Know thy
Meaning - 7
mutual fund
Definition
An investment vehicle managed by finance professionals that raises capital by selling shares (called units) in a chosen and balanced set of securities to the public.
A mutual fund's capital is invested in a group (portfolio) of corporate securities, commodities, options, etc., that match the fund's objectives detailed in its prospectus. The level of a mutual fund's income from its portfolio determines
the daily market value (called net asset value) at which its units are
redeemable on any business day, and the dividendpaid to its unit holders. Mutual funds are of two main types: (1) open end fund, where the capitalization of the fund is not fixed and
more units may be sold at any time to increase its capital base, (2) closed end fund, where capitalization
is fixed and limited to the number of units authorized
at the fund's inception (or as formally altered
thereafter). Mutual funds usually charge a management fee (typically between 1 and
2 percent of the fund's annual earnings) and may also levy other fees and sales commission (called 'load') if units are bought from a financial advisor. The term mutual fund,
used mainly in the US, has no legal bearing, and may be referred to as unit investment trust or a unit trust in the UK and other
British Commonwealth countries.
repo rate
Definition
The discount rate at which a central bank repurchases government securities from the commercial banks, depending on the level
of money supply it decides to maintain in the country's monetary system. To temporarily expand the money
supply, the central bank decreases repo rates (so that banks can swap their holdings of government securities forcash). To contract the money supply it increases the
repo rates. Alternatively, the central bank decides on a desired level of money
supply and lets the market determine the appropriate repo rate.
Repo is short for repossession.
repo
Definition
Repurchase agreement where a seller of
a security agrees to buy it back from a buyer
(investor) at a higher price on a specified date. These agreements are in effect loans (or short term swaps) between investors to sellers (the difference between the buying and selling prices being the investors' earnings), and are used usually for raising
short term finance by banks and corporations. Repos are used also by the central banks as instruments of monetary policy. To temporarily expand the money supply, a central bank decreases the discount rate (called repo rate) at which it buys back government securities from the commercial banks, to contract or maintain the money supply it increases the
repo rate.
money supply
Definition
Population's spending power represented by the quantity of liquid assets (usually cash) in an economy that can be exchanged for goods and services. Increase in money supply (relative to the output of goods and services) leads to inflation, higher employment, and high utilization of the manufacturing capacity. Its decrease leads to deflation,unemployment, and idle manufacturing capacity.
It can have different meanings depending on the degree of liquidity chosen to define an asset as money. Measures of money supply (called monetary aggregates) have different criteria in different countries, and are categorized from the
narrowest to the broadest. They include M0: sum of currency incirculation (notes and coins) plus banks' reserves with the central bank. M1: currency in circulation
plus current (checking) accounts plus deposit accounts transferable by checks. M2: currency in circulation plus savings accounts and non-interest bearing bank deposits. M3: M1 plus all private-sector (non-government) deposits
and certificates of deposit; M3C: M3 plus foreign-exchange deposits with banks. M4:
M1 plus private-sector bank deposits and money market investments. M5: M4 plus
building-society deposits. Also called money stock.
fraud
Definition
Act or course of deception, an
intentional concealment, omission, or perversion of truth, to (1) gain unlawful or unfair advantage, (2) induce another to part with some
valuable item or surrender a legal right, or (3) inflict injury in some manner. Willful fraud is a criminal offense which calls for severe penalties, and its prosecution and punishment (like that of a murder) is
not bound by the statute of limitations. However incompetence
or negligence in managing a business or even a reckless waste of
firm's assets (by speculating on the stockmarket,
for example) does not normally constitute a fraud. In such cases, the aggrieved party (creditors or stockholders/shareholders)
must prove that at some point they were intentionally deceived on a material fact. See also statute of frauds.
trustee
Definition
Person or organization (such as a trust company) named in trust agreement by the trustor or a court (the first party) as a trusted third party to nominally own, and
protect and handle, trust-property for the benefit of one or more beneficiaries (the second party) in
accordance with the terms of the trust agreement. He or she is
usually charged withinvesting trust property prudently and productively,
and (unless specifically prohibited) can lease, mortgage, or sell it if deemed necessary in fulfillment of the trust's objectives. A trustee can be removed and
replaced on court orders but, after accepting trusteeship, he
or she may not delegate, renounce, or resign his or her responsibility unless an acceptable successor consents as being the replacement. The capacity to be a trustee exists only where
there is a capacity to hold or take property, therefore a minor or a person of unsound mind is not
acceptable as a trustee. The maker of a trust (trustor) may also be its
trustee and/or its beneficiary, but a sole trustee cannot be a sole beneficiary.
Although a trustee is legally barred from benefiting from the trusteeship,
usually a compensation is allowed in the trust agreement. But he or she cannot
commingle personal funds that of the trust and cannot enter
into any transaction with the trust. Otherwise
the statute of frauds is applied and the
fairness or the good-faith nature of the transaction is
generally not accepted as a defense. A trustee may also have reporting requirements on the activities and status of the trust and all correspondence regarding the assets is directed to the trustee. He or she is
discharged of the duties of the trusteeship only when the
intention or the purpose of the trust is fulfilled.
law of diminishing
marginal productivity
An economic rule governing production which holds that if more variable input units are used along with a certain amount of fixed inputs, the overall output might grow at a faster rate initially, then at a steady rate, but
ultimately, it will grow at a declining rate. The law of diminishing marginal
productivity needs to be taken into account by manufacturing business managers who wish to expand production.
accounting
Definition
Practice and body of knowledge concerned primarily with
1.
methods for recording transactions,
2.
keeping financial records,
3.
performing internal audits,
4.
reporting and analyzing financial information to the management, and
It is a systematic process of identifying, recording,
measuring, classifying, verifying, summarizing, interpreting and communicating
financial information. It reveals profit or loss for a given period, and the value and nature of a firm's assets, liabilities and owners' equity.
Accounting provides information on the
1.
resources available to a firm,
3.
the results achieved through their use.
organization
chart
Definition
Visual representation of how a firm intends authority, responsibility, and information to flow within its formal organizational structure. It usually depicts
different management functions (accounting, finance, human resources, marketing, production, R&D, etc.) and their subdivisions as boxes linked with lines
along which decision making power travels downwards and answerability travels
upwards. Also called organizational chart.
strategic
planning
Definition
Systematic process of envisioning a desired future,
and translating this vision into broadly defined goals or objectives and a sequence of steps to achieve them. In contrast to long-term planning (which begins with the current status and lays down a path to meet estimated future needs), strategic planning begins with the
desired-end and works backward to the current status. At every stage of long-range planning the planner asks, "What must be done here to reach the
next (higher) stage?" At every stage of strategic-planning the planner
asks, "What must be done at the previous (lower) stage to reach
here?" Also, in contrast to tactical planning (which focuses at
achieving narrowly defined interim objectives with predetermined means), strategic planning looks at the wider
picture and is flexible in choice of its means.
fuzzy logic
Definition
Type of reasoning based on the recognition that logical statements are not only true or false (white or black areas of probability) but can also range from 'almost certain' to 'very
unlikely' (gray areas of probability). Software based on application of
fuzzy-logic (as compared with that based on Formal Logic) allows computers to mimic human reasoning more
closely, so that decisions can be made with incomplete or
uncertain data. The concept is based on the work of Polish mathematician Jan
Lukasiewicz (1878-1956) and was developed by the Azerbaijani-Iranian
computer scientist Dr. Lotfi A. Zadeh (born 1921) who coined the term 'fuzzy
logic' in 1965 while working at the Berkeley campus of the
University Of California.
