|
Breaking up a company and selling off its valuable assets. |
|
Association of South East Asian Nations |
|
Consists of Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand (ASEAN). |
|
The summary, a snapshot of a company's position at a given point in time. |
|
Basis Point |
|
A hundred of these make one percentage point. Bond markets have gotten so finely tuned that it is no longer enough to talk about yields going up a quarter or a sixteenth of a percent. Yields can move by as little as a hundred of a percent, or one basis point. (A quarter percent rise in a bond's yield is twenty-five basis points.) |
|
Bearer Shares |
|
Shares not required to be registered in the owner's name. |
|
Bond |
|
Simply a loan agreement that says: "I, the borrower, agree to pay you, the bondholder, a certain amount of money at a certain time in the future." |
|
Book Value |
|
Shareholder's equity - what is left in the company after all of the company's debts have been paid off. |
|
Budget Deficit |
|
The amount by which government expenditures exceed tax revenues. |
|
An option that gives the holder the right to buy, or "call in", something - at a certain price and at a certain time in the future. |
|
Cash Flow |
|
A quick measure of the money coming into or going out of a company during a given period is called cash flow. It gives a clear idea of a company's true earnings because it excludes accounting tools, such as depreciation, that allow a company to reduce the amount of profits reported on its books in order to pay less taxes.Cash flow factors out all of the accounting tricks and looks at what a company really earned. |
|
Cash Crops/Food crops |
|
"Give a starving man a fish and he will eat for a day; give him a fishing pole and he will hunger no more." In developing countries, a farmer's crops that are used to feed only the farmer's family are called food crops. Cash crops are not consumed, but are sold to provide money to buy clothing, shelter and other items. |
|
Classical Economics |
|
The basic idea of classical economics is that an economy will always move toward an equilibrium. This idea was formulated in the 1700's and 1800's by Adam Smith, David Ricardo, and John Stuart Mill. It was thought that when too many people are looking for jobs, wages would go down until everyone becomes employed. The problem, pointed out by John Maynard Keynes in the twentieth century, is that wages rarely go down. If that is the case, classical economists may just have to "assume" full employment. |
|
"Closed-End" Investment Fund |
|
Has a limited number of shares available; shares are purchased in the open market. |
|
Common Market |
|
The (EC) removed all internal barriers, and created a truly common market that would enjoy all the advantages of standard regulations, industries, financial systems, transportation, communications and taxes. |
|
Communism |
|
Basically an economic system that was meant to provide an alternative to the exploitations of unbridled capitalism. Instead of letting the markets make the major economic decisions, a communist economy puts decision-making power in the hands of the central government in hopes of creating a more egalitarian communal society. |
|
Comparative Advantage |
|
Based on the very practical idea that if a country excels in one activity, the others should not try to duplicate it. By trading goods and services, each country can concentrate on what it does best, thereby the hope is that when we are at our best no one is better. |
|
Consumer Price Index (CPI) |
|
The prices of a group ("basket") of consumer goods and services. |
|
The Japanese had to invent a word to describe Japanese managers who adopted the Western practice of leaving a company to go their own way. The feudal practice of loyalty to one's overlord continues in many ways within Japan's modern economy, where workers are expected to remain faithful to one single employer, and vice versa. Datsu-sara literally means "corporate dropout". |
|
Deflation |
|
The decline in the prices of the "basket" of goods and services - this has rarely happened, because companies and employees usually will not allow their prices and salaries to be reduced. |
|
Demand |
|
The part of economics relating to consumption is called demand. It tells us what consumers or businesses will buy at a given price. Economists love drawing graphs called supply and demand curves to explain the very simple idea that when prices change, consumers and producers change their behavior. The basic idea of supply and demand is the following: when prices go up, more goods and services are supplied, but there is less demand from consumers. When prices go down, demand goes up but the supply is reduced. At a certain price level there will be an equilibrium of supply and demand. This pattern can be applied to almost all goods and services. |
|
Depreciation |
|
The decline in value of fixed assets, such as machinery and tools, which would have to be deducted from earnings. |
|
Discount Rate |
|
The interest rate a central bank charges for loans to other banks. |
|
Dumping |
|
The sale of goods at a price below cost is called dumping. This dubious business practice is used by powerful manufacturers to capture a market. The goal is to drive all competitors out of business and then increase prices at will. |
|
The reserve of funds kept in European Banks. |
|
European Community (EC) |
|
In 1957 a group of Western European countries in an economic and political union - Belgium, France, Netherlands, Italy, Luxembourg, and Germany; then came Britain (70'-80'), Ireland, Denmark, Greece, Spain and Portugal. |
|
European Currency Unit (ECU) |
|
The official value based on a"basket" of currencies so that it would be more stable than any one currency. |
|
The best example of a fascist economy is the regime of Italian dictator Benito Mussolini. Holding that liberalism (by which he meant freedom and free markets) had "reached the end of its historical function," Mussolini wrote: "To Fascism the world is not this material world, as it appears on the surface, where Man is an individual separated from all others and left to himself .... Fascism affirms the State as the true reality of the individual." |
|
Federal Reserve |
|
The Federal Reserve fills the role of a central bank for the U.S.A. It manages the money supply, it regulates the banking system, and it acts as a lender of last resort. It answers to no one, except for yearly reports to Congress, so it can act independently. The seven members of the Federal Reserve Board are appointed by the president. |
|
Federal Funds Rates |
|
The interest rates on loans made between banks. |
|
Financial Future |
|
Agreement to buy a stock or bond - sometime in the future at a fixed price. |
|
Fourth World |
|
Somailia and Sudan - have no natural resources and little to no money. |
|
The production of goods and services which provides the food, clothing, and shelter that allow its people to survive and prosper. |
|
Gross Domestic Product (GDP) |
|
Measure of economic activity that includes all the goods and services bought or sold in a country over the course of a year. |
|
Growth Stock Funds |
|
Stocks of companies that retain their earning and concentrate on rapid growth. |
|
An explosion in the prices of goods and services is a symptom of an economy out of control. |
|
Stocks in established companies that pay consistent dividends. |
|
Industrial Revolution |
|
Between 1760 and 1860, technological progress, education, and an increasing capital stock transformed England into the workshop of the world. The industrial revolution, as the transformation came to be called, caused a sustained rise in real income per person in England and, as its effects spread, the rest of the Western world. |
|
Inflation |
|
The percentage rise in the cost of the "basket" of goods and services over a given period of time. |
|
Invisible Hand |
|
The idea of the invisible hand was formulated by Adam Smith in the eighteenth century to explain how the markets, if left to themselves, will find the most efficient path. The invisible hand of the marketplace refers to the result of millions of profit-seeking consumers and producers making rational decisions. They are expected to make the right decisions without the state or anyone else telling them how. |
|
The alliance of its government and private sector in a giant enterprise, often referred to as Japan's economic strength, which is based on its mercantilist policy of encouraging exports while avoiding imports of goods and services from abroad.Like any new kid on the block, Japan has angered many trading partners by the overwhelming size of these trade surpluses. This is currently causing Japan serious problems such as inflation and unemployment for really the first time. Most employees in this system believed they would work for the same employer their whole life - this is not going to be so! Usually, trade surpluses are created from a nation's efficiency and "hard work". |
|
Junk Bonds |
|
High-yield securities that pay a high rate of interest to investors willing to take a risk on the company making the leveraged buy-out. |
|
"The father of communism." The German economic philosopher and sociologist Karl Marx wrote the first major work on communism, Das Kapital. In it he foresaw the demise of capitalism and the creation of a socialist economic system based on the philosophy of "from each according to his abilities, to each according to his needs." Marx's pessimistic view of capitalism was based on the terrible inequities he saw in England in the nineteenth century. He called for a "dictatorship of the proletariat," where the workers would replace the capitalist ruling class. Ironically, his "communist" revolution did not occur in the industrialized West as he expected, but in rural Russia where it eventually was deformed by the excesses of the Stalin regime. |
|
Keiretsu |
|
The Japanese word describing the tightly organized system of inter-locking corporations with multiple layers of middlemen and brand-loyal retailers that effectively allows Japan to limit imports of foreign products. |
|
Keynesian Economics |
|
John Maynard Keynes, a British economist, was one of the most influential figures in the world during the Great Depression. His idea on using government spending to combat economic recession contributed to one of the most important advances in modern economics. Keynesian economics relies on the use of government spending to control the economy calling for overspending with deficits during times of economic depression and underspending with surpluses during times of too-rapid economic growth. Most politicians are easily convinced to use deficit spending to stimulate the economy, but are decidedly un-Keynesian when it comes to spending less during periods of rapid economic growth. |
|
A French term meaning "let them do it". It is used to describe the government policy that lets the markets decide what is best. Consumers and producers are expected to come to the right decision on their own. |
|
Leveraged Buyout (LBO) |
|
With a relatively small initial investment by a borrower, but an enormous amount of money to buy a controlling stake in a company. |
|
Liabilities |
|
Consists of all claims to the company's assets, from creditors and from the company's owners. |
|
Bird's-eye view of a country's economic landscape, by reviewing overall trends such as employment levels, economic growth, balance of payments and inflation. |
|
Management Buy-Out |
|
The company's management arranges to take over their own company. "If you cannot beat them, join them." Management borrows an enormous amount of funds to purchase a controlling share in their business. |
|
Microeconomics |
|
Looking at the behavior of individual businesses and consumers. |
|
Milton Friedman |
|
"Let the markets decide." With followers all over the world, Friedman has done more than anyone to promote the ideas of free markets. For decades, "Uncle Miltie" has been calling for worldwide expansion of free trade and capitalism. "The freedom to choose" is the goal of Friedman economics - if consumers are allowed to buy what they want and producers are free to sell where they want, the world will be a better place for almost everyone. |
|
Moderately Developing Countries |
|
Include most of the countries in Africa, Asia, and Latin America. The countries with the greatest population in this group would be India, China, Indonesia, and Malaysia, which would alone represent 50% of the world population. |
|
Money Supply |
|
A country's money supply has many different components, ranging from coins and notes to deposit in savings accounts. The money supply most talked about is the M2, which consists of all notes and coins in circulation and money in bank accounts, such as checking accounts, which can be withdrawn at a moment's notice. Other broader measures of the money supply, such as M3 and M4, include money in less easily available deposits, such as time deposits and other long-term investments. |
|
Brazil, Argentina, Hong Kong, Israel, Singapore, South Africa, South Korea, Taiwan, Thailand, and Yugoslavia. These "lucky few" are seen to be on their way to joining the ranks of the advanced economies of the world. |
|
Newly Industrialized Countries (NICs) |
|
"Four Tigers": South Korea, Singapore, Taiwan, and Hong Kong. |
|
North American Free Trade Area |
|
Stretching from the Yukon to the Yucatan–Canada, United States and Mexico–NAFTA would concentrate only on removing internal barriers and not adopting a common market strategy with standardized laws and free movements of people from one country to another. |
|
New shares are simply issued when a new investor wants shares, and the price is determined by the value of the fund's holdings. |
|
Opportunity Cost |
|
Refers to the "opportunity cost" of a resource; they mean the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you can't spend the money on something else. |
|
United States, Canada, Mexico, Chile, Australia, New Zealand, South Korea, Hong Kong, Thailand, Taiwan, Singapore, China and Japan have all become major trading nations, all located on the Pacific Rim. |
|
Participation Certificates |
|
Provides dividends like other shares but do not allow the holder to vote at meetings and make decisions on running the company. |
|
Poison Pill |
|
The company's management wants to prevent a hostile takeover by restructuring, selling off assets, and buying back shares to increase the company's share price. This makes it unattractive or too expensive for a takeover. |
|
Poorest Few |
|
Sub-Saharan Africa. Have few resources and little money in order to develop. |
|
Price Earnings Ratio |
|
The company's share price based on its earnings, usually in the form of a ratio: (P/E) ratio = Price/Earnings. |
|
Prime Rate |
|
The prime rate is the interest rate banks charge their best corporate customers. This follows the traditional guideline for bank lending: "low risk, low reward." The bank's other, more risky, customers are lent money at a higher rate, which is based on the prime rate. When the prime rate goes down, most other rates are lowered also. |
|
Profit and Loss Statement (P&L) |
|
Summary of everything the company has earned and spent over a given period of time. |
|
Profits |
|
In a capitalist society, profits and losses, hold center stage. Those who organize production efforts (capitalists) do so to maximize their income (profits). Their search for profits is guided by the famous "invisible hand" of capitalism; the highest profits are to be found in producing the goods and services that potential buyers most want. |
|
Property, Plant and Equipment |
|
Includes everything from buildings and trucks to tools, pencils and copy machines - also known as Assets. |
|
Puts |
|
An option that gives the holder the right to sell, or "put" something into the option seller's hands at a certain price at a certain time. |
|
Supply Side (or as once called "Voodoo economics" by rival candidate, George Bush), Ronald Reagan's plan for the American economy in the 1980's advocated reducing taxes to increase economic growth. According to Reaganomics, the tax cuts would lead to reduced government spending and America would be better off. In fact, the Reagan regime reduced social spending but increased government spending for defense, and the U.S. under Reagan doubled its national debt to $3 trillion. They were also able to attain less than 4% unemployment while having control over the inflation rate and interest rate, often thought impossible by supporters of Keynesian Economics, thereby the word "Voodoo". |
|
Recession |
|
A recession is a prolonged economic slowdown. The world has become so interconnected that an economic recession in one country will often spread to the rest. The first signs of a recession are usually a decline in economic indicators such as housing starts and retail sales. When a country enters a full-blown recession, unemployment rises sharply and interest rates usually decline. |
|
Registered Shares |
|
Requires the company's stock to be registered on a stock exchange and follow its rules. |
|
Savings is income that is not spent. In the 1980's, while the Italians and the Japanese were saving up to a third of their salaries, the average American was saving only half as much. Because savings usually translates into greater investment in the economy, those countries and/or people with high savings rates usually have a greater long-term growth. |
|
Adam Smith |
|
The father of modern economics, Smith was an enlightened eighteenth-century Scotsman who believed that the markets could take care of themselves. He introduced the world to terms like, "invisible hand," and "division of labor", which he used to describe the workings of the free-market economy. His book, The Wealth of Nations (1776), provided the foundation for the capitalist economic system. |
|
Socialism |
|
The term socialism refers to a wide variety of political/economic systems that attempt to provide a more equal distribution of wealth. There are many free-market socialist countries, such as France, Spain or Sweden. The countries of the Soviet block, before they reformed their centrally planned economies, were called socialist countries. The term is often confusing because it refers both to a form of government and to an economic system. Americans usually equate socialism with communism, which is misleading. Many capitalist free-market countries are led by socialist governments. Paris, for example, did not stop being an elegant, bustling capital just because the French elected a socialist government. |
|
Stagflation |
|
Where stagnation meets inflation; economic stagnation and high inflation can occur simultaneously. This phenomenon rarely occurs, and when the economy stagnates, the inflation rate usually drops. Stagflation, however, is a worst-of-both-worlds scenario. It usually occurs when inflationary pressures are so strong that even an economic downturn is unable to quell the pressure toward rising prices. |
|
Stock Options |
|
Allows an investor to purchase or sell a given stock at a fixed price sometime in the future. Also known as a "DERIVATIVE." |
|
Supply Side |
|
Supply side economics is based on the view that producers can stimulate economic growth better than governments as long as they are given enough tax breaks and reduced regulations. The idea is that once producers start increasing production, they will hire new employees who will use their new salaries to go out and buy new goods and services. Supply side economics is meant to provide an alternative to "demand side" economic systems where governments pump money into the economy through generous spending programs. |
|
Swap |
|
A trade agreement between two or more counterparties, usually banks, to exchange different assets and liabilities such as interest payments. |
|
The developing and relatively poor countries that are said to make up this group: those developing rapidly, those developing moderately, and the poorest few whose economies are not developing at all. |
|
Time Value |
|
The amount of time for which the option is valid. |
|
Trade Deficit |
|
The result of one country importing more than it exports. |
|
The percentage of an economy's work force that is out of work. Some unemployment statistics include only those actually looking for work, while others include all those citizens not currently employed. Most economists see some unemployment as a necessary evil, because when a certain part of the population is looking for a job, there is less pressure for wage increases, and inflation is kept under control. |
|
The amount returned to the investor expressed as a percentage of the amount invested - not necessarily the same at the interest rate. |