Economic Terms and Concepts 1. Economic Terms: Arbitrage: If someone takes advantage of different prices of the same security traded in two or more stock exchanges (by buying in one and selling in the other), it is called arbitrage. Actuary: A statistician who calculates insurance risk and premiums. Annual General Meeting: The yearly meeting of shareholders that Joint-Stock Companies are required by law to convene, to allow shareholders to discuss their company’s Annual Report and Accounts, elect the Board of Directors and approve the dividend suggested by directors. Annuity: A series of equal payments at fixed intervals from an original lump sum investment. Where an annuity has a fixed time span, it is termed an annuity certain, and the periodic receipts comprise both a phased repayment of principal (the original lump sum payment) and interest, such that at the end of the fixed term, there is a zero balance on the account. An annuity in perpetuity does not have a fixed time span but continues indefinitely and receipts can therefore come only from interest earned. Annuities can be obtained from pension funds or life insurance schemes. Anti-Competitive Practice: A practice followed by a firm that restricts, distorts or eliminates competition to the disadvantage of other suppliers and consumers. Examples of restrictive practices include Exclusive Dealing, Refusal To Supply, Tie-In Sales etc. Appreciation: a. An increase in the value of a currency against other currencies under a Floating Exchange Rate System. An appreciation of a currency’s value makes imports cheaper and exports more expensive, thereby encouraging additional imports and curbing exports and so helping in the removal of a Balance of Payments surplus and the excessive accumulation of international reserves. How successful an appreciation is in removing a payments surplus depends on the reactions of export and import volumes to the change in relative prices. If these values are low, trade volume will not change very much and the appreciation may in fact make the surplus larger. On the other hand, if export and import demand is elastic then the change in trade volumes will operate to remove the surplus. b. An increase in the price of an asset is also called capital appreciation. Assets held for long periods, such as factory building, offices or houses are most likely to appreciate in value because of the effects of inflation and increasing site values, though the value of short term assets like stocks can also appreciate. Where assets appreciate, then their replacement cost will exceed their historic cost, and such assets may need to be revalued periodically to keep their book values in line with their market values. Articles of Association: The legal constitution of a Joint-Stock Company, which governs the internal relationship between the company and its members or shareholders. The articles govern the rights and duties of the membership and administration of the company e.g. directors’ powers, meetings, the dividend and voting rights assigned to separate classes of shareholders etc. Administered Prices: Strictly, prices which are set by management decision rather than by negotiation between buyer and seller. True market prices are to be found only in the stock exchange and other places where prices change constantly. Most retail and industrial prices are set by management, though they will be altered in response to competition. The term administered prices is often used to refer to price-fixing by a monopoly firm, a cartel or a government body. Some economists have argued that inflexible administered prices have been an important contributory cause of inflation. In India, we have been witness to an Administered Pricing Mechanism (APM) in petroleum for long, which has now been dismantled in favour of market-determined pricing. Anti-Trust (US): Legislation to control monopoly and restrictive practices in favour of competition. It applies not only to group of firms but also to single companies. For instance, recently an anti-trust case was filed against Microsoft by its rivals accusing it of adopting anti-customer and unfair trade practices, which they claimed, had the impact of restricting consumer choice. Authorized Capital: The share capital fixed in the Memorandum of Association and the Articles of Association of a company as required by law. Also known as nominal capital or registered capital.
Posted on: Sun, 05 Oct 2014 09:06:50 +0000
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