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Bized - Glossary of finance
Category: Economy and Finance
Date & country: 14/09/2007, UK
Words: 1332


Seven Ps
Product, Price, Place, Promotion, People, Packaging, Process. This is an extension of the 4Ps, often known as the Marketing Mix.

Shadow prices
estimated prices in situations where market prices do not exist.

Shareholders
People and institutions who are joint owners of limited companies.

Self employment
Working for oneself.

Seller's market
The quantity of goods for sale exceeds the amount consumers are willing and able to buy at the current market price. Prices are high as a result.

Secondary banking system
Financial institutions which deal mainly with companies.

Secondary data
Existing published information.

Secondary sector
That part of the economy concerned with the manufacture of goods.

Seasonal component
We want to increase our understanding of a time series by picking out its main features. One of these main features is the seasonal component. Descriptive techniques may be extended to forecast (predict) future values. In weekly or monthly data, the seasonal component, often referred to as seasonality, is the component of variation in a time series which is dependent on the time of year. For example, the costs of various types of fruits and vegetables, unemployment figures and average daily rainfall, all show strong seasonal variation.

Second-hand securities
Previously owned stocks and shares.

Search unemployment
A form of frictional unemployment when workers do not accept the first job offered but remain unemployed while searching for a better job. When somebody loses their job (or chooses to leave it), they will have to look for another one. If they are lucky they find one quite quickly, but they may be unlucky and it may take some time. On average it will take everybody a reasonable period of time as they search for the right job. This creates unemployment while they look. The more efficiently the job market is matching people to jobs, the lower this form of unemployment will be. However, if there is imperfect information and people don't get to hear of jobs available that may suit them then search unemployment will be higher.

SDRs
Special drawing rights- a form of international money created by the IMF which is acceptable in settlement of debts between countries.

Schumacher
A German economist who argued that small scale production has a number of advantages and that developing countries should not be burdened with high debt repayments.

Schengen agreement
The Schengen agreement was signed in 1985 by Germany, France, Luxembourg, the Netherlands and Belgium. The agreement aimed to progressively get rid of personal checks at the borders between these countries. Since the Treaty of Amsterdam, the Schengen agreement has been integrated fully into the structure of the EU.

Scattergram
A scattergram is a useful summary of a set of bivariate data (two variables), usually drawn before working out a linear correlation coefficient or fitting a regression line. It gives a good visual picture of the relationship between the two variables, and aids the interpretation of the correlation coefficient or regression model.

Scatter plot
A scatter plot is a useful summary of a set of bivariate data (two variables), usually drawn before working out a linear correlation coefficient or fitting a regression line. It gives a good visual picture of the relationship between the two variables, and aids the interpretation of the correlation coefficient or regression model.

Scarcity
A lack of resources to meet all consumer wants.

Scale economies
The advantages gained in the form of lower average costs resulting from increasing the number of factors of production employed.

Say's Law
Say's Law was developed by French economist Jean-Baptiste Say. It states: "Supply creates its own demand" This view is one adopted by classical economists to justify their argument that it is most important to improve the supply-side of the economy through supply-side policies. If this is done then the extra output will be demanded.

Savings function
How much will be saved at different levels of disposable income

Satisfaction
Pleasure derived from consuming a good i.e. utility.

Savings
That part of disposable income (income less direct taxes plus state benefits) not spent on goods and services. Savings are therefore any income that is not spent, but put aside. In an economic sense we would also include buying shares or securities as part of this. Savings are a leakage or withdrawal from the circular flow.

Sampling distribution
The sampling distribution describes probabilities associated with a statistic when a random sample is drawn from a population.

Sampling error
The error which arises because the data are collected from a part, rather than the whole of the population. It is usually measureable from the sample data in the case of probability sampling.

Sample variance
Sample variance is a measure of the spread of or dispersion within a set of sample data.

Sample survey
Refers to a collection of information about characteristics of interest from only part of the population.

Sample mean
The sample mean is an estimator available for estimating the population mean . It is a measure of location, commonly called the average.

Sales revenue maximisation
An objective of seeking to maximise total sales revenue, it is achieved where marginal revenue is zero. Often used as an alternative to profit maximization.

Sample
A sample is a group of units selected from a larger group (the population). By studying the sample we hope to draw valid conclusions about the larger group. A sample is generally selected for study because the population is too large to study in its entirety. The sample should be representative of the general population. This is often best achieved by random sampling.

Sales
The amount of goods sold in a given period of time.

Rural areas
Country districts.

Rural urban migration
The migration of people from rural areas to urban areas.

Rising stars
A product that has a high or rising market share within an expanding market.

Risk-bearing economies of scale
The ability of large firms to spread the costs of uncertainty of production over a large level of output and thereby reduce unit costs.

Ricardo
A UK economist who developed the theories of comparative advantage and economic rent

Returns to scale
The relationship between changes in the quantity of factors of production and the resulting change in output.

Revaluation of sterling
Occurs when the UK government raises the value of the £ from one fixed rate to another

Revenue
The money received from the sale of output

Revenue neutral policies
If the government decide to reduce the level of taxation, they may also want to reduce the level of government expenditure by an equivalent amount. This would mean that the tax cut has no effect on the PSNCR. It is therefore termed a revenue-neutral policy.

Return on Net Assets (RONA)
RONA is sometimes called Return on capital employed (ROCE) and is probably the most popular ratio for measuring general management performance in relation to the capital invested in the business. RONA defines capital invested in the business as total assets less current liabilities, unlike ROTA, which measures profitability in relation to total assets. RONA is calculated by Net Profit before Interest and Taxes (NPIT) divided by Total Capital Employed (CE) times 100 to give X%. Capital Employed may be defined in a variety of ways, the most common being Fixed Assets plus Working Capital, i.e. Current Assets less Current Liabilities. This definition reflects the investment required to enable a business to function.

Return on total assets (ROTA)
Return on total assets is a measure of profit in relation to the total assets invested in the business, and ignores the way in which such assets have been financed. The total assets of the business provide one way of measuring the size of the business. This ratio measures the ability of general management to use the total assets of the business in order to generate profits. ROTA is calculated by Net Profit before Interest and Taxes divided by Fixed Assets plus Current Assets multiplied by100 to give X%. The figure you get from this calculation therefore tells you how much profit the company has made as a percentage of the total amount invested. The higher the figure the better.

Return on capital employed (ROCE)
Return on capital employed ROCE, sometimes called Return on Net Assets (RONA), is probably the most popular ratio for measuring general management performance in relation to the capital invested in the business. ROCE defines capital invested in the business as total assets less current liabilities, unlike ROTA, which measures profitability in relation to total assets. ROCE is calculated by Net Profit before Interest and Taxes (NPIT) divided by Total Capital Employed (CE) times 100 to give X%. Capital Employed may be defined in a variety of ways, the most common being Fixed Assets plus Working Capital, i.e. Current Assets less Current Liabilities. This definition reflects the investment required to enable a business to function.

Retail Price Index Y (RPIY)
RPIY is an adjusted measure of inflation. It is the basic Retail Price Index, adjusted for the effects of changes in interest rates and indirect taxes. Both of these changes can distort the Retail Price Index, and so RPIY can provide a useful measure.

Retail Price Index X (RPIX)
RPIX is an adjusted measure of inflation. It is often alternatively known as the 'underlying rate of inflation'. It is the basic Retail Price Index adjusted for the effects of changes in interest rates. As interest rates are increased (to counter inflation), this will tend to lead to an increase in mortgage rates. Because mortgage costs are included in the RPI as a measure of the costs of housing, this will lead to an increase in the RPI. So increasing interest rates to reduce inflation leads to an increase in inflation! RPIX removes this effect to give a better picture of underlying inflation.

Retail Co-operative
A retailing business run by its members on an equal vote basis.

Retail deposit
A retail deposit is a deposit of money with a 'retail' or high-street financial institution. Retail banks tend to deal with individuals and small businesses.

Retail price index (RPI)
The Retail Price Index is the main measure of inflation in the UK. It shows the amount prices have increased for spending on an average basket of goods. It is weighted to reflect the fact some price changes are more important than others. The weights are based on the Family Expenditure Survey which surveys a wide range of families to see how they spend their money. Like all index numbers it has a base year, and all changes are expressed as percentage changes around that base.

Reserves
1. monetary assets held by central banks to intervene in foreign exchange markets and to settle international debts. 2. additional claims of shareholders in a company.

Residual error
The value used in national income accounting to balance up the difference between the income and expenditure methods

Resource allocation
A particular use of land, labour, capital and entrepreneurs

Resources
Inputs used in the production of goods and services.

Research and development
See R&D

Research and development (R&D)
Expenditure on the discovery, development and improvement of products.

Reserve assets
Liquid assets held by commercial banks which can be quickly turned into case.

Reserve currency
A currency held by central banks to intervene in foreign exchange markets and to settle international debts.

Replacement ratios
The ratio between income in and out of work.

Repo
A 'repo' is a sale and repurchase agreement. Repos are used to relieve shortages of liquidity in the market. A repo is where a bank sells a gilt-edged security (or other asset) back to the Bank of England in exchange for cash. They agree to buy the gilt back again a fortnight or so later. It is a way for them to get hold of cash in the short-term to ensure they can meet their day to day commitments. The Bank of England use it as a way to maintain the level of interest rates set by the Monetary Policy Committee.

Rent controls
Limits imposed by the government or other agencies on the payment made for the provision of housing services.

Rent of ability
The payment that someone receives, over and above the payment that they might well be willing to work for, resulting from the uniqueness or comparative rarity of their particular talent, skill, expertise e.g. the wages paid to prolific goal scorers, the sal

Rent
A payment made for the use of an asset owned by someone else

Relative prices
The price of one good in terms of another.

Relative income hypothesis
The theory put forward by Duesenberry that people's consumption is influenced by the spending pattern of others.

Regulatory bodies
Regulators or regulatory bodies are created to design requirements that are placed on the privatised industries to comply with controls on prices and standards of service. Examples include OFTEL who monitor the Telecommunications industry.

Regulators
Regulators or regulatory bodies are created to design requirements that are placed on the privatised industries to comply with controls on prices and standards of service. Examples include OFTEL who monitor the Telecommunications industry.

Regulation
Laws limiting the behaviour of consumers and producers.

Regression line
A regression line is a line drawn through the points on a scatterplot to summarise the relationship between the variables being studied. When it slopes down (from top left to bottom right), this indicates a negative or inverse relationship between the variables; when it slopes up (from bottom right to top left), a positive or direct relationship is indicated.

Regressive taxes
Taxes which take a higher proportion of the income of the poor than the rich. A regressive tax can therefore be thought of as a tax that takes a smaller proportion of a income as income rises. In other words it is a tax that hits less well-off people harder than the better-off. An example of a regressive tax is the television licence. It is exactly the same amount for everyone, which makes it a much smaller proportion of a large income than a small one.

Regression equation
A regression equation allows us to express the relationship between two (or more) variables algebraically. It indicates the nature of the relationship between two (or more) variables. In particular, it indicates the extent to which you can predict some variables by knowing others, or the extent to which some are associated with others.

Regional unemployment
Those out of work are disproportionately concentrated in a particular region.

Regional policy
Government actions designed to influence local economies.

Regional problem
An uneven spread of living standards and employment levels between different areas of the UK

Reflationary policies
Reflationary policies are any policies aimed to boost the level of economic activity. These could be either fiscal or monetary policies. For example, a reflationary fiscal policy could be to reduce the level of taxation. This would increase the amount of disposable income people had and encourage them to spend more, therefore increasing output and employment. Reflationary monetary policy would be to reduce the rate of interest.

Reflate
To reflate the economy means to try to boost the level of economic activity. This generally means using reflationary policies. This will shift aggregate demand to the right and boost the level of economic activity.

Redistributive effects
The results of taking money from one group of people and giving it to another group, usually through taxation.

Recession
A period of negative economic growth at the trough of the trade cycle. A recession is usually defined as two consecutive quarters of negative economic growth.

Reallocation of resources
When land labour and capital are put to a different use.

Rational Expectations
The view that economic agents predict future events in a rational way, taking into account the outcome of past policies.

Real assets
The value of assets adjusted for inflation

Real income
The value of income adjusted for inflation

Real national income
The value of this year's output at constant prices

Real rate of interest
The rate of interest adjusted for inflation

Real terms
When the effects of inflation have been taken into account. If a variable is given in real terms, this means that the effect of inflation has been removed.

Real wage
The value of an income expressed in terms of its purchasing power i.e. what it is possible to buy with a given money income.

Realised investment
Actual investment, it includes both capital goods and changes in stocks.

Rate of interest
The rate of interest can be thought of as the price of money. It is the extra proportion that has to be paid when borrowing money or the extra that a saver receives when putting their money aside for the future (unless they keep it under the mattress). The level of the rate of interest is determined by the Monetary Policy Committee of the Bank of England that meets each month.

Rate of return
The profit a firm earns expressed as a percentage of the assets a firm owes.

Ratio analysis
Ratio analysis is a tool for analysing the financial performance of a company by calculating ratios from their published accounts. These ratios can help to give a more in depth picture of how they are managing the resources they have. There are 3 main types of ratios: profitability, short term liquidity and long term liquidity.

Ratchet effect
Used to describe any situation in which the response in one direction is markedly different to the response in the opposite direction, e.g. trade unions are quick to push for higher wages when economic activity picks up but are very slow to agree to lower

Range
The range of a sample (or a data set) is a measure of the spread or the dispersion of the observations. It is the difference between the largest and the smallest observed value of some quantitative characteristic and is very easy to calculate

Random sampling
Random sampling is a sampling technique where we select a group of subjects (a sample) for study from a larger group (a population). Each individual is chosen entirely by chance and each member of the population has a known chance of being included in the sample.

Quotas
Limits on the amount of a good produced, imported, exported or offered for sale.

Quasi-rent
Short-term economic rent arising from a temporary inelasticity of supply

Quick ratio
This is another name for the acid test ratio which is the current ratio modified to provide a more prudent measure of short-term liquidity. The acid test ratio deducts stock and work-in-progress from current assets. This approach is more cautious as it recognizes that stock is not always readily converted into cash at full value. The Acid test ratio is calculated by Current Assets - Stock divided by Current Liabilities.

Quota sampling
Quota sampling is a method of sampling widely used in opinion polling and market research. Interviewers are each given a quota of subjects of specified type to attempt to recruit for example, an interviewer might be told to go out and select 20 adult men and 20 adult women, 10 teenage girls and 10 teenage boys so that they could interview them about their television viewing.

Quartile
A ranked data set is divided into four equal parts. Each separating value is called a quartile (the first, the second etc.). The second quartile is the median.

Qualitative research
The gathering of information that is not statistical.

Quantitative controls
These are controls that limit the quantity of something. An example of a quantitative control was the Supplementary Special Deposit Scheme (also known as the 'Corset'). This was imposed in 1973 and limited the amount that banks could lend. It was abolished in 1980.

Quantitative research
The gathering of statistical data.

Quantity Theory of Money
The classical economists view of inflation revolved around this theory, and this theory was in turn derived from the Fisher Equation of Exchange. This equation says that: MV = PT where: M is the amount of money in circulation, V is the velocity of circulation of that money, P is the average price level and T is the number of transactions taking place Classical economists suggested that V would be relatively stable and T would (as we have seen above) would always tend to full employment. Therefore they came to the conclusion that increases in the money supply would lead to inflation. The message was simple; control the money supply to control inflation.

Qualitative lending guidelines
Involve requesting banks to direct lending to particular groups and/or restrict lending to other groups