Economy and Business Terms - Charlie, your teacher of English
Acceptance: 1.It's a drawee’s promise to pay either a time draft or sight draft. Typically, the
acceptor signs his name after writing the word “accepted” on the bill along with the date. Instead of
“accepted,” similar wording indicating an intention to pay would also suffice to show a desire to
honor the bill at maturity. The acceptance of a bill in effect makes it a promissory note: the acceptor
is the maker and the drawer is the endorser.
2. It's a banker’s acceptance.
3.binding contract effected when one party to a business arrangement accepts the offer of another.
Acceptance may be in written or oral form.
Accountable: Someone who is liable to account for one's actions; for example, "governments
must be accountable to someone beside themselves"; or "fully accountable for what they
did"; other examples are, "the court held the parents answerable for their minor child's acts of
vandalism"; or "he was answerable to no one"
Accountability: It's an employee's responsibility for the exercise of certain duties and the
requirement to report to his superiors on his performance of them. In recent years, many managers
have attempted to strengthen lines of accountability so as to achieve improvements in the job
performance of their subordinates.
One approach to this has been the creation of profit centers. The profit performance of these
subunits of the organization can be closely monitored by organizational leaders, thereby increasing
the accountability of those working in the profit centers. In so far as creation of profit centers
involves a measure of decentralization of decision-making, decentralization of responsibility and
AUTHORITY can be coupled with increased accountability.
Accounting Measurement: It is the computation of economic or financial activities in terms of
money, hours or other units. An accounting measurement is a unit of some measurable element
that is used to compare and evaluate accounting data. Accounting is often measured in terms of
money; for example, when a company records weekly sales at $10,000. The same company could
record those transactions in terms of units sold; for instance 5,000 units (that is, $2.00 per unit.)
Accounts Payable (AP): These are bills to be paid as part of the normal course of business. This is
a standard accounting term, one of the most common liabilities, which normally appears in the
Balance Sheet listing of liabilities. Businesses receive goods or services from a vendor, as well as
an invoice, and until that invoice is paid the amount is recorded as part of “Accounts Payable.”
Actuary: Actuaries are employed by insurance companies and pension providers to calculate
factors such as life expectancy, accident rates and likely payouts by using complex mathematical
formulas.
The profession also includes statisticians who provide expert data analysis on risk assessment and
risk management for the financial services sector. Actuaries are most often employed within the
insurance industry, but also prepare and assess data for commercial and investment banks,
retirement and pension fund administrators, or are self-employed as consultants. Specific data
prepared by actuaries is often presented in the form of actuarial tables (mortality tables) that
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Economy and Business Terms - Charlie, your teacher of English
indicate the life expectancy of an individual. Such tables may be used as the bases for calculating
estimated insurance premiums or monthly retirement annuities. When utilized by expert witnesses,
actuarial tables are admissible in evidence to show life expectancy.
Advertising: It is any communication designed to raise awareness and produce a desired effect. An
advertisement may occur through any medium, be that print, broadcast, imagery, or even word of
mouth. Many advertisements are basic; for example, there may be a radio announcement to "buy a
detergent called X." Others are more complex, encouraging purchase by stating that a product has
a better price and/or better quality. Many advertisements are intended to entertain. They are an
integral part of marketing. Informally, an advertisement is called an advert or an ad.
Aggregate demand: It is the total amount of goods and services demanded in the economy at a
given overall price level and in a given time period. It is represented by the aggregate-demand
curve, which describes the relationship between price levels and the quantity of output that firms are
willing to provide. Normally there is a negative relationship between aggregate demand and the
price level. Also known as "total spending".
Amortization: It is the running down or payment of a loan by installments. An example is a
repayment mortgage on a house, which is amortized by making monthly payments that over a preagreed period of time cover the value of the loan plus interest. With loans that are not amortized,
the borrower pays only interest during the period of the loan and then repays the sum borrowed in
full.
Annual bonus: This is the sum paid to with-profits policyholders at the end of each year from
surpluses in the with-profits fund.
Unlike stock market investors who see the value of their savings rise and fall, annual bonuses, once
paid, cannot be removed.
However, due to the problems experienced with with-profits funds, many companies have cut or
scrapped their annual bonuses.
Annual percentage rate (APR): The APR is the rate of interest that you agree to pay on the money
that you borrow. It was designed to allow consumers to compare products on a like-for-like basis
and every lender must quote this rate by law.
Basically, the higher the figure, the more you will pay. Confusingly, though, there are currently
several ways used to calculate APRs, making comparison very difficult.
Annuity: An annuity is a type of insurance policy that provides a regular income in exchange for a
lump sum paid into it on retirement.
Insurance companies convert the capital built up in your pension fund into a regular income. The
insurance company estimates how long you will live and uses this as a basis for the amount they
will pay you as an income. The longer you are likely to live, the lower your income is likely to be.

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Economy and Business Terms - Charlie, your teacher of English
For example, a healthy, non-smoking 65-year-old woman will receive a smaller monthly payout than
a 70-year-old male smoker, because it is expected that she will cost the insurance company more in
the long run.
Annuities vary between providers, so it is important to shop around rather than just buying the
annuity offered by your existing pension company. Currently, you must purchase your annuity
before you turn 75.
Arbitrage: It's the taking advantage of the difference in the price of a share or currency, usually in
two different markets.
If a share is quoted at 100pence in London and 105pence in New York, an arbitrageur would make
a profit by selling in New York and buying in London.
In the US, arbitrage is often associated with risk arbitrage, which means buying shares in potential
takeover targets, waiting for a bid that inevitably pushes up the share price and then selling the
shares for a profit.
It's an investment practice that attempts to profit from inefficiencies in price by making transactions
that offset each other. For example, one may buy a security at a low price and, within a few
seconds, re-sell it to a willing buyer at a higher price. Arbitrageurs can keep prices relatively stable
as markets try to resist their attempts at price exploitation. Arbitrageurs often use computer
programs because their transactions can be complex and occur in rapid succession.
Arbitration: At its core, arbitration is a form of dispute resolution. Arbitration is the private, judicial
determination of a dispute, by an independent third party. An arbitration hearing may involve the use
of an individual arbitrator or a tribunal. A tribunal may consist of any number of arbitrators though
some legal systems insist on an odd number for obvious reasons of wishing to avoid a tie. One and
three are the most common numbers of arbitrators. The disputing parties hand over their power to
decide the dispute to the arbitrator(s). Arbitration is an alternative to court action (litigation.
Assemble: An assembly line is a process of production which enables a continuous efficient rolling
process. Usually it involves a commodity, such as a car, moving along a conveyor belt. As it moves
slowly along, workers add different parts to the car.
Auditors: Auditors are accountants who must certify that the company accounts are prepared and
signed by the board of directors, and are a 'true and fair view' of the company's financial position.
1. Also, an auditor is a person who reviews activities to identify inefficiencies, reduce costs, and
otherwise achieve organizational objectives. Auditors may investigate potential theft or fraud and
ensure compliance with applicable regulations and policies. They also help ensure the accuracy of
reports. Audits are an essential part of a company's efficiency..
2. In taxation, it is an employee of the tax collection agency who reviews the reports of an individual
or company to see if all income, deductions, and/or credits reported accurately reflect reality. This is
done to ensure that each individual or company pays his/her/its full tax liability. Audits are
conducted on a random basis, or when something appears remiss on a tax return.
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Economy and Business Terms - Charlie, your teacher of English
Average: It is a number that is calculated to summarize a group of numbers. The most commonly
used average is the mean, the sum of the numbers divided by however many numbers are in the
group. The median is the middle value in a group of numbers ranked in order of size. The mode is
the number that occurs most often in a group of numbers. Take the following group of numbers: 1,
2, 2, 9, 12, 13, 17
The mean is 56/7=8, The median is 9, The mode is 2
Awarded Damages (or Compensatory Damages): It's the money awarded to a plaintiff to
compensate for damages, injury, or another incurred loss. Compensatory damages are awarded in
civil court cases where loss has occurred as a result of the negligence or unlawful conduct of
another party. To receive compensatory damages the plaintiff has to prove that a loss occurred, and
that it was attributable to the defendant. The plaintiff must also be able to quantify the amount of
loss in the eyes of the jury or judge.
Balance sheet: It's a summary of the financial value of a company, usually published at the end of
its financial year.
It is a statement of a company's assets, liabilities, and stockholder equity at a given period of time,
such as the end of a quarter or year. A balance sheet is a record of what a company has and how it
has come to have it. A balance sheet is divided into two main sections, one that records assets and
one that records liabilities and stockholder equity. The assets should generally equal the liabilities
and stockholder equity because the latter two are how the company paid for its assets. Examples of
items recorded as assets include accounts receivable and property, plants, and equipment.
Examples of liabilities include accounts payable and long-term bonds.
Be listed on an exchange (to): To be listed on an exchange, a business must first comply with
basic criteria set by that exchange and continue to fulfill any requirements it demands. Exchanges
often add and delete businesses from their listings. Possible criteria may include the number of
shares the company includes in a list and a required minimum of earnings. Also another name for a
listed company is a quoted company.
Bear Market: A bear market is a condition in which securities prices fall and widespread pessimism
causes the stock market's downward spiral to be self-sustaining. Investors anticipate losses as
pessimism and selling increases. Although figures vary, a downturn of 20% or more from a peak in
multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard &
Poor's 500 Index (S&P 500), over a two-month period is considered an entry into a bear market.
Bid: It's a benefit that can be expressed numerically as an amount of money that will be saved or
generated as the result of an action. Making a business case for a new strategy or product idea
usually involves pointing out the economic benefits of the proposal to decision makers, enabling
them to measure the financial effects of the proposed change.
Black swan

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Economy and Business Terms - Charlie, your teacher of English
It's an event that is extremely hard to predict. It is generally associated with Nassim Nicholas
Taleb's book. Black swan events are typically random and unexpected, and some think the current
financial crisis is a black swan.
Before the discovery of Australia, it was assumed that all swans were white because nobody had
seen one of a different shade. Markets tend to work on the basis that black swans either don't exist
or appear with such irregularity that they are not worth worrying about. Black swan events are
typically random and unexpected. For example, the previously successful hedge fund Long Term
Capital Management (LTCM) was driven into the ground as a result of the ripple effect caused by
the Russian government's debt default. The Russian government's default represents a black swan
event because none of LTCM's computer models could have predicted this event and its
subsequent effects.
Blue Chip: A blue chip is a nationally recognized, well-established and financially sound company.
Blue chips generally sell high-quality, widely accepted products and services. Blue chip companies
are known to weather downturns and operate profitably in the face of adverse economic conditions,
which helps to contribute to their long record of stable and reliable growth.
Bond: A bond is a debt investment in which an investor loans money to an entity (typically
corporate or governmental) which borrows the funds for a defined period of time at a variable or
fixed interest rate. Bonds are used by companies, municipalities, states and sovereign governments
to raise money and finance a variety of projects and activities. Owners of bonds are debtholders, or
creditors, of the issuer.
Bonus 1: A bonus is an additional compensation given to an employee above his/her normal wage.
A bonus can be used as a reward for achieving specific goals set by the company, or for dedication
to the company.
2. They are dividends paid to shareholders from funds created out of additional profits realized by
the company.
3. Or a premium paid for accepting an agreement. Sometimes referred to as a "signing bonus".
4. It's also anything over and above what is expected.
Bridge Loan: It's a loan for a short-term period, usually two weeks to three years, and until longterm financing can be arranged or an obligation is removed. Interest rates are relatively high, often
12-15%. Bridge loans are used to satisfy working capital needs; for example, if a company is
arranging for an IPO or a bond issue in the coming months, but needs capital before then, it may
take out a bridge loan. In doing so, it will plan to pay back the bridge loan with the money raised in
the longer-term financing.
Broker: It is a person or firm that conducts transactions on behalf of a client. Some brokers only
conduct transactions while others also offer different types of investment advisory services. Brokers
derive their profit from commissions on orders given. That is, they usually collect a percentage of
the value of each transaction, though some charge flat fees. Clients may give orders in a variety of
ways. One may meet with a broker, call on the telephone, or give orders over the Internet. Brokers
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Economy and Business Terms - Charlie, your teacher of English
handle two main types of brokerage accounts: advisory accounts and discretionary accounts.
Brokers are only allowed to conduct transactions on advisory accounts on the specific orders of the
account holder, or under very specific instructions. On the other hand, they have much more leeway
over discretionary accounts, conducting transactions not prohibited by the account holder in
accordance with the holder's investment goals and the prudent man rule. In practice, most
brokerage firms are in fact broker-dealer firms. Most brokers must register with the SEC.
Brokerage: It's a real estate activity devoted to assisting buyers and/or sellers in the purchase of
real property. In smaller communities, brokerage activities are conducted on a type of general
practitioner basis. In larger communities, brokers generally specialize in certain price ranges or
types of residential properties; or some combination of office buildings, retail space, food service,
industrial activities, warehouse, farms and lands, or development land.
Budget: It's the chancellor's annual announcement of the British government's fiscal policy
changes. Inside the chancellor's famous red briefcase are details of how much cash he plans to
raise through taxes and how he then plans to spend it. It usually takes place in March.
In a balanced budget, the government matches income to expenditure. Classical economists
argued that this should always be the aim of government policy. The budget is in deficit when
government income falls short of spending plans, and in surplus when the government collects
more in taxes than it intends to spend on public goods and services.
Bull Market: It's a prolonged period in which investment prices rise faster than their historical
average. Bull markets can happen as a result of an economic recovery, an economic boom, or
investor psychology. The longest and most famous bull market is the one that began in the early
1990s in which the U.S. equity markets grew at their fastest pace ever.
Business Cycle: The business cycle is the fluctuation in economic activity that an economy
experiences over a period of time. A business cycle is basically defined in terms of periods of
expansion or recession. During expansions, the economy is growing in real terms (i.e. excluding
inflation), as evidenced by increases in indicators like employment, industrial production, sales and
personal incomes. During recessions, the economy is contracting, as measured by decreases in the
above indicators. Expansion is measured from the trough (or bottom) of the previous business cycle
to the peak of the current cycle, while recession is measured from the peak to the trough. In the
United States, the National Bureau of Economic Research (NBER) determines the official dates for
business cycles.
Buy-out: A buy-out occurs where a controlling proportion of a firm's shares are purchased by a
single party. A term often heard is "management buy-out" which means the management buys
company shares to become the owner of that company.
Another type of buy-out is where a company buys back shares in itself that it has previously sold off,
thereby taking itself off the stock market and turning itself back into a private firm.
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Buy-to-let mortgages: Buy-to-let mortgage is a mortgage arrangement in which an investor
borrows money to purchase property in the private rented sector in order to let it out to tenants. Buy6

Economy and Business Terms - Charlie, your teacher of English
to-let mortgages have been on offer in the UK since the late 1990s. Lenders calculate how much
they are willing to lend using a different formula than for an owner-occupied property. For an owneroccupied property, the calculation is typically a multiple of the owner's annual income.
The interest rates and fees that are offered on BTL mortgages are, on average, slightly higher than
those for an owner-occupied mortgage. This is due to the perception among banks and other
lending institutions that BTL mortgages represent a greater risk than residential owner-occupier
mortgages.
Campaign: It's a series of marketing activities designed to achieve clearly defined goals within a
specified time frame. Whether the ultimate goal is to acquire new customers, launch a new product,
promote brand awareness or generate leads, smart conversion marketers think in terms of
campaigns.
Capital Gains: In real estate and investments, the difference between the purchase price and the
sale price when the sale price is more. That is, when an investor buys a security or real estate and
sells it for a higher price, he/she incurs a capital gain. Capital gains in the United States are taxed at
a lower rate than other income if the asset is held for longer than one year. One may use capital
losses to offset capital gains to minimize one's liability for capital gains taxes; indeed, some
investors do so deliberately.
Capital gains tax: It is the tax paid to the Inland Revenue Department when you make a capital
gain, that is, a profit from selling an asset, which could be anything from shares to a painting or a
holiday home. Everyone has an allowance before they become liable for capital gains tax and rates
vary. In general, you do not have to pay capital gains tax on your car, your main home, ISAs or
personal belongings worth £6,000 or less. You pay the tax at whatever your highest rate of income
tax is. But reliefs and exemptions are available - so those who could be liable are best seeking
expert advice.
Carry trade: The carry trade occurs when investors borrow money at low rates of interest in one
currency and invest it at higher rates in another. The most common carry trade of recent years has
been in yen.
With interest rates in Japan at virtually zero, speculators have been borrowing there to invest in the
UK or the US, where rates are more like 5%. There is a big risk, though, that the exchange rate
moves against you. With the recent financial market turmoil, investors fled from risky investments
and unwound many of their yen carry trades.
This caused the yen to surge by over 10% in less than a fortnight. In the past couple of days,
though, the yen has fallen back again, possibly as calmer markets have encouraged a renewed
bout of carry trading.
Cash: Cash normally means bills and coins, as in paying in cash. However, the term is used in a
business plan to represent the bank balance, or checking account balance.
Cash flow: The cash flow in a business plan is the change in the cash balance. For example, the
cash flow for a month would be a positive $10,000 if the balance was $10,000 at the beginning of
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Economy and Business Terms - Charlie, your teacher of English
the month and $20,000 at the end of the month. It is important to distinguish cash flow, which is the
change in the balance, from cash or cash balance, which is the resulting ending balance. More
formally, cash flow is an assessment and understanding of cash coming into and flowing out of the
venture in specific periods of time. This can be based on projections or actual cash flow.
Chapter 11 bankruptcy. Chapter 11 is a chapter of the US bankruptcy code that gives a company
an opportunity to reorganize and emerge from bankruptcy. Chapter 11 bankruptcy is a form of
corporate financial reorganization in which a company's assets gets sold off to pay creditors. In
some cases, Chapter 11 bankruptcy allows companies to continue to function. Creditors must vote
to approve the reorganization plan. If a plan cannot be agreed, the court can either convert the case
to a liquidation under Chapter 7 or, if this is in the interest of creditors, return the business to the
status quo before bankruptcy.
Checking Account: An account at a bank in which a customer deposits money for immediate use.
For example, one may utilize a checking account for one's monthly expenses, such as a mortgage
payment or groceries. Because most customers keep money in a checking account for a shorter
period than in a savings account, a current account pays a slightly lower interest rate. Typically, one
can write a check or use a debt card on a checking account, and banks expect customers to do so.
The term "checking account" is more common in the United States. In the United Kingdom, the
common term is "current account."
Close price: The closing price is the final price at which a security is traded on a given trading day.
The closing price represents the most up-to-date valuation of a security until trading commences
again on the next trading day. Most financial instruments are traded after hours (although with
markedly smaller volume and liquidity levels), so the closing price of a security may not match its
after-hours price.
Collateral: In lending agreements, collateral is a borrower's pledge of specific property to a lender,
to secure repayment of a loan. The collateral serves as protection for a lender against a borrower's
default - that is, any borrower failing to pay the principal and interest under the terms of a loan
obligation. If a borrower does default on a loan (due to insolvency or other event), that borrower
forfeits (gives up) the property pledged as collateral—and the lender then becomes the owner of the
collateral. In a typical mortgage loan transaction, for instance, the real estate being acquired with
the help of the loan serves as collateral. Should the buyer fail to pay the loan under the mortgage
loan agreement, the ownership of the real estate is transferred to the bank. The bank uses a legal
process called foreclosure to obtain real estate from a borrower who defaults on a mortgage loan
obligation.
Collateralize: To offer an asset as a surety that a debt will be repaid. The asset may be kept by the
lender until the debt is repaid, or the borrower may maintain possession with the proviso that the
lender may take possession of the borrower defaults. For example, one collateralizes a mortgage
loan with the real estate one purchases with the loan. If the loan is not repaid, the lender has the
right to seize the real estate in question.
Commercial paper: It's is an unsecured, short-term debt instrument issued by a corporation,
typically for the financing of accounts receivable, inventories and meeting short-term liabilities.
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Economy and Business Terms - Charlie, your teacher of English
Maturities on commercial paper rarely range any longer than 270 days. Commercial paper is usually
issued at a discount from face value and reflects prevailing market interest rates.
Commodity: A commodity is any homogenous item which may be freely bought and sold. The term
typically refers to products such as coffee, cocoa and soybeans (soft commodities) or gold,
aluminum and platinum (hard commodities). Pork belly and frozen orange concentrate were
featured in the 1980s film, Trading Places.
Commodities typically are bought and sold in futures markets where producers combine with
manufacturers and speculators to create a smoothly functioning market.
Compensation: (1) Payment for goods or services.(2) Damages necessary to restore an injured
party to his or her position before the wrongdoing.(3) In eminent domain, payment to property
owners for the value of the property taken and any damage caused to the value of the remaining
property.
It is also the payment for services rendered. One is due compensation when one has performed a
service for an employer or client. Examples of compensation include wages, salaries, tips, fees, and
commissions. Compensation is usually the primary component of an individual's tax liability. It is
also called remuneration.
Conditions: Economic conditions refer to the state of the economy in a country or region. They
change over time in line with the economic and business cycles, as an economy goes through
expansion and contraction. Economic conditions are considered to be sound or positive when an
economy is expanding and are considered to be adverse or negative when an economy is
contracting.
A country's economic conditions are influenced by numerous macroeconomic and microeconomic
factors, including monetary and fiscal policy, the state of the global economy, unemployment levels,
productivity, exchange rates, inflation and many others.
Consideration: It is something of value given by both parties to a contract that induces them to
enter into the agreement to exchange mutual performances.
Consideration is an essential element for the formation of a contract. It may consist of a promise to
perform a desired act or a promise to refrain from doing an act that one is legally entitled to do. In a
bilateral contract— that is, an agreement by which both parties exchange mutual promises—each
promise is regarded as sufficient consideration for the other. In a unilateral contract, an agreement
by which one party makes a promise in exchange for the other's performance, the performance is
consideration for the promise, while the promise is consideration for the performance.
Consideration must have a value that can be objectively determined. A promise, for example, to
make a gift or a promise of love or affection is not enforceable because of the subjective nature of
the promise. ///////////////////////////////////////////////////////////////////////
Consultant: It is an experienced professional who provides expert knowledge (often packaged
under a catchy name) for a fee. He or she works in an advisory capacity only and is usually not
accountable for the outcome of a consulting exercise. Some consultants (like Peter Drucker and W.
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Economy and Business Terms - Charlie, your teacher of English
Edward Deming) have brought dramatic shifts in management thinking and improvements in the
performance of organizations.
Corporation tax: Corporation tax is paid by UK companies on their profits. It is currently paid at
30% but will reduce to 28% in April 2008, the first cut in the rate since 1999.
Supporters said the cut would restore Britain's attractiveness as a home for companies operating
across the globe but small businesses said it would mean more burdens for them. The Treasury has
been under pressure to cut corporation tax as Britain has slipped down the international league
table of low tax countries.
Consumer Price Index (CPI): The Consumer Price Index (CPI) is a measure that examines the
weighted average of prices of a basket of consumer goods and services, such as transportation,
food and medical care. It is calculated by taking price changes for each item in the predetermined
basket of goods and averaging them. Changes in the CPI are used to assess price changes
associated with the cost of living; the CPI is one of the most frequently used statistics for identifying
periods of inflation or deflation.
Consumer Spending (consumption): Consumer spending is another term for voluntary private
consumption, or an exchange of money for goods and services. Contemporary measures of
consumer spending include all private purchases of durable goods, nondurables and services. In a
purely free market, the aggregate level of private consumer spending in an economy is necessarily
equal to the total market value of economic output.
Contingency Plan: Contingency is a potential negative event which may occur in the future such as
a natural disaster, fraudulent activity or a terrorist attack. In finance, managers often attempt to
identify and plan for any contingencies that they feel may occur with any significant likelihood. To
mitigate risk, financial managers often err on the conservative side, assuming slightly worse-thanexpected outcomes, and arranging a company's affairs so that it can weather negative outcomes
with the least distress possible.
Contract: It's a legally enforceable agreement between two or more parties generally relating to a
transaction for the purchase or sale of inputs, goods and services. A contract involves obligations
on the part of the contractors which may be expressed verbally or in writing. Formation of a contract
involves one party making an offer to the other party which must then be accepted by the latter
party. For example, one firm may offer to supply a product to another company at a given future
date and on specified terms. In return, the latter company would agree to pay a specified sum of
money as consideration for the product to be supplied. Both parties would then be legally bound to
honor their agreement to sell and to buy the product. In the event of either party failing to comply
with the terms of the contract the other party could seek damages for breach of contract through the
courts.
Corporate Income Tax: It's a tax levied on corporations' profits. Because corporations are legal
entities separate from their owners, they may be taxed as if they were persons. A corporate tax,
then, is the equivalent of the income tax for natural persons. Corporate taxes vary from country to
country; in the United States, they are levied at both the federal and state levels. Proponents of the
corporate tax argue it guards against excessive profits that may result from unethical or illegal
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Economy and Business Terms - Charlie, your teacher of English
corporate practices, while opponents say that corporations simply pass on the tax to their
customers.
Cost of Living: Cost of living is the amount of money needed to sustain a certain level of living,
including basic expenses such as housing, food, taxes and health care. Cost of living is often used
to compare how expensive it is to live in one city versus another locality. Cost of living is tied to
wages, as salary levels are measured against expenses required to maintain a basic standard of
living throughout specific geographic regions.
Cost-benefit Analysis: A cost-benefit analysis is a process by which business decisions are
analyzed. The benefits of a given situation or business-related actions are summed, and then the
costs associated with taking that action are then subtracted. Some consultants or analysts also
build the model to put a dollar value on intangible items, such as the benefits and costs associated
with living in a certain town, and most analysts will also take into account opportunity cost into such
equations.
Deflation: It's a fall in the general level of prices - the opposite of inflation. Productivity gains in the
last century allowed businesses to make more goods more cheaply, lowering the price of the goods
and improving everybody's standard of living.
Deflation becomes damaging when people postpone spending in anticipation of cheaper prices.
When consumers postpone or no longer spend, businesses cannot sell their goods, make profits or
pay off their debts, leading them to cut production and workers. This leads to lower demand for
goods, even lower prices, and a vicious cycle develops. Historical experience has shown that once
deflation sets in, it is incredibly hard to shake off, as Japan has discovered.
Demand-Pull Inflation: In Keynesian economics, it is a significant increase in prices that occurs
when there is an increase in demand for goods and services that the increase outpaces supply. The
equivalent of demand-pull inflation can occur for any one product, but the term refers to situations
where this happens throughout the economy. Demand may increase for a number of reasons; one
example is an increase in the money supply. If persons have more money, they are more likely to
buy goods and services which, in turn, drives up prices. One way to think of demand-pull inflation is
to conceptualize it as too many dollars chasing too few products.
Demutualization: It is the process by which a mutual company becomes a publicly-traded
company. A mutual company is a company owned by its members or users for the benefit of those
members or users. In demutualization, the members give up their rights and receive shares in the
company in return, which the members may then sell. Demutualization happens most often when a
stock exchange owned by its members goes public. As an aside, a mutual company should not be
confused with a mutual fund.
Depression: Depression is a severe and prolonged downturn in economic activity. In economics, a
depression is commonly defined as an extreme recession that lasts two or more years. A
depression is characterized by economic factors such as substantial increases in unemployment, a
drop in available credit, diminishing output, bankruptcies and sovereign debt defaults, reduced trade
and commerce, and sustained volatility in currency values. In times of depression, consumer
confidence and investments decrease, causing the economy to shut down.
11

Economy and Business Terms - Charlie, your teacher of English
Derivative: It's an asset that derives its value from another asset. For example, a call option on the
stock of Coca-Cola is a derivative security that obtains value from the shares of Coca-Cola that can
be purchased with the call option. Call options, put options, convertible bonds, futures contracts,
and convertible preferred stock are examples of derivatives. A derivative can be either a risky or
low-risk investment, depending upon the type of derivative and how it is used..
Disposable Income: Disposable income, also known as disposable personal income (DPI), is the
amount of money that households have available for spending and saving after income taxes have
been accounted for. Disposable personal income is often monitored as one of the many key
economic indicators used to gauge the overall state of the economy.
Dividend: It's a portion of a publicly-traded company or fund's earnings that is distributed to
shareholders. The amount of earnings distributed as dividends is usually determined by the board of
directors and divided by the number of shares, but preferred stock often has guaranteed dividends.
Dividends exist in order to encourage investment in the company and to allow shareholders (who
are really co-owners) to participate in the profits. A rapidly expanding company often pays little or
nothing in dividends, as most of its earnings are reinvested in the company. On the other hand, a
well-established company with solid profits likely pays relatively high dividends.
Dow Jones Industrial Average (DJIA): The Dow Jones Industrial Average (DJIA), sometimes
referred to as the Dow, is the best-known and most widely followed market indicator in the world. It
tracks the performance of 30 blue chip US stocks.
Though it is called an average, it actually functions more like an index. The DJIA is quoted in points,
not dollars. It's computed by totaling the weighted prices of the 30 stocks and dividing by a number
that is regularly adjusted for stock splits, spin-offs, and other changes in the stocks being tracked.
The companies that make up the DJIA are changed from time to time. For example, in 1999
Microsoft, Intel, SBC Communications, and Home Depot were added and four other companies
were dropped. The changes are widely interpreted as a reflection of the emerging or declining
impact
Durables: Durables is a category of consumer goods that do not have to be purchased frequently.
Some examples of durables are appliances, home and office furnishings, lawn and garden
equipment, consumer electronics, toys, small tools, sporting goods, photographic equipment,
jewelry, motor vehicles and motor vehicle parts, turbines and semiconductors. They also known as
"durable goods," they tend to last for at least three years. Non-durables: A good which is
immediately used by a consumer or which has an expected lifespan of three years or less.
Examples of non-durable goods include food and clothing.
EBIT: It's a type of operating profit. Ebit stands for earnings before interest and tax. Earnings
Before Interest and Tax: It's a measure of a company's ability to produce income on its operations
in a given year. It is calculated as the company's revenue minus its expenses (such as overhead)
but not subtracting its tax liability or interest paid on debt. It is important to note that EBIT does not
account for one-off or otherwise unusual revenues and expenses, only recurring ones. EBIT
represents cash available to pay off creditors in the event of liquidation and, as such, it is closely

12

Economy and Business Terms - Charlie, your teacher of English
watched, especially when the company incurs little depreciation or amortization. It is also called
operating profit.///////////////////////////////////
Economic Growth: It's an increase in the capacity of an economy to produce goods and services,
compared from one period of time to another. Economic growth can be measured in nominal terms,
which include inflation, or in real terms, which are adjusted for inflation. For comparing one country's
economic growth to another, GDP or GNP per capita should be used as these take into account
population differences between countries.
Economic growth is usually associated with technological changes. An example is the large growth
in the U.S. economy during the introduction of the Internet and the technology that it brought to U.S.
industry as a whole. The growth of an economy is thought of not only as an increase in productive
capacity but also as an improvement in the quality of life to the people of that economy.
Elasticity: It's the responsiveness of the quantity purchased of an item to changes in the item's
price. If the quantity purchased changes proportionately more than the price, the demand is elastic.
If the quantity purchased changes proportionately less than the price, the demand is inelastic. For
example, price increases by cigarette manufacturers have a relatively small effect on cigarette
consumption, thus, the demand for cigarettes is inelastic.
Environmental Scan: It is one of the essential components of the global environmental analysis.
Environmental monitoring, environmental forecasting and environmental assessment complete the
global environmental analysis. The global environment refers to the macro environment which
comprises industries, markets, companies, clients and competitors. Consequently, there exist
corresponding analyses on the micro-level. Suppliers, customers and competitors representing the
micro environment of a company are analyzed within the industry analysis.
Equity: In the broadest sense, equity gives you ownership. If you own stock, you have equity in, or
own a portion -- however small -- of the company that issued the stock. Having equity is the
opposite of owning a bond or commercial paper, which is a debt the company must repay to you.
Equity also refers to the difference between an asset's current market value -- the amount it could
be sold for -- and any debt or claim against it. For example, if you own a home currently valued at
$300,000 but still owe $200,000 on your mortgage, your equity in the home is $100,000.
The same is true if you own stock in a margin account. The stock may be worth $50,000 in the
marketplace, but if you have a loan balance of $20,000 in your margin account because you
financed the purchase, your equity in the stock is $30,000.
Earnings per share (EPS): It's a measure of how much profit a company is making for its
shareholders. Changes in EPS are tracked carefully by analysts in order to assess performance of
companies. If EPS is growing, this is a good thing.
Why not just look at profits? Because a company can increase its profits by buying another
company and adding both sets of profits. A company may double its profits through a merger, yet its
EPS can remain unchanged.

13

Economy and Business Terms - Charlie, your teacher of English
Exchange (Stock Exchange): An exchange is a marketplace in which securities, commodities,
derivatives and other financial instruments are traded. The core function of an exchange is to
ensure fair and orderly trading, as well as efficient dissemination of price information for any
securities trading on that exchange. Exchanges give companies, governments and other groups a
platform to sell securities to the investing public.
Exclusion clauses: clauses in a contract that are intended to exclude one party from liability if a
stated circumstance happens. They are types of exemption clauses. The courts tend to interpret
them strictly and, where possible, in favour of the party that did not write them. In customer
dealings, exclusion clauses are governed by regulations that render most of them ineffective but
note that these regulations do not cover you in business dealings.
Exemption clauses: clauses in a contract that try to restrict the liability of the party that writes
them. These are split into exclusion clauses that try to exclude liability completely for specified
outcomes, and limitation clauses that try to set a maximum on the amount of damages the party
may have to pay if there is a failure of some part of the contract. Exemption clauses are regulated
very strictly in consumer dealings but these don't apply for those who deal in the course of their
business.
Express terms - the terms actually stated in the contract. These can be the written terms, or verbal
ones agreed before or at the time the contract is made (see implied terms).
Expansion: It is, in a business cycle, a period of growth during which an economy moves from its
trough to its peak. For example, if an economy dips to growth of -2.5% and then recovers to 3%
growth, this period is called expansion. It is considered a normal and inevitable part of a business
cycle following a recession or other contraction. Expansion is also called recovery.
Express Terms: Clear; definite; explicit; plain; direct; unmistakable; not dubious or ambiguous.
Declared in terms; set forth in words. Directly and distinctly stated. Made known distinctly and
explicitly, and not left to inference. Manifested by direct and appropriate language, as distinguished
from that which is inferred from conduct. The word is usually contrasted with implied.
Externalities: They are the costs or benefits that affect society but are not included in the market
price of a good or service. Pollution is an example of a negative externality. Education is an
example of an externality benefit when members of society other than students benefit from a better
educated population.
Fabrication: Manufacturing process in which an item is made (that is, fabricated) from raw or semifinished materials instead of being assembled from ready-made components or parts. In the 21st
century house fabrication has become very popular because it is an easy way to construct a home,
and the housing industry is booming in the United States right now.
Financial year: A firm's financial year can run over any 12-month period it chooses, although the
most common year-ends are March 31 and December 31.
A fiscal year (or financial year, or sometimes budget year) is a period used for calculating annual
("yearly") financial statements in businesses and other organizations. In many jurisdictions,
14

Economy and Business Terms - Charlie, your teacher of English
regulatory laws regarding accounting and taxation require such reports once per twelve months, but
do not require that the period reported on constitutes a calendar year (that is, 1 January to 31
December). Fiscal years vary between businesses and countries. The "fiscal year" may also refer to
the year used for income tax reporting. Some companies choose to end their fiscal year on the
same day of the week, such day being the one closest to a particular date (for example, the Friday
closest to 31 December). Under such a system, some fiscal years will have 52 weeks and others 53
weeks.
Fiscal policy: The existing policy that the government has for spending and taxing. Fiscal policy
directly affects economic variables, such as tax rates, interest rates, and government programs, that
influence security prices. See also monetary policy.
Fiscal Year: 1. It's a calendar businesses use to calculate revenue and expenses. Most businesses
also use their fiscal year as the period their annual budgets operate. Most jurisdictions require
businesses to issue financial statements each year but often do not specify when they must do so.
Thus, fiscal years vary by business and jurisdiction. They tend to begin in the middle of the calendar
year, particularly in retail, as the end of the calendar year is an exceptionally busy time. The U.S.
Government's fiscal year starts on October 1. In nomenclature, if a fiscal year covers more than one
calendar year it is designated by the calendar year in which it ends; for example, the U.S.
government's fiscal year from October 1, 2008 to September 30, 2009 is called "FY 09."
2. In the United Kingdom, the tax year.
Flash Trading: A controversial computerized trading practice offered by some stock exchanges.
Flash trading uses highly sophisticated high-speed computer technology to allow traders to view
orders from other market participants fractions of a second before others in the marketplace. This
gives flash traders the advantage of being able to gauge supply and demand and recognize
movements in market sentiment before other traders.
Flexible mortgage: Flexible mortgages come in many guises, but in most cases they allow you to
make extra lump sum or monthly payments, borrow back money, take payment holidays and make
underpayments. Some double up as current accounts - your salary is paid in monthly and you
effectively pay off an enormous overdraft. Not surprisingly, flexible mortgages come with higher
interest rates than standard home loans, but the great advantage is that potentially, they allow you
to
pay
your
mortgage
off
years
earlier
than
you
originally
planned.
////////////////////////////////////////////////////////////////////
Frustration: In the law of contracts, the destruction of the value of the performance that has been
bargained for by the promisor as a result of a supervening event. Frustration of purpose has the
effect of discharging the promisor from his or her obligation to perform, in spite of the fact that
performance by the promisee is possible, since the purpose for which the contract was entered into
has been destroyed. For example, an individual reserves a hall for a wedding. In the event that the
wedding is called off, the value of the agreement would be destroyed. Even though the promisee
could still literally perform the obligation by reserving and providing the hall for the wedding, the
purpose for which the contract was entered into was defeated. Apart from a nonrefundable deposit
fee, the promisor is ordinarily discharged from any contractual duty to rent the hall.
15

Economy and Business Terms - Charlie, your teacher of English
In order for frustration to be used as a defense for nonperformance, the value of the anticipated
counter performance must have been substantially destroyed and the frustrating occurrence must
have been beyond the contemplation of the parties at the time the agreement was made.
Goals: They are what a person or institution seeks to gain from an investment. Goals vary from
investor to investor and can even change for the same investor over time. For example, a person
may have the goal to extract a high return from her investments when she is young in order to
finance a certain lifestyle; this person is likely to invest in high risk securities and ventures. Over
time, however, this person may be concerned about protecting savings for retirement. As a result,
the goals may shift and the person may invest primarily in bonds and blue-chip stocks instead.
Goals influence one's investment philosophy and strategy.
Gold: A particularly valuable precious metal. Gold is an element with the atomic number 79. It is
used for jewelry, electronics and for other purposes. Historically, gold was used in many cultures as
the basis for currency, but this is no longer the case. Investments in gold are often used as a hedge
against inflation because it tends to maintain its value over time.
Gross Domestic Product (GDP): Gross domestic product (GDP) is the monetary value of all the
finished goods and services produced within a country's borders in a specific time period. Though
GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well. GDP
includes all private and public consumption, government outlays, investments and exports minus
imports that occur within a defined territory. Put simply, GDP is a broad measurement of a nation’s
overall economic activity.
Gross National Product (GNP): Gross national product (GNP) is an estimate of total value of all
the final products and services produced in a given period by the means of production owned by a
country's residents. GNP is commonly calculated by taking the sum of personal consumption
expenditures, private domestic investment, government expenditure, net exports, and any income
earned by residents from overseas investments, minus income earned within the domestic economy
by foreign residents. Net exports represent the difference between what a country exports minus
any imports of goods and services.
Growth: It is an increase in the value of an investment over time. Unlike investments that produce
income, those that are designed for growth don't necessarily provide you with a regular source of
cash. A growth company is more likely to reinvest its profits to build its business. If the company
prospers, however, its stock typically increases in value. Stocks, stock mutual funds, and real estate
may all be classified as growth investments, but some stocks and mutual funds emphasize growth
more than others.
Guarantor: It's a third party who promises to provide payment on a bond, loan, or other liability in
the event of default. While many guarantees apply to debt instruments, they may also be used for
day-to-day expenses. For example, a parent may be a guarantor for an adult child and promise to
pay rent to a rental agency if the adult child does not do it. Banks often serve as guarantors on
behalf of certain clients, but, just as often, private parties serve as guarantors and promise payment
on private loans. Guarantors reduce the risk to loans and liabilities, and usually improve the credit
agency ratings of bonds.16

Economy and Business Terms - Charlie, your teacher of English
Headcount: If you do a head count, you count the number of people present. You can also use
head count to talk about the number of people that are present at an event, or that an organization
employs, so it is the actual number of individuals carried on a firm's payroll.
Household Debt: Household debt can be defined in several ways, based on what types of debt are
included. Common debt types include home mortgages, home equity loans, auto loans, student
loans, and credit cards. Household debt can also be measured across an economy, to measure
how indebted households are relative to various measures of income (e.g., pre-tax and disposable
income) or relative to the size of the economy (GDP). The burden of debt can also be measured in
terms of the amount of interest it generates relative to the income of the borrower. For example, the
U.S. Federal Reserve measures the "household debt service ratio" (DSR), an estimate of the ratio
of debt payments to disposable personal income.
Human Resources: Human resources (HR) is the company department charged with finding,
screening, recruiting and training job applicants, as well as administering employee-benefit
programs. As companies reorganize to gain competitive edge, human resources plays a key role in
helping companies deal with a fast-changing environment and the greater demand for quality
employees.
Hyperinflation: It's a very high rate of inflation, especially sustained over a long period of time.
While there is no set numeric definition, it is associated with inflation percentages in the millions and
billions. Hyperinflation is almost always caused by poor monetary policy on the part of the
government. For example, a government that rapidly increases the money supply without a
corresponding growth in GDP often undergoes hyperinflation. This situation often leads to (though it
may also be caused by) wider economic instability, and may lead to a lack of confidence in the
government. As a result, hyperinflation that persists for a long time may lead to the government
issuing a new currency entirely.
Implementation: Implementation is the noun form of the verb implement, or "to carry out or
accomplish," and you’ll often see it used in reference to a government plan or act. This word is used
to describe the process of turning formal plans — often very detailed conceptual plans that will
affect many — into reality. For example, the implementation of new parking fees means everyone
has to put more money in the parking meters.
Implied Contract Terms: Implied contract terms are items that a court will assume are intended to
be included in a contract, even though they are not expressly stated. Businesspeople generally do
not want to rely upon a court's interpretation of implied terms, so a good contract will often be very
lengthy so that as many material items as possible are written into the contract. However, when it is
not possible to cover every possible detail, a lawyer may appeal that such terms were implied in
order to give force to the intent of the contract.
Incentives: An incentive is something that motivates an individual to perform an action. The study
of incentive structures is central to the study of all economic activities (both in terms of individual
decision-making and in terms of co-operation and competition within a larger institutional structure).
Economic analysis, then, of the differences between societies (and between different organizations
within a society) largely amounts to characterizing the differences in incentive structures faced by
17

Economy and Business Terms - Charlie, your teacher of English
individuals involved in these collective efforts. Ultimately, incentives aim to provide value for money
and contribute to organizational success.
Income Gap: (or) Income inequality is the unequal distribution of household or individual income
across the various participants in an economy. Income inequality is often presented as the
percentage of income to a percentage of population. For example, a statistic may indicate that 70%
of a country's income is controlled by 20% of that country's residents.
Income tax: If you earn money in any capacity, you will probably pay income tax on it. From a
monthly wage to letting a second property or receiving the jobseekers' allowance - all are taxable.
Anyone who hides a profit they are earning is committing a criminal offence - so it is well worth
knowing what the rules are. The amount of tax you pay varies depending on the allowances and
rates set by the chancellor at the most recent budget.
Index: A statistical measure of the value of a certain portfolio of securities. The portfolio may be for
a certain class of security, a certain industry, or may include the most important securities in a given
market, among other options. The value of an index increases when the aggregate value of the
underlying securities increases, and decreases when the aggregate value decreases. An index may
track stocks, bonds, mutual funds, and any other security or investment vehicle, including other
indices. An index's value may be weighted; for example, securities with higher prices or greater
market capitalization may affect the index's value more than others. One of the most prominent
examples of an index is the Dow Jones Industrial Average, which is weighted for price and tracks 30
stocks important in American markets.
Inflation: It is the reduction in the purchasing power of a currency. Inflation has historically occurred
when a country prints too much of its currency in too short a period of time. Central banks attempt to
control inflation by raising interest rates when necessary, which decreases the amount of money in
circulation. Inflation is inevitable whenever wealth is created, but central banks attempt to keep it
between 2% and 3% whenever possible. See also: Deflation, Disinflation, Inflation tax.
//////////////////////////////////
Inheritance Tax: It's a tax on the money or assets that one inherits from an estate, as opposed to a
tax on the estate itself. In the United States, inheritance taxes are levied at the state level and apply
to the inheritors rather than the estate of the deceased. Generally speaking, inheritance taxes vary
according to the inheritor's relationship with the deceased. For example, a spouse rarely, if ever, is
responsible for an inheritance tax. It should not be confused with an estate tax, which is a tax on the
estate before it is distributed.
Initial Public Offering (IPO): An initial public offering (IPO) is the first time that the stock of a
private company is offered to the public. IPOs are often issued by smaller, younger companies
seeking capital to expand, but they can also be done by large privately owned companies looking to
become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which
helps determine what type of security to issue, the best offering price, the amount of shares to be
issued and the time to bring it to market.

18

Economy and Business Terms - Charlie, your teacher of English
Inputs: They are resources such as people, raw materials, energy, information, or finance that are
put into a system (such as an economy, manufacturing plant, computer system) to obtain a desired
output. Inputs are classified under costs in accounting.
Insider trading: It's the trading of shares based on knowledge not available to the rest of the world.
A famous fictional insider trader was Bud Fox in the film Wall Street. He made a killing on airline
stocks when his dad told him about a crucial upcoming court decision for his airline company, Blue
Star, ahead of the official announcement.
Such trading was made illegal in the UK in 1980 but suspicious share price movements are frequent
and cynics believe that the practice is still rife in the City.
Intent: A determination to perform a particular act or to act in a particular manner for a specific
reason; an aim or design; a resolution to use a certain means to reach an end.
Intent is a mental attitude with which an individual acts, and therefore it cannot ordinarily be directly
proved but must be inferred from surrounding facts and circumstances. Intent refers only to the state
of mind with which the act is done or omitted. It differs from motive, which is what prompts a person
to act or to fail to act. For example, suppose Billy calls Amy names and Amy throws a snowball at
him. Amy's intent is to hit Billy with a snowball. Her motive may be to stop Billy's taunts.
Internal Revenue Service: The Internal Revenue Service (IRS) is a U.S. government agency
responsible for the collection of taxes and enforcement of tax laws. Established in 1862 by
President Abraham Lincoln, the agency operates under the authority of the United States
Department of the Treasury, and its primary purpose includes the collection of individual income
taxes and employment taxes. The IRS also handles corporate, gift, excise and estate taxes. People
colloquially refer to the IRS as the "tax man."
Joint Account: It's an account at a bank or a brokerage where there are two or more account
holders. The holders of a joint account share all rights and responsibilities regarding the account.
That is, one may deposit or withdraw money from a joint account without the consent of the other
and both may be held liable for an overdraft or loss. Joint accounts are most common for married
couples.
Joint and Severally Liable: Joint and several liability is when multiple parties can be held liable for
the same event or act and be responsible for all restitution required. In cases of joint and several
liability, a person who was harmed or wronged by several parties could be awarded damages and
collect from any one, several, or all of the liable parties. The liable parties would be required to pay
the entire damage award, which could be split among multiple parties or could come from just one
party. Each party would be liable for part of the damages, or up to as much as all of the damages.
Keynesian Economics: It's a theory stating that government intervention is necessary to ensure an
active and vibrant economy. According to this theory, government should stimulate demand for
goods and services in order to encourage economic growth. It thus recommends tax cuts and
increased government spending during recessions to reinvigorate growth; likewise, it recommends
tax increases and spending cuts during economic expansion in order to combat inflation. Many
economists believe that Keynesian economic theory is more efficient than supply-side economics,
19

Economy and Business Terms - Charlie, your teacher of English
though critics point to the theory's inability to explain stagflation in the United States during the
1970s.
Legally Binding: Common legal phrase indicating that an agreement has been consciously made,
and certain actions are now either required or prohibited. For example, a lease for an apartment is
legally binding, because upon signing the document, the lessor and the lessee are agreeing to a
number of conditions. The lessor typically agrees to provide the apartment in a certain condition for
a certain length of time, and the lessee typically agrees to pay an agreed upon rent and refrain from
certain destructive behaviors. The other requirement for an agreement or contract to be considered
legally binding is consideration - both parties must knowingly understand what they are agreeing to.
Laissez-Faire: It's a term describing an economic theory that promotes government nonintervention. Laissez-faire theory states that most government interventions make an economy less
efficient and hamper growth. According to this, government ought to restrict itself to safeguarding
the right to private property. In its extreme form, it is opposed to any law limiting economic activities
short of theft or extortion. Laissez-faire economists are philosophically opposed to minimum wages,
protectionism, antitrust laws, and most laws intended to benefit workers at the expense of
employers. Proponents of laissez-faire economics argue that it benefits employers and workers
alike. For example, a man may open a mechanic shop to make money for himself, but, in the
process of doing so, he may hire otherwise unemployed mechanics and service otherwise broken
cars, which then facilitates business for the rest of the community. If there were environmental or
wage restrictions on his business, however, he might not hire as many employees and may not start
the mechanic shop at all. Critics of the theory contend that its benefits are overstated and that a
laissez-faire structure without regulation lends itself to the creation of bubbles, which harms both
businesses and their employees.
Leasehold: It's an accounting term used to classify an asset on a company's balance sheet that is
leased. In order to be classified as a leased asset, the firm must enter into a lease agreement that is
an operating lease, and not a capital lease.
The reason capital leases are not included in the leasehold account is due to their accounting
treatment. Capital leases are classified as long-term assets with a matching long-term liability.
Examples of an operating lease, include a lease on a building, service vehicle or even heavy
equipment.
Liability: A liability is a company's financial debt or obligations that arise during the course of its
business operations. Liabilities are settled over time through the transfer of economic benefits
including money, goods or services. Recorded on the right side of the balance sheet, liabilities
include loans, accounts payable, mortgages, deferred revenues and accrued expenses.
Limited Liability: Limited liability is a type of liability that does not exceed the amount invested in a
partnership or limited liability company. The limited liability feature is one of the biggest advantages
of investing in publicly listed companies. While a shareholder can participate wholly in the growth of
a company, his or her liability is restricted to the amount of the investment in the company, even if it
subsequently goes bankrupt and has remaining debt obligations.

20

Economy and Business Terms - Charlie, your teacher of English
It is also the legal protection available to the shareholders of privately and publicly owned
corporations under which the financial liability of each shareholder for the company's debts and
obligations is limited to the par value of his or her fully paid-up shares. The company itself, as a
legal entity, is liable for the rest. Also called limited personal liability.
Logistics: Logistics is the general management of how resources are acquired, stored and
transported to their final destination. Logistics management involves identifying prospective
distributors and suppliers, and determining their effectiveness and accessibility. Ultimately,
management establishes a relationship with the appropriate companies or handles its own logistics
if it is more cost-effective to do so.
Macroeconomics: It's the field of economics that studies the behavior of the aggregate economy.
Macroeconomics examines economy-wide phenomena such as changes in unemployment, national
income, rate of growth, gross domestic product, inflation and price levels.
Macroeconomics is focused on the movement and trends in the economy as a whole, while in
microeconomics the focus is placed on factors that affect the decisions made by firms and
individuals. The factors that are studied by macro and micro will often influence each other, such as
the current level of unemployment in the economy as a whole will affect the supply of workers which
an oil company can hire from, for example.
Manufacturing: It is the process of converting raw materials, components, or parts into finished
goods that meet a customer's expectations or specifications. Manufacturing commonly employs a
man-machine
setup
with
division
of
labor
in
a
large
scale
production.
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
Margin: It allows investors to buy securities by borrowing money from a broker. The margin is the
difference between the market value of a stock and the loan a broker makes. Related: Security
deposit (initial). In the context of hedging and futures contracts, the cash collateral deposited with a
trader or exchanged as insurance against default.
Margin Account: A margin account is a brokerage account in which the broker lends the customer
cash to purchase securities. The loan in the account is collateralized by the securities and cash.
Because the customer is investing with a broker's money rather than his own, the customer is using
leverage to magnify both gains and losses.
Market Coverage: Number of active retail and/or wholesale outlets (relative to a saturation level)
that sell a specific firm's brands in a given market. Required market coverage is achieved by
following concentrated marketing, differentiated marketing, or undifferentiated marketing strategy.
Merger: It's a decision by two companies to combine all operations, officers, structure, and other
functions of business. Mergers are meant to be mutually beneficial for the parties involved. In the
case of two publicly-traded companies, a merger usually involves one company giving shareholders
in the other its stock in exchange for surrendering the stock of the first company.
Minimum wage: It is the minimum amount of compensation an employee must receive for
performing labor. Minimum wages are typically established by contract or legislation by the
21

Economy and Business Terms - Charlie, your teacher of English
government. As such, it is illegal to pay an employee less than the minimum wage. The minimum
wage attempts to protect employees from exploitation, allowing them to afford the basic necessities
of life. The minimum wage rate fluctuates between countries, and sometimes between states or
provinces.
Minimum wages have drawn strong criticism from many economists, since it establishes a price
floor on wages. Price floors can lead to a dead weight loss in the economy, which means that
inefficiencies exist. In this case, the minimum wage might force companies to hire fewer employees,
thus increasing unemployment.
Monetarism: It's a macroeconomic theory concerned with the sources of national income and the
causes of inflation. The theory, proposed by and closely associated with Milton Friedman, states
that the amount of money issued by a government should be kept steady, only allowing increases in
the supply of money to allow for natural economic growth. Â Monetarism also states that the rate of
inflation is directly determined by the supply of money available in an economy. Â Friedman
believed that the government should be less focused on controlling the supply of money and more
focused on maintaining price stability, a balance between monetary supply and demand.
Money Supply: It's the entire stock of currency and other liquid instruments in a country's economy
as of a particular time. The money supply can include cash, coins and balances held in checking
and savings accounts. Economists analyze the money supply and develop policies revolving around
it through controlling interest rates and increasing or decreasing the amount of money flowing in the
economy. Money supply data is collected, recorded and published periodically, typically by the
country's government or central bank. Public and private sector analysis is performed because of
the money supply's possible impacts on price level, inflation and the business cycle. In the United
States, the Federal Reserve policy is the most important deciding factor in the money supply.
Monopoly: According to a strict academic definition, a monopoly is a market containing a single
firm. In such instances where a single firm holds monopoly power, the company will typically be
forced to divest its assets. Antimonopoly regulation protects free markets from being dominated by a
single entity.
Monopoly is the extreme case in capitalism. Most believe that, with few exceptions, the system just
doesn't work when there is only one provider of a good or service because there is no incentive to
improve it to meet the demands of consumers. Governments attempt to prevent monopolies from
arising through the use of antitrust laws.
Mortgage: It's a debt instrument, secured by the collateral of specified real estate property, that the
borrower is obliged to pay back with a predetermined set of payments. Mortgages are used by
individuals and businesses to make large real estate purchases without paying the entire value of
the purchase up front. Over a period of many years, the borrower repays the loan, plus interest, until
he/she eventually owns the property free and clear. Mortgages are also known as "liens against
property" or "claims on property." If the borrower stops paying the mortgage, the bank can
foreclose.
Mutual fund: Mutual funds are pools of money that are managed by an investment company. They
offer investors a variety of goals, depending on the fund and its investment charter. Some funds, for
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Economy and Business Terms - Charlie, your teacher of English
example, seek to generate income on a regular basis. Others seek to preserve an investor's money.
Still others seek to invest in companies that are growing at a rapid pace. Funds can impose a sales
charge, or load, on investors when they buy or sell shares. Many funds these days are no load and
impose no sales charge. Mutual funds are investment companies regulated by the Investment
Company Act of 1940. Related: open-end fund, closed-end fund.
NASDAQ: It is the largest electronic exchange in the world and the second largest exchange in the
United States. It was established in 1971 and was originally organized as a successor to over-thecounter "curb trading" that was previously popular in New York. As a result it was considered in
some circles an over-the-counter trading system as late as the mid-1980s. NASDAQ has the
highest trading volume of any exchange in the world, and is a popular exchange for technology
companies. It was originally owned by the NASD (now FINRA) and was spun off in 2000 and 2001.
Nominal Interest Rate: The interest rate on an investment or loan without adjusting for inflation.
The nominal interest rate is simply the interest rate stated on the loan or investment agreement. If
one makes a loan at a high nominal interest rate, this does not guarantee a real profit. For example,
if the nominal interest rate on a loan is 7% and the inflation rate is 4%, the real interest rate is only
3%.
Nominal Value: It's the stated value of an issued security. Nominal value in economics also refers
to a value expressed in monetary terms for a specific year or years, without adjusting for inflation.
When used in reference to securities, nominal value is also known face value or par value.The
nominal value of a security, such as a stock or bond, remains fixed for the duration of its life. What
fluctuates is the security's market value, which may be markedly different from its nominal value.
Offer: A promise that, according to its terms, is contingent upon a particular act, forbearance, or
promise given in exchange for the original promise or the performance thereof; a demonstration of
the willingness of a party to enter into a bargain, made in such a way that another individual is
justified in understanding that his or her assent to the bargain is invited and that such assent will
conclude the bargain.
The making of an offer is the first of three steps in the traditional process of forming a valid contract:
an offer, an acceptance of the offer, and an exchange of consideration. (Consideration is the act of
doing something or promising to do something that a person is not legally required to do, or the
forbearance or the promise to forbear from doing something that he or she has the legal right to do.)
Offshore: Many countries, territories and jurisdictions have offshore financial centers (OFCs).
These include well-known centers like Switzerland, Bermuda and the Cayman Islands, and lesswell-known centers like Mauritius, Dublin and Belize. The level of regulatory standards and
transparency differs widely among OFCs. Supporters of OFCs argue that they improve the flow of
capital and facilitate international business transactions.
Oligopoly: A market structure with just a few firms controlling a high percentage of total sales, such
as car manufacturing.
An oligopoly is a market form in which a market or industry is dominated by a small number of
sellers (oligopolists). Oligopolies can result from various forms of collusion which reduce competition
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and lead to higher costs for consumers. [1] Alternatively, oligopolies can see fierce competition
because competitors can realize large gains and losses at each other's expense. In such
oligopolies, outcomes for consumers can often be favorable.
Because there are few sellers, each oligopolist is likely to be aware of the actions of the others. The
decisions of one firm influence and are influenced by the decisions of other firms. Strategic planning
by oligopolists needs to take into account the likely responses of the other market participants.
On-the-job Training: Employee training at the place of work while he or she is doing the actual job.
Usually a professional trainer (or sometimes an experienced employee) serves as the course
instructor using hands-on training often supported by formal classroom training.
Outputs: It is the quantity of a product that a company, sector, or economy can produce over a
limited period of time. For example, if a widget factory produces 30,000 widgets in April and is open
seven days a week, its output may be measured as 1,000 widgets per day. Economic output may
be expressed as a monetary value and may be compared against the costs to produce the output
(sometimes called the input).
Parties to a Contract: There are at least two parties involved in a contract: the promisor, promisee
and, sometimes, a third party beneficiary may be named. Each party has a different obligation to the
contract terms. The beneficiary in a contract generally does not have the same level of responsibility
for the contract's performance.////////////////////////////////////////
Payroll: Payroll is the sum total of all compensation a business must pay to its employees for a set
period of time or on a given date. It is usually managed by the accounting department of a business;
small-business payrolls may be handled directly by the owner or an associate. Payroll can also refer
to the list of employees of a business and the amount of compensation due to each of them. It is a
major expense for most businesses and is almost always deductible as such. Payroll can differ from
one pay period to another due to overtime, sick pay and other variables.
Peak: A peak, compared to trough, is the highest point between the end of an economic expansion
and the start of a contraction in a business cycle. The peak of the cycle refers to the last month
before several key economic indicators, such as employment and new housing starts, begin to fall.
It is at this point when real GDP spending in an economy is at its highest level.
Performance Appraisals: The process by which a manager or consultant (1) examines and
evaluates an employee's work behavior by comparing it with preset standards, (2) documents the
results of the comparison, and (3) uses the results to provide feedback to the employee to show
where improvements are needed and why. Performance appraisals are employed to determine who
needs what training, and who will be promoted, demoted, retained, or fired.
PEST Analysis: A type of situation analysis in which political-legal (government stability, spending,
taxation), economic (inflation, interest rates, unemployment), socio-cultural (demographics,
education, income distribution), and technological (knowledge generation, conversion of discoveries
into products, rates of obsolescence) factors are examined to chart an organization's long-term
plans. See also SWOT analysis.
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Economy and Business Terms - Charlie, your teacher of English
Planning Cycle: A planning cycle is the process of combining different aspects of planning into one
synthetic unit. Any plan should be practical and cost-effective. A planning cycle commences by
analyzing whether any plan is likely to succeed or not.
Planning Process: It is the development of goals, strategies, task lists and schedules required to
achieve the objectives of a business. The planning process is a fundamental function of
management and should result in the best possible degree of need satisfaction given the resources
available.
Planning: 1. A basic management function involving formulation of one or more detailed plans to
achieve optimum balance of needs or demands with the available resources. The planning process
(1) identifies the goals or objectives to be achieved, (2) formulates strategies to achieve them, (3)
arranges or creates the means required, and (4) implements, directs, and monitors all steps in their
proper sequence.
2. The control of development by a local authority, through regulation and licensing for land use
changes and building.
Poverty trap: A situation faced by low income households, when an increase in wages leads to a
decrease in disposable income. This happens because the increase in income leads to a loss of
government benefits or an increase in SEE taxation greater than the increase in earnings.
In the developing world, many factors can contribute to a poverty trap, including: limited access to
credit and capital markets, extreme environmental degradation (which depletes agricultural
production potential), corrupt governance, capital flight, poor education systems, disease ecology,
lack of public health care, war and poor infrastructure.
Price: It is a value that will purchase a finite quantity, weight, or other measure of a good or service.
As the consideration given in exchange for transfer of ownership, price forms the essential basis of
commercial transactions. It may be fixed by a contract, left to be determined by an agreed upon
formula at a future date, or discovered or negotiated during the course of dealings between the
parties involved. In commerce, price is determined by what (1) a buyer is willing to pay, (2) a seller
is willing to accept, and (3) the competition is allowing to be charged.
Privatization: It may have several meanings. Primarily, it is the process of transferring ownership of
a business, enterprise, agency, public service, or public property from the public sector (a
government) to the private sector, either to a business that operates for a profit or to a nonprofit
organization. It may also mean the government outsourcing of services or functions to private firms,
e.g. revenue collection, law enforcement, and prison management.
Privatization has also been used to describe two unrelated transactions. The first is the buying of all
outstanding shares of a publicly traded company by a single entity, making the company privately
owned. This is often described as private equity. The second is a demutualization of a mutual
organization or cooperative to form a joint-stock company.
Product: 1. It is any good, idea, method, information, object or service created as a result of a
process and serves a need or satisfies a want. It has a combination of tangible and intangible
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Economy and Business Terms - Charlie, your teacher of English
attributes (benefits, features, functions, uses) that a seller offers a buyer for purchase. For example
a seller of a toothbrush not only offers the physical product but also the idea that the consumer will
be improving the health of their teeth.
2.In Law: It is a commercially distributed good that is (1) tangible personal property, (2) output or
result of a fabrication, manufacturing, or production process, and (3) passes through a distribution
channel before being consumed or used.
Profit: It's a company's total revenue less its operating expenses, interest paid, depreciation, and
taxes. For example, suppose a widget manufacturer earns $1,000,000 in total revenue. The widgets
cost $200,000 to make and his administrative and payroll expenses total $250,000. He also must
subtract $50,000 in depreciation on his widget manufacturing equipment and pay $200,000 in taxes.
His net income is stated as: $1,000,000 - $200,000 - $250,000 - $50,000 - $200,000 = $300,000.
Project Dashboards: In today's busy organizations, project and program managers need to know
exactly how the projects they're responsible for are doing. But they also rarely have the time to read
through detailed status reports covering all aspects of the project. With a Project Dashboard you no
longer have to wade through 3 different reports to determine whether the production department
received the widgets it needed, and got permission to hire its new employees. Instead, if the
widgets had arrived but a decision on staffing was pending, you would see that the Materials gauge
was in the optimum zone and that the Human Resources gauge was registering in the warning
zone.
Promisee: It is a person to whom a promise has been made. 2. In general a promisee can maintain
an action on a promise made to him, but when the consideration moves not from the promisee, but
some other person, the latter, and not the promisee, has a cause of action, because he is the
person for whose use the contract was made.
Promisor: 1. It is one who makes a promise. 2. The promisor is bound to fulfill his promise, unless
when it is contrary to law, as for example a promise to steal or to commit an assault and battery;
when the fulfillment is prevented by the act of God, as where one has agreed to teach another
drawing and he loses his sight, so that he cannot teach it; when the promisee prevents the
promisor from doing what he agreed to do; when the promisor has been discharged from his
promise by the promisee, when the promise, has been made without a sufficient consideration;
and, perhaps, in some other cases, the duties of the promisor are at an end.
Promotion: 1.In terms of a career, a promotion refers to the advancement of an employee's rank or
position in a hierarchical structure.
2. In sales, promotion refers to a different sort of advancement. A sales promotion entails the
features - via advertising and/or a discounted price - of a particular product or service.
Proviso: It's a condition, stipulation, or limitation inserted in a document. A condition or a provision
in a deed, lease, mortgage, or contract, the performance or non-performance of which affects the
validity of the instrument. It generally begins with the word provided. A proviso clause in a statute
excepts something from statutory requirements, qualifies the statute, or prevents some potential
area of misinterpretation from being included.
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Economy and Business Terms - Charlie, your teacher of English
Public Relations: It's a general means of promoting a business's company image with a view to
encouraging customers to buy its products and investors to buy its shares, as well, for example, as
influencing government policies on issues relevant to the company. Companies often appoint a PR
officer to liaise with the media in providing them with information and news about the company's
activities and its record on such matters as consumer protection and environmental pollution.
Sponsorship of sport and the arts, etc. represents an indirect way of building up customer goodwill
towards the company's products.
Purchasing Power: Purchasing power is the value of a currency expressed in terms of the amount
of goods or services that one unit of money can buy. Purchasing power is important because, all
else being equal, inflation decreases the amount of goods or services you would be able to
purchase.
In investment terms, purchasing power is the dollar amount of credit available to a customer to buy
additional securities against the existing marginable securities in the brokerage
account.////////////////////////////////////////////////////////////////////////////////////////////////////////////
Quality Control: Quality control is a process through which a business seeks to ensure that product
quality is maintained or improved and manufacturing errors are reduced or eliminated. Quality
control requires the business to create an environment in which both management and employees
strive for perfection. This is done by training personnel, creating benchmarks for product quality,
and testing products to check for statistically significant variations.
A major aspect of quality control is the establishment of well-defined controls. These controls help
standardize both production and reactions to quality issues. Limiting room for error by specifying
which production activities are to be completed by which personnel reduces the chance that
employees will be involved in tasks for which they do not have adequate training.
Rate of return: The annual income from an investment as a percentage of the original investment.
In finance, return is a profit on an investment. It comprises any change in value and interest or
dividends or other such cash flows which the investor receives from the investment. It may be
measured either in absolute terms (e.g., dollars) or as a percentage of the amount invested. The
latter is also called the holding period return. A loss instead of a profit is described as a negative
return.
Ratification: It is the acceptance or confirmation of an act or an agreement that was signed
(executed) by the confirming party itself. A treaty, for example, is not enforceable or valid until the
ratification process is complete.
Raw Materials: Raw materials are materials or substances used in the primary production or
manufacturing of goods. Raw materials are often referred to as commodities, which are bought and
sold on commodities exchanges around the world. Raw materials are sold in what is called the
factor market, because raw materials are factors of production along with labor and capital.
Real interest rate: The real interest rate is the rate of interest an investor expects to receive after
allowing for inflation. It can be described more formally by the Fisher equation, which states that the
real interest rate is approximately the nominal interest rate minus the inflation rate. If, for example,
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Economy and Business Terms - Charlie, your teacher of English
an investor were able to lock in a 5% interest rate for the coming year and anticipated a 2% rise in
prices, they would expect to earn a real interest rate of 3%. This is not a single number, as different
investors have different expectations of future inflation. Since the inflation rate over the course of a
loan is not known initially, volatility in inflation represents a risk to both the lender and the borrower.
Real values: In economics, a nominal value is an economic value expressed in historical nominal
monetary terms. By contrast, a real value is a value that has been adjusted from a nominal value to
remove the effects of general price level changes over time and is thus measured in terms of the
general price level in some reference year (the base year). For example, changes in the nominal
value of some commodity bundle over time can happen because of a change in the quantities in the
bundle or their associated prices, whereas changes in real values reflect only changes in quantities.
The process of converting from nominal to real terms is known as inflation adjustment.
Recession: A recession is a significant decline in activity across the economy, lasting longer than a
few months. It is visible in industrial production, employment, real income and wholesale-retail trade.
The technical indicator of a recession is two consecutive quarters of negative economic growth as
measured by a country's gross domestic product (GDP), although the National Bureau of Economic
Research (NBER) does not necessarily need to see this occur to call a recession.
Recovery, economic: An economic recovery is a period of increasing business activity signaling
the end of a recession. Much like a recession, an economic recovery is not always easy to
recognize until at least several months after it has begun. Economists use a variety of indicators,
including gross domestic product (GDP), inflation, financial markets and unemployment to analyze
the state of the economy and determine whether a recovery is in progress.
Recruiting: It is the process of finding and hiring, from within or outside of an organization, the bestqualified candidate for a job opening, in a timely and cost effective manner. The recruitment process
includes analyzing the requirements of a job, attracting employees to that job, screening and
selecting applicants, hiring, and integrating the new employee to the organization.
Representation (in a contract): It is acting in place of, or standing for another party by an
authorization or legal right through an agent or proxy on behalf of a principal; through a counsel on
behalf of a client; though an administrator or executor on behalf of a deceased; or through an
elected representative in a legislative body on behalf of the electorate in his or her constituency. It is
also a presentation of facts or reasons expressed in words or inferred from conduct to induce a
particular course of action, such as signing of a contract. Representation includes any condition,
warranty, or undertaking, whether oral or written. A person induced into a contract on the basis of
an untrue or misleading representation may sue for rescission of the contract and/or for damages.
Repudiation: Disputing the validity of a contract and refusing to honor its terms. In investing,
repudiation is most relevant in fixed income securities, particularly sovereign debt. Fixed income
instruments are fundamentally contracts where the borrower lends a certain amount of principal in
return for payments of interest and principal on a preset schedule. Repudiation occurs if the
borrower refuses to honor this contract and stops making the agreed upon payments.
Regressive tax: It is a tax imposed in such a manner that the tax rate decreases as the amount
subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure,
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Economy and Business Terms - Charlie, your teacher of English
referring to the way the rate progresses from high to low, so that the average tax rate exceeds the
marginal tax rate. In terms of individual income and wealth, a regressive tax imposes a greater
burden (relative to resources) on the poor than on the rich: there is an inverse relationship between
the tax rate and the taxpayer's ability to pay, as measured by assets, consumption, or income.
These taxes tend to reduce the tax burden of the well-to-do (people with higher ability to pay), as
they shift the burden disproportionately to the needy (those with lower ability to pay).
Resources: It is an economic or productive factor required to accomplish an activity, or as means to
undertake an enterprise and achieve desired outcome. Three most basic resources are land, labor,
and capital; other resources include energy, entrepreneurship, information, expertise, management,
and time.
Return: A return is the gain or loss of a security in a particular period. The return consists of the
income and the capital gains relative on an investment, and it is usually quoted as a percentage.
The general rule is that the more risk you take, the greater the potential for higher returns and
losses.
Schedule: 1.Auxiliary, explanatory, or supplemental document that forms part of a principal
document, such as a list of individual items (with their descriptions and values) covered by an
insurance policy, or a depreciation schedule that provides supporting details to a financial
statement.
2.Timetable for a program or project showing how activities and milestone events are sequenced
and phased over the allotted period.
3.Written or printed catalog or list of charges, items, prices, etc., arranged or organized in
alphabetical, chronological, magnitudinal, or any other classification or order.
Savings account: Saving accounts (UK: savings accounts) are accounts maintained by retail
financial institutions that pay interest but cannot be used directly as money in the narrow sense of a
medium of exchange (for example, by writing a check). These accounts let customers set aside a
portion of their liquid assets while earning a monetary return. For the bank, money in a savings
account may not be callable immediately and, in some jurisdictions, does not incur a reserve
requirement. Cash in the bank's vaults may thus be used, for example, to fund interest-paying
loans.
The other major types of deposit account are the transactional account (usually known as a
"checking" (US) or "current" (UK) account), money market account and time deposit
Security: A security is a financial instrument that represents an ownership position in a publiclytraded corporation (stock), a creditor relationship with governmental body or a corporation (bond), or
rights to ownership as represented by an option. A security is a fungible, negotiable financial
instrument that represents some type of financial value. The company or entity that issues the
security is known as the issuer.
Shareholder: It's an owner of shares in a limited company. In the US, called a stockholder. A
shareholder or stockholder is an individual or institution (including a corporation) that legally owns a
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share of stock in a public or private corporation. Shareholders are the owners of a limited company.
They buy shares which represent part ownership of a company. Stockholders are granted special
privileges depending on the class of stock. These rights may include:
The right to sell their shares.
The right to vote on the directors nominated by the board.
The right to nominate directors (although this is very difficult in practice because of minority
protections) and propose shareholder resolutions.
The right to dividends if they are declared.
The right to purchase new shares issued by the company.
The right to what assets remain after a liquidation.
Stockholders or shareholders are considered by some to be a subset of stakeholders, which may
include anyone who has a direct or indirect interest in the business entity. For example, employees,
suppliers, customers, the community, etc., are typically considered stakeholders because they
contribute value and/or are impacted by the corporation.
Shareholders in the primary market who buy IPOs provide capital to corporations; however, the vast
majority of shareholders are in the secondary market and provide no capital directly to the
corporation./////////////////////////////////////////////////////////////
Short Selling: Short selling is the sale of a security that is not owned by the seller, or that the seller
has borrowed. Short selling is motivated by the belief that a security's price will decline, enabling it
to be bought back at a lower price to make a profit. Short selling may be prompted by speculation,
or by the desire to hedge the downside risk of a long position in the same security or a related one.
Since the risk of loss on a short sale is theoretically infinite, short selling should only be used by
experienced traders who are familiar with its risks.
Six Sigma: Six Sigma is a quality-control program developed in 1986 by Motorola that emphasizes
cycle-time improvement and the reduction of manufacturing defects to a level of no more than 3.4
per million. As of 2016, Six Sigma has evolved into a more general business-management
philosophy focused on meeting customer requirements, improving customer retention, and
improving and sustaining business products and services. Six Sigma is applicable to all industries,
and a number of vendors, including Motorola itself, offer Six Sigma training; special certifications
include yellow belt, green belt and black belt.
Stamp duty (equities): When you buy a share, you have to pay stamp duty. Purchases of UK
equities are subject to a levy of 0.5%.
You pay a higher rate of 1.5% when you use certain special arrangements to transfer shares to be
held by a third party. This is a government tax on share transactions.
In the United Kingdom, stamp duty is a form of tax charged on instruments (that is, written
documents), and historically required a physical stamp to be attached to or impressed upon the
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Economy and Business Terms - Charlie, your teacher of English
instrument in question. The more modern versions of the tax no longer require a physical stamp.
The scope of stamp duty has been reduced dramatically in recent years.
Stock: It is the American name for an ordinary share. The stock (also capital stock) of a corporation
constitutes the equity stake of its owners. It represents the residual assets of the company that
would be due to stockholders after discharge of all senior claims such as secured and unsecured
debt. Stockholders' equity cannot be withdrawn from the company in a way that is intended to be
detrimental to the company's creditors.
Stockbroker: A stockbroker, also called a Registered Representative, investment advisor or simply,
broker, is a professional individual who executes buy and sell orders for stocks and other securities
through a stock market, or over the counter, for a fee or commission. Stockbrokers are usually
associated with a brokerage firm and handle transactions for retail and institutional customers.
Brokerage firms and broker-dealers are also often referred to as stockbrokers.
Stocks and Shares: The capital stock (or stock) of an incorporated business constitutes the equity
stake of its owners. It represents the residual assets of the company that would be due to
stockholders after discharge of all senior claims such as secured and unsecured debt. Stockholders'
equity cannot be withdrawn from the company in a way that is intended to be detrimental to the
company's creditors.
Shares. The stock of a corporation is partitioned into shares, the total of which are stated at the time
of business formation. Additional shares may subsequently be authorized by the existing
shareholders and issued by the company. In some jurisdictions, each share of stock has a certain
declared par value, which is a nominal accounting value used to represent the equity on the balance
sheet of the corporation. In other jurisdictions, however, shares of stock may be issued without
associated par value.
Strategy: 1Is is a method or plan chosen to bring about a desired future, such as achievement of a
goal or solution to a problem. It also is the art and science of planning and marshalling resources for
their most efficient and effective use. The term is derived from the Greek word for generalship or
leading an army.
Sub-prime loans: Sub-prime loans or mortgages are those given to borrowers with poor credit
records who are often unable to obtain more conventional loans. Borrowers put down little or no
cash themselves. There has been an explosion of sub-prime mortgages in the United States in
recent years. While initially this was seen as a good thing, allowing more people to buy their own
homes, it has now exploded into a crisis as more and more borrowers default.
Homes are being repossessed and banks are now having to write off the sub-prime debt. The effect
has spread far beyond the US as banks throughout the world have bought these sub-prime loans,
often packaged up in pools of debt called collateralized debt obligations.
Supply and demand: Fundamentally economics is about the allocation of scarce resources based
on supply of, and demand for, goods and services. Price is used to balance the supply and demand
for a particular good.
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In general, consumers will buy less beer as it gets more expensive. Suppliers (breweries in this
case) on the other hand, will start fermenting hops like mad to produce more and rake in extra cash.
The price at which the quantity demanded equals the quantity supplied is the market price.
Takeover: When one company tries to take over another, it will usually offer a price higher than the
current market price, so shareholders of the target company stand to make instant profits.
Takeovers mean high share trading volumes and so generate fat fees for the brokers and banks
involved. In business, a takeover is the purchase of one company (the target) by another (the
acquirer, or bidder). In UK, the term refers to the acquisition of a public company whose shares are
listed on a stock exchange, in contrast to the acquisition of a private company.
Takeover (Hostile takeovers: A "hostile takeover" allows a bidder to take over a target company
whose management is unwilling to agree to a merger or takeover. A takeover is considered "hostile"
if the target company's board rejects the offer, and if the bidder continues to pursue it, or the bidder
makes the offer directly after having announced its firm intention to make an offer. Development of
the hostile tender is attributed to Louis Wolfson.
Talent Management: It is an organization's attempts to recruit, keep, and train the most gifted and
highest quality staff members that they can find, afford and hire. Talent management gives business
managers an especially important role to play in recruiting, developing and retaining desirable staff
members.
Tax haven: A country or area with low tax rates where companies may hold investments to try to
minimize the amount of tax they have to pay. Examples include the Bahamas and the Cayman
Islands.
A tax haven is a state, country, or territory where, on a national level, certain taxes are levied at a
very low rate or not at all. It also refers to countries which have a system of financial secrecy in
place. It should be noted that financial secrecy can be used by foreign individuals to circumvent
certain taxes (such as inheritance tax on money, and income tax of the interest on the money you
have on your bank account). Because the requirement of paying taxes on these funds cannot be
transmitted, as the funds themselves are invisible to the country the individual is from, such taxes
can be avoided.
Tax Rate: A tax rate is the percentage at which an individual or corporation is taxed. The tax rate is
the tax imposed by the federal government and some states based on an individual's taxable
income or a corporation's earnings. The United States uses a progressive tax rate system, where
the percentage of tax increases as taxable income.
Tax Return: A tax return is the tax form or forms used to report income and file income taxes with
tax authorities such as the Internal Revenue Service (IRS) in the United States. Tax returns allow
taxpayers to calculate their tax liability and remit payments or request refunds, as the case may be.
In most countries, tax returns must be filed every year for an individual or business that received
income during the year, whether through wages, interest, dividends, capital gains or other profits.

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Economy and Business Terms - Charlie, your teacher of English
Taxes: Taxes are generally an involuntary fee levied on individuals or corporations that is enforced
by a government entity, whether local, regional or national in order to finance government activities.
In economics, taxes fall on whomever pays the burden of the tax, whether this is the entity being
taxed, like a business, or the end consumers of the business's goods.
Term: 1. In the first case it is the lifespan assigned to an asset or a liability, over which the value of
the asset/liability is expected to either grow or shrink, depending on its nature. In the second case it
is the period of time assigned as the lifespan of any investment. In the case of debt, the time it takes
for all payments to be made by the borrower and received by the lender. In the case of an equity
investment, it is the time that elapses between the acquisition of the equity and its sale or removal
from holdings for another reason. /////////////////////////////////////////////////////////////////////////////////////
Trade: The voluntary exchange of goods and/or services for money or an equivalent good or
service. In ancient times and frequently even now, trade was conducted through the bartering of
goods. In developed economies, trades are usually made with an intermediary, especially money or
credit. Trade is regulated by laws of the particular jurisdiction in which a trade is made. Common
restrictions include prohibitions on selling stolen property or non-existent goods. In modern finance,
trade especially refers to trade on securities exchanges. For example, the sale of a stock from one
investor to another is known as a trade. This type of trade is regulated by special agencies in the
appropriate jurisdiction; trade in the United States is regulated by the SEC, among other
organizations
Trade Balance: The balance of trade (BOT) is the difference between a country's imports and its
exports for a given time period. The balance of trade is the largest component of the country's
balance of payments (BOP). Economists use the BOT as a statistical tool to help them understand
the relative strength of a country's economy versus other countries' economies and the flow of trade
between nations. The balance of trade is also referred to as the trade balance or the international
trade balance.
Trade Deficit: Trade deficit is an economic measure of a negative balance of trade in which a
country's imports exceeds its exports. A trade deficit represents an outflow of domestic currency to
foreign markets.
Trade Surplus: It is a trade surplus is an economic measure of a positive balance of trade, where a
country's exports exceed its imports. A trade surplus represents a net inflow of domestic currency
from foreign markets and is the opposite of a trade deficit, which represents a net outflow. Balancing
international trade is an important economic factor for a country; when a nation has a trade surplus,
its exports exceed its imports during a specified period of time.
Trough: A trough is the stage of the economy's business cycle that marks the end of a period of
declining business activity and the transition to expansion. In general, the business cycle is said to
go through expansion, then a peak, followed by contraction and then finally bottoming out with the
trough. It is also the lowest point in the economic cycle. The trough forms after a period of
contraction ends and before a period of expansion begins.
Turnover: The total sales of a company over a stated period. In business, revenue is the income
that a business has from its normal business activities, usually from the sale of goods and services
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Economy and Business Terms - Charlie, your teacher of English
to customers. Revenue is also referred to as sales or turnover. Some companies receive revenue
from interest, royalties, or other fees. Revenue may refer to business income in general, or it may
refer to the amount, in a monetary unit, received during a period of time, as in "Last year, Company
X had revenue of $42 million." Profits or net income generally imply total revenue minus total
expenses in a given period. In accounting, revenue is often referred to as the "top line" due to its
position on the income statement at the very top.
Underwriter (insurance): A person who examines a risk, decides whether it can be insured, and if
so for how much.
'An Insurance Underwriter' is a financial professional that evaluates the risks of insuring a particular
person or asset and uses that information to set premium pricing for insurance policies. Insurance
underwriters are employed by insurance companies to help price life insurance, health insurance,
property/casualty insurance and homeowners insurance, among others.
Underwriters use computer programs and actuarial data to determine the likelihood and magnitude
of a payout over the life of the policy. Higher-risk individuals and assets will have to pay more in
premiums to receive the same level of protection as a (perceived) lower-risk person or asset.
Unemployment: Unemployment occurs when people are without work and actively seeking work.
The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a
percentage by dividing the number of unemployed individuals by all individuals currently in the labor
force. During periods of recession, an economy usually experiences a relatively high unemployment
rate. According to International Labor Organization report, more than 200 million people globally or
6% of the world's workforce were without a job in 2012.
Underwriting: Underwriting is the process by which investment bankers raise investment capital
from investors on behalf of corporations and governments that are issuing either equity or debt
securities. The word "underwriter" originally came from the practice of having each risk-taker write
his name under the total amount of risk he was willing to accept at a specified premium. This
centuries-old practice continues, in a way, as new issues are usually brought to market by an
underwriting syndicate, in which each firm takes the responsibility, as well as the risk, of selling its
specific allotment.
Value added tax (VAT): VAT at 17.5%, or more in other countries, is normally included in the price
of the goods or services you buy, although some goods do not attract VAT. Some goods are zerorated, including food, books, newspapers and magazines, children's clothes and equipment for
disabled people. On some other goods - including children's car seats and domestic fuel or power you pay a reduced rate of 5%.
Warranty: It is a guarantee that the manufacturer of a product will repair damage or defects for free
for a certain period of time. For example, a computer often comes with a warranty for a year. If the
computer breaks in the first year of ownership, the manufacturer will repair or replace it without cost
to the computer owner. Most warranties are limited warranties, meaning that there is a maximum
amount the manufacturer will pay for repairs and/or that certain damage is not covered by the
warranty. For example, a warranty on a computer generally does not cover water damage. Some
warranties come with a product while others are purchased separately. Often, one may purchase an
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Economy and Business Terms - Charlie, your teacher of English
unlimited warranty, which has no constraints, or an extended warranty, which has a longer expiry, in
addition to the ordinary warranty.
Windfall: It is a sudden, unexpected profit or gain. A windfall may occur, for example, after a
company announces an earnings surprise and its stock consequently jumps significantly.
Companies may also experience windfall when demand for their products skyrockets; for example,
an umbrella manufacturer may see windfall during an especially rainy year.
Windfall Profits Tax: A tax on profits seen as excessive. For example, a windfall profits tax may be
imposed on oil companies when their profits rise above a certain amount. The idea behind a windfall
profits tax is to encourage the taxed persons or companies to lower their prices, which is thought to
be good for consumers. However, it may have the effect of reducing investment because the after
tax profit may not be worth the effort.
Without Prejudice: Law phrase: Without abandonment of a claim, privilege, or right, and without
implying an admission of liability.
In the first case, When used in a document or letter, without prejudice means that what follows (a)
cannot be used as evidence in a court case, (b) cannot be taken as the signatory's last word on the
subject matter, and (c) cannot be used as a precedent. Contents of such documents normally
cannot be disclosed to the courts but, when a party proposes to settle a dispute out-of-court, it is the
genuineness of the effort that determines whether the proposal can disclosed or not, and not
whether the words without prejudice were used.
(2) When a court case is dismissed, or a court order is issued without prejudice, it means that a new
case may be brought or a new order issued on the same basis as the dismissed case or the original
order.
Windfall Shares: They are shares given without charge to the owners of a mutually-owned
company when that company is in the process of demutualizing. Because the owners will no longer
be the owners when the company demutualizes, windfall shares are designed to compensate them
for their previous ownership. This is intended to encourage goodwill. It also gives the former owners
a continued stake in the company.

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