalties imposed by courts for non-compliance with orders or non-fulfillment of contract, agreements etc.

Forward Trading    Forward trading refers to trading where contracts traded today are settled at some future date at prices decided today.

Good Delivery    A share certificate together with its transfer form which meet all the requirements of title transfer from seller to buyer is called good delivery in the market.

Gross Domestic Product (GDP)    It is the money value of all final goods and services produced within the geographical boundaries of the country during a given period of time (usually a year). GDP can be calculated both at current prices and at constant prices. If we add net factor income from abroad to the GDP, we get ‘Gross National Product’ (GNP).

Health and Safety    The set of issues that are concerned with the welfare of employees, both with regard to occupational health and accidents at work. Management of health and safety and environment issues is often combined.

Hedging    Activity that is designed to minimize risk of loss.

Imperfect Competition    It refers to that market situation in which one or more buyers or sellers are large enough to influence the price of the goods sold in the market. This is also referred to as monopolistic competition.

Imperfect Market    It is a market characterised by the existence of imperfect competition. In such a market the following conditions of perfect competition are not fulfilled: (i) the commodity is homogeneous, (ii) there is a large number of both buyers and sellers; (iii) buyers and sellers are in close touch with each other, (iv) the commodity must be transferable, and (v) there must be no favourable treatment of some buyers or discrimination against others. Only a few markets are perfect in actual practice. Most of the markets are imperfect but retail markets are always imperfect. In the commodity too, market is not homogeneous.

Independent Directors    As per Clause 49 of the Listing Agreement, ‘independent directors’ means directors who, apart from receiving director’s remuneration, do not have any other material pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries, which in the judgement of the board may affect the independence of the judgement of the director.

Indirect Taxes    These taxes are levied on goods and services. They only affect the income and property of persons indirectly, through their consumption of goods and services.

Inflation    Inflation is a persistent upward movement in the general price-level leading to a decline in the purchasing power of the monetary unit. Inflation invariably takes place when the money supply rises faster than the increase in the output.

Infrastructure    It is also referred to as social overhead capital. Infrastructure implies the foundation underlying a nation’s economy and includes such things as transport and communications, power, irrigational facilities, etc. The level of economic activity in a country depends upon its infrastructure. The more developed the infrastructure in a country, the greater and more variegated is the economic activity in that country.

Insider Trading    Trading in a company’s shares by a connected person having non-public price sensitive information such as expansion plans, financial results, take-over bids, etc, by virtue of his association with that company is called insider trading.

Interested Parties    All parties concerned involved with a stake that either impacts a business or are impacted by the business.

Intermediate Goods    Intermediate goods are those goods which are used to produce other goods and therefore they always move from one stage of production to another in the manufacture of a final product.

ISO    International Organization for Standardization, which has its headquarters in Geneva and coordinates conferment of standards by standards organizations in countries such as the Bureau of Indian Standards (BIS).

ISO 14000    Series of standards for environment management produced by the International Organization for Standardization.

Jumbo Certificate    A jumbo share certificate is a single composite share certificate issued by consolidating/aggregating a large number of market lots.

Labour Union    Labour union represents that organization of workers which works for improving working conditions of labour and also for raising their wages by adopting ‘collective bargaining’ measures with the management of the industry.

Laissez faire    It is a French word meaning ‘non-interference’. This doctrine was popularized by Classical Economists led by Adam Smith who gave the view that government should interfere as little as possible in the economic activities of individuals. ‘That government is the best that governs the least’ is their motto.

Liquidity    Assets which can easily be converted into cash are said to have liquidity. Land does not possess liquidity as it takes longer time to get converted into cash.

Lock-out    It refers to a situation when the management does not permit the workers to work unless they agree to accept the employer’s term. Lock-out is the closing of work by the management for an uncertain period of time to put pressure on the labour union. It is an action by the employer equivalent to a strike by employees.

Management System    This includes policy, strategy, objectives and targets, programmes, resources, organizational structure, reporting and control mechanisms, audit and review mechanisms pertaining to management.

Market Lot    A market lot is the minimum number of shares of a particular security that must be transacted on the exchange. Multiples of the market lots may also be transacted. In dematscrips, the market lot is one share.

Mature Economy    It refers to that capitalist economy which has reached the final stage of growth.

Merger    The joining together of two or more independent firms into one single combined firm is known as merger.

Merit Goods    These goods refer to those goods that are very essential to the society as a whole and hence the government ensures their availability to all consumers, regardless of their ability to pay a reasonable price.

Mixed Economy    It refers to an economy in which characteristics of both capitalism and socialism are found. In such an economy, some planning of production is undertaken by the state directly or through its nationalized industries and some is left to private enterprise. India offers an example of mixed economy. However, under the policy of economic liberalization, many of the mixed economic characteristics are being diluted, and the country is moving gradually towards a market-driven economy.

Monetary Policy    Monetary policy comprises all measures applied by monetary authorities with a view to creating a deliberate impact on the nature and volume of money so as to achieve the objectives of general economic policy. It aims at regulating the flow of currency, credit and other money substitutes in an economy with a view to affecting the total stock of such assets as well as to influence the demand of the community for such assets.

Money Market    Money market is a market for debt securities that pay off in the short term, usually less than one year; for example, the market for 90-days treasury bills. This market encompasses the trading and issuance of short-term non-equity debt instruments including treasury bills, commercial papers, banker’s acceptance, certificates of deposits, etc.

Monopolistic Competition    It is a market structure in which there are many sellers, who produce a differentiated product with free entry and exit.

Monopoly    It refers to that market structure where there is only one producer of a commodity for which there is no substitute. This is sometimes referred to as absolute monopoly. This type of monopoly is very uncommon. It is rare to find only a single producer of a commodity for which there is no substitute. Actual conditions vary between the two extremes of near monopoly and near perfect competition. These conditions have been termed imperfect competition. The term monopoly is extensively used to mean near monopoly or very imperfect competition. Although neither absolute monopoly power nor perfect competition actually exist, economists find it useful to study each of these extremes, the reason being that the theoretical conditions for each are simple and clear and they provide a basis for the more difficult study of the many different varieties of imperfect competition.

Monopsony    It refers to the market structure with a single buyer of a commodity. Pure monopsony or buyer’s monopoly is characterised by the ability of the single buyer to set the buying price. It is not very common, but it may occur, as in the case of the demand for labour in a company town. In the case of monopsony, the buying price and the quantity bought are lower than they would be in a competitive situation.

National Income    It can be regarded either as the money value of the total volume of production of goods and services, or the total of all incomes derived from economic activity during a specified period, generally one year. Calculation of the national income by either method gives the same total.

Nationalization    An act by which a government takes over the ownership and operations of companies or an entire industry which were hitherto in the hands of the private sector.

Natural Monopoly    Monopoly of goods enjoyed by a country due to the bounty of nature.

Neo-classical School    An alternative name applied to the Cambridge School of Economists. Members of this school reconstructed the classical economic theory to take into account the changes that had occurred since the early nineteenth century.

Net National Product    Gross national product minus allowance for depreciation and maintenance of capital equipment.

No-delivery period    When a book closure or record date is announced by a company, the exchange sets a no-delivery period for that security. During this period trading is permitted in that security. However, these trades are settled only after the no-delivery period is over. This is done to ensure that investor entitlement for corporate benefits is clearly determined.

Non-discrimination Equal Opportunity    No discrimination on account of gender, age religion, race or creed providing equal opportunity to all irrespective of gender, age, religion, race, or creed.

Odd Lot    A number of shares that is less than the market lot is known as odd lot. Under the scrip-based delivery system, these shares are normally traded at a discount to the prevailing price for the marketable lot of an industry or a business previously in the hands of private capitalists.

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

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

Open Market Operations    Buying and selling of securities by the central bank of a country in the open market. This is a tool of the monetary authority for effecting monetary control.

Opportunity Cost    It is defined with respect to a particular choice. It is equal to the value of the next best alternative.

Optimum Firm    This is a firm which has reached its most efficient size, at which its cost of production per unit of output will be at a minimum so that the firm has no motive to expand or reduce its scale of operations. Thus as the firm expands towards the optimum size, it will enjoy increasing returns to scale but if it goes beyond the optimum size, diminishing returns will set in.

Order-driven Trading    It is a trading initiated by buy/sell orders from investors/brokers to the members by the clearing house of the exchange.

Over-the-Counter Trading    Trading in those stocks, which are not listed on a stock exchange.

Overdraft    An advance given by a bank allowing a customer to overdraw his current account upto an agreed limit.

Participating Preference Share    The right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for is paid. Participation rights is linked with the quantum of dividend paid on the equity shares over and above a particular specified level.

Passive Philanthropy    Inert inactive giving, when asked for, without actively participating in programmes.

Pay-in    Pay-in day is the designated day on which the securities or funds are delivered paid in by the members to the clearing house of the exchange.

Pay-out    Pay-out is the designated day on which securities and funds are delivered paid.

Perfect Competition    It is the market situation, in which there are a large number of buyers and sellers; firms sell a homogenous product with one price prevailing. There is free entry and exit.

Permit Allowance Trade Regime Negotiable permits and allowances which may be traded to meet regulatory requirements.

Preferred Stock/Preference Shares Owners of this kind of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the company’s creditors, bond holders/debenture holders.

Price Band    The daily/weekly price limits within which price of a security is allowed to rise or fall.

Price Mechanism    It signifies the working of those market forces which establish equilibrium in the economy. Laissez faire policy is the basis for the working of price mechanism.

Price Rigging    When a person or person acting in concert with each other colludes to artificially increase or decrease the price of a security, that process is called price rigging.

Price Ring    It is an unofficial syndicate in which the prices are controlled with the prior understanding among the traders. These dealers under a price ring decide not to over-bid one another at a public auction to keep the prices low. This will discourage outsiders from coming to the auctions.

Private Sector    It is that part of the economy which is not owned by the government and is in the hands of private enterprise. In other words, private sector is not under direct government control and includes the personal as well as the corporate sector.

Privatization    Privatization is the antithesis of nationalization. When the government-owned public industries are denationalized and the disinvestment process is initiated, it is called privatization.

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

Public Sector    It signifies those undertakings which are owned, managed and run by public authorities. Public sector includes direct government enterprises, the nationalized industries and public corporations. In this sector of the economy, the government acts as an entrepreneur.

Public Utilities    This term refers to such services as local passenger transport, gas and electricity undertakings.

Quote Driven Trading    Trading, where brokers/market markers give, buy/sell, quote for scrip simultaneously.

Recession    It refers to a temporary falling off in business activity. It is one of the four segments of a business or trade cycle.

Record Date    Record date is the date on which the beneficial ownership of an investor is entered into the register of members. Such a member is entitled to get all the corporate benefits.

Rematerialization of Shares    It is the process through which shares held in electronic form in a depository are converted into physical exchange computer.

Rights Issue/Rights Shares    The issue of new securities to existing shareholders at a ratio to those already held.

Savings Account Deposits    These deposits combine the features of both current account deposits and fixed deposits. They are payable on demand and also with-drawable by cheque, but with certain restrictions on the number of cheques issued in a period of time. Interest is paid on the deposits in these accounts.

Secondary Markets    Secondary market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the stock exchange. Majority of the trading is done in the secondary market. Secondary market comprises equity markets and the debt markets.

Selective Credit Controls    Measures used by the central bank of a country to channel the flow of credit to particular sectors, usually the priority sectors, such as agriculture, infrastructure, exports etc.

Settlement Guarantee    Settlement guarantee is the guarantee provided by the clearing corporation for settlement of all trades even if a party defaults to deliver securities or pay cash.

Shadow Price    It is an imputed value for a commodity based on the opportunity costs of the resources used to produce it. Such values are of particular significance in resolving problems of resource allocation with respect to the effect on welfare.

Share Capital    It is the amount of money raised by a company by issuing shares. The authorized share capital is the amount that a company is allowed to issue as laid down in its Articles of Association. The issued share capital is the amount actually issued i.e., the number of issued shares multiplied by their par value. Fully paid share capital is the amount raised by payment of the full par value of the issued shares.

Social Impact Assessment    An assessment of the social impacts on the local communities of a proposed project or development.

Social Issues    Social issues include, for example, workplace health and safety, employee retention, labour rights, human rights, wages and working conditions at outsourced operations.

Social Security    Provision by the state, out of taxation, for welfare assistance to those in need, as a result of illness, unemployment, or old age. National insurance is a kind of social security.

Socialism    The political doctrine that dictates that the means of production (machines, materials and output) should be owned by society or by the state. Soviet Russia, between 1917 and 1990, practised socialism.

Splitting Consolidation    The process of splitting shares that have a high face value into shares of a lower face value is known as splitting. The reverse process of combining shares that have a low face value into one share of higher value is known as consolidation.

Spot Trading    Trading by delivery of shares and payment for the same on the date of purchase or on the next day.

Stabilization Policy    It is a government economic policy aimed at reducing the cyclical and other fluctuations that take place in a market economy.

Stakeholders    All parties either impacted by or those that have an impact on the business. Shareholders, employees, consumers, dealers, creditors, society at large, the government are all stakeholders.

Stakeholder Engagement    Systematic interaction with stakeholders on a continual basis to understand their concerns and devise mechanisms to address those concerns in consultation with the relevant stakeholders, such as shareholders, employees, creditors, customers, dealers and the government.

Statutory Liquidity Ratio (SLR)    The SLR requires banks to maintain a specified percentage of their net total demand and time liabilities in the form of designated liquid assets.

Stop Transfer    The instruction given by a registered holder of shares of the company to stop the transfer of shares, as a result of theft, loss etc.

Subsidies    Payments by government to firms or households that provide or consume a commodity. For example, government may subsidise fertilizer by paying for a part of the price on it by marginal farmers.

Sustainability    Ability of an organization to operate in perpetuity.

Sustainable Development    Integrated holistic long-term (incorporating inter and intra generational concerns) development including economic, social and environment development. The concept also refers to match the needs of the present without compromising the ability of future generations to meet their own needs.

Tariff    Tax or a duty on imports, which can be levied either on physical units, e.g., per tonne (specific), or on value (ad valorem). It could be imposed for a variety of reasons including; to raise government revenue, to protect domestic industry from subsidised or low-wage imports, to boost domestic employment, or to ease a deficit on the balance of payments.

The Central Listing Authority (CLA)    It is set up to address the issue of multiple listing of the same security and to bring about uniformity in the due diligence exercise in scrutinizing all listing applications on any stock exchange. The functions of CLA as enumerated in SEBI (Central Listing Authority) Regulations, 2003 include: (i) Processing the application made by any body corporate, mutual fund or collective investment scheme for the letter of recommendation to get listed at the stock exchange; (ii) Making recommendations as to listing conditions; and (iii) Any other function that may be specified by the SEBI Board from time to time.

Trade Guarantee    Trade guarantee is the guarantee provided by the clearing corporation for all trades that are executed on the Exchange. In contrast, the settlement guarantee guarantees the settlement of trade after multilateral netting.

Trade Union    It is an organization of workers who come together to promote their interests. Trade unions negotiate on behalf of their members in collective bargaining with employers, and in the event of a dispute, may put pressure on employers by withdrawing labour (i.e. strike) or by some less drastic form of action (i.e. go-slow, work to rule).

Trading for Delivery    Trading conducted with an intention to deliver shares as opposed to a position that is squared off within the settlement.

Transfer Deed    A transfer deed is a form that is used for effecting transfer of shares or debentures and is valid for a specified period. It should be sent to the company along with the share certificate for registering the transfer. The transfer deed must be duly stamped and signed by, or on behalf of, the transferor and transferee and complete in all respects.

Transfer Earnings    The amount a factor of production would receive in its next best employment, the difference between that and its current earning being regarded as rent.

Transfer Payment    Payment made by any public authority other than one made in exchange for goods or services produced. This is not a part of national income. Examples: unemployment insurance and old age pensions.

Transmission    Transmission is the lawful process by which the ownership of securities is transferred to the legal heir/s of the deceased.

Transparency    Openness in business operation.

Treasury Bills    Short-term (up to one year) bearer discount security issued by governments as a means of financing their cash requirements.

Unique Client Code    In order to facilitate maintaining database of their clients, it is mandatory for all brokers to use unique client code which will act as an exclusive identification for the client.

Wage-price Flexibility    A situation in which (money) wages and prices are flexible (they can increase or decrease freely and quickly). The effect of wageprice flexibility is that the market for labour and the markets for goods and services will always be in equilibrium.

Welfare    A private-enterprise economy in which large-scale governmental action is welfare-oriented. Welfare-state goals include, among other things, maintenance of a minimum living standard for all citizens, production of social goods and services, control of business cycles, etc.

Welfare State    A nation that provides to all at least the minimum standards in respect of education, health, housing, pensions and other social benefits.

Zero Coupon Bond    Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond.