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


Green taxes
Taxes imposed with the objective of improving the environment

Green economics
The study of environmental issues including the depletion of non renewable resources

Green belt
An area round a city with restrictions on development.

Grant
A form of foreign aid that involves a direct transfer payment from one country to another.

Graph
A representation of data in a pictorial form (e.g., bar graph, broken-line graph, circle graph, histogram, pictograph, etc.).

Government policies
Different types of measures the government implements to improve the working of the economy

Government intervention
When the state interferes with the working of an individual market e.g. through price controls.

Government expenditure
Spending by central government and local authorities on the provision of goods and services, transfer payments and debt repayments.

Government failure
When a government fails to intervene in a market economy to correct inefficient allocation of resources

Government current expenditure
Government current expenditure refers to government day to day spending. This means spending on recurring items. This includes salaries and wages that keep recurring, spending on consumables and everyday items that get used up as the good or service is provided.

Goods in competitive supply
Good that can be produced using the same factors of production.

Government capital expenditure
Government capital expenditure refers to government spending on investment goods. This means spending on things that last for a period of time. This may include investment in hospitals, schools, equipment and roads.

Goodhart's Law
This is a law developed by Professor Charles Goodhart (who has also served as a member of the Monetary Policy Committee) that says 'that any observed statistical regularity will tend to collapse once pressure is placed on it for control purposes'. In other words if a relationship between two variables is observed, and the government then try to use this relationship as a policy tool, the whole relationship is likely to break down.

Gold
The Bank of England is perhaps best known for storing gold. The standard weight of a bar is around 12.5 kilos (27-28 pounds). The purity of a bar of gold is measured by its assay. An assay of 1000 means it is completely pure. To be in the vaults a bar has to have an assay of more than 995 (995 parts per 1000 gold).

Globalisation
The growth of inter-dependence amongst world economies. Usually seen as resulting from the removal of many international regulations affecting financial flows.

Gini coefficients
The ratio between the area between a Lorenz curve and the 45o line and the area below the 45o line. The Gini coefficient is a precise way of measuring the position of the Lorenz Curve. To work out the Gini coefficient we measure the ratio of the area between the Lorenz Curve and the 45 degree line to the whole area below the 45 degree line. If the Lorenz Curve was the 45 degree line - then the value of the Gini Coefficient would be zero, but as the level of inequality grows so does the Gini Coefficient. In the most extreme possible scenario the Gini Coefficient would be 1. In the UK the figure is around 0.35 and during the 1980's grew as the level of inequality increased.

Gilt-edged securities
Gilt-edged securities are a form of long-term government borrowing. They are a promise to repay in the future and usually have a fixed term (for example 5 years). They pay a fixed level of interest which is determined when they are issued. Their value will vary inversely with changes in the level of interest rates. If interest rates rise, then the fixed interest gilt will appear less attractive to investors and their value will fall. However, they are always redeemed at the end for their face value (original value).

Geographical mobility
The extent to which factors of production are able and willing to move from one part of the country to another.

Giffen good
An increase in income results in a fall in demand for the good. A Giffen good is an extreme form of inferior good. It arises because the income effect is opposite to and outweighs the substitution effect.

Geographical immobility
Geographical immobility is a situation where resources do not freely move from one location to another. It is particularly a problem with labour as people are often reluctant to relocate for work, and it may therefore be a cause of unemployment.

GDP deflator
The index value used to eliminate the effect of inflation. Real national income is found by dividing money national income by the GDP deflator and multiplying by 100.

Gearing ratio
The gearing ratio measures the percentage of capital employed that is financed by debt and long term finance. The higher the gearing, the higher the dependence on borrowings and long term financing. The lower the gearing ratio, the higher the dependence on equity financing. Traditionally, the higher the level of gearing, the higher the level of financial risk due to the increased volatility of profits. Financial managers face a difficult dilemma. Most businesses require long term debt in order to finance growth, as equity financing is rarely sufficient. On the other hand, the introduction of debt and gearing increases financial risk. But the company dependant on equity financing alone is unable to sustain growth. How much debt can a company take on before the benefits of growth are overtaken by the disadvantages of financial risk? The Gearing ratio is calculated by Long Term Debt divided by Equity + Long Term Debt times100 which gives X%.

Functional distribution of income
The distribution of income between factors of production.

Funding
Where the Bank of England issues more long-term securities and fewer short term securities, thereby reducing the banks' liquid assets. If the government sell more long-term securities then this will reduce the bank's liquidity. This in turn will reduce their ability to lend more. Funding therefore acts as a contractionary monetary policy. Over-funding is when the government sell more securities than necessary. This also is a contractionary monetary policy.

Full cost pricing
Where the fixed costs are allocated between all the products that are sold.

Full employment equilibrium
This is the level at National Income at which everyone who wants to work is able to. There is in other words sufficient demand to employ everyone. Classical economists argued that the economy would automatically tend to this equilibrium, whereas Keynesians said that it was the role of government, through their policy, to ensure we got there.

Full capacity
When a firm or economy cannot produce more with existing resources

Frequency polygon
A graph formed by joining the midpoints of histogram column tops. (See also:histogram.)

Frictional unemployment
Sometimes called transitional, this occurs when unemployed workers are temporarily without a paid occupation while moving from one job to another. There are other frictions in the labour market that prevent it working smoothly e.g. lack of knowledge about available jobs. 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 frictional unemployment will be higher.

Freeports
Areas close to air and shipping ports into which imports are allowed without paying tariffs on the condition that they are exported.

Frequency
The number of times an event or an item occurs.

Frequency distribution
A table or graph showing the number of items that fall within each of a number of mutually exclusive ranges or class of a series of numbers previously ordered by increasing magnitude.

Freehold land
A land tenure arrangement where the land is permanently owned and not leased

Free trade area
A group of countries which removes tariff barriers between member countries but allows each member to decide on its own tariff policy towards non-members.

Free trade
International trade free from any restrictions such as tariffs.

Free riders
Sometimes a good is provided and others cannot be stopped from consuming it, e.g. street lighting. A consumer who avoids payment becomes a free rider.

Free market economy
A system where resources are owned by households: markets allocate resources through the price mechanism; and income depends upon the value of resources owned by an individual.

Free goods
A good in unlimited supply at zero price, e.g. air

Franchise
This is a type of business organisation where the owner keeps control. Each outlet of the business is owned by an individual who is allowed to use the name, for example Body Shop.

Four P's
Product, price, promotion, place. Often referred to as the marketing mix.

Forward integration
One firm joins another firm that is at a later stage in the chain of production.

Forward market
That part of the foreign exchange market concerned with agreeing the price of a currency now to buy or sell in the future.

Forward exchange rate
The forward exchange rate is a rate for buying foreign exchange at a fixed point in the future. Taking out a forward contract for foreign exchange means that you are agreeing to buy foreign exchange at an agreed rate in the future. The existence of the forward market leads to a considerable amount of speculation.

Foreign exchange market
Consists of all those who deal in foreign exchange but has no formal meeting.

Formula
An equation or rule relating mathematical objects or quantities.

Foreign exchange gap
When a country's balance of payments on current account deficit is greater than the value of capital inflows.

Foreign capital flows
Financial and capital assets that flow between countries.

Foreign direct investment
Overseas investment into a country by multinational enterprises. This investment is recorded as a credit in the balance of payments.

Foreign Aid
The international transfer of public and private funds in the form of loans or grants from donor countries to recipient countries.

Footloose industry
Gains no cost advantage from anyone particular site and so can set up anywhere.

Forecasting
Attempt to predict the future performance of a business, usually by looking at figures or by undertaking market research.

Focus groups
A small group of people meet an interviewer to discuss a product, service or marketing policy. This provides insight into consumers' behaviours and attitudes.

Footfall
This is a retail term meaning the number of shoppers entering a store or shopping mall.

Footloose industries
Industries which can set up in a variety of locations without affecting production costs.

Flow value
An amount over a given period in time, e.g. income per year

Flotation
The process where a business organisation offers its shares for sale on the stock market, as part of becoming a Public Limited Company.

Floating exchange rates
A currency exchange rate that is determined by buyers and sellers without government intervention. A floating exchange rate system is where the external value of the currency is allowed to find its own value against other currencies. The value will be determined by supply and demand in the foreign exchange market. The value will then rise or fall according to changes in supply and demand.

Flat Organisational Structure
An organisation where there is less distance between the higher and lower levels within the hierarchy. This involves a shorter chain of command and usually, a wider span of control.

Fixed interest securities
Fixed interest securities are an investment that pays a fixed rate of interest. An example of a fixed interest security is a gilt-edged security. These are issued by the government. In exchange for lending them a sum of money, the lender will be paid a fixed rate of interest each year.

Fisher's Quantity Theory of Money
The view that changes in the money supply have a direct and proportionate effect on the price level.

Fixed costs
Production expenses that are independent of the level of output. Fixed costs could include loan repayments, security costs and marketing and administration costs.

Fixed exchange rates
A fixed exchange rate system is one where the value of the currency against other currencies remains exactly the same. A fixed exchange rate doesn't stay fixed on its own. Governments have to hold large stocks of foreign exchange, so that they can actively intervene to hold the value of the currency stable. Monetary and fiscal policies will also have to be directed to keeping the rate constant.

Fiscal policy
The stance taken by government with regard to its spending or taxation with a view to influencing the level of economic activity. An expansionary (or reflationary) fiscal policy could mean: 1...cutting levels of direct or indirect tax 2...increasing government expenditure

Fisher equation of exchange
Fisher's equation of exchange states MV = PT. M is the money supply; V is the velocity of circulation; P is average prices and T is the number of transactions. This equation is in fact an identity as it will always be true. At its simplest level you could imagine an economy that has a money supply of £5. If this £5 is on average used 20 times in a year, it will have generated £100 of spending. In the Fisher equation above M would be equal to £5, V equal to 20 and PT would be £100. This £100 could be made up of, say 100 transactions of £1 each. PT can therefore be thought of as equivalent to National Expenditure.

Fiscal drag
When people's money income rises, dragging them into higher tax brackets. Fiscal drag is therefore referring to the effect inflation has on average tax rates. If tax allowances are not increased in line with inflation, and people's incomes increase with inflation then they will be moved up into higher tax bands and so their tax bill will go up. However, they are actually worse off because inflation has cancelled out their pay rise and their tax bill is higher. The only person that is better off is the Chancellor as he is getting more tax and hasn't had to increase tax rates. Chancellors have been known to use this as a subtle means to raise more tax revenue. To maintain average tax rates, allowances should be increased by the amount of inflation each year.

Fine tuning
Short term government intervention designed to make changes in aggregate demand.

Financial stability
Maintaining financial stability is one of the Bank of England's three Core Purposes. The focus of this work is the Financial Stability Committee which meets monthly to monitor developments and events in financial markets in the UK and overseas. Though perhaps not the most public work the Bank does, its financial stability work is vital if we are all to maintain trust in the financial system.

Financial intermediaries
Institutions which channel funds from people and institutions wishing to lend to those wishing to borrow

Financial Services Authority (FSA)
The Financial Services Authority was created by the incoming Labour Government in 1997 as the regulatory body for the whole financial services industry. A number of separate regulatory bodies were brought together into the FSA. The FSA also took over the responsibilities that the Bank of England had for supervising banks and other financial institutions. The Chairman of the FSA is Howard Davies, an ex deputy governor of the Bank, and now a member of the Court of Directors. The Bank and the FSA work closely together, particularly on financial stability issues.

Field trials
A product is tested on a small number of consumers to gauge the effectiveness of the product or the marketing policy.

Financial economies of scale
The ability of large firms to borrow money on more favourable terms than small firms.

Financial institutions
Institutions which provide a range of services including lending, accepting deposits, providing advice.

Fertility rate
The number of children born alive per thousand fertile women per year.

Fiduciary issue
The fiduciary issue is the part of the issue of notes and coins that is not backed by gold. In the past bank notes were issued and were backed by gold. You could always redeem your notes and have gold back in exchange. However, the system quickly developed so that the value of notes issued exceeded the amount of gold. That part of the note issue in excess of the amount of gold was the fiduciary issue. In other words the amount of money issued on trust. Today the whole note issue is fiduciary.

Fast Moving Consumer Goods
These goods are products bought on a regular basis by consumers, and generally those in supermarkets and chemists. Products will be food, non-food and healthcare items.

Family planning
The process whereby parents plan and regulate their family size. In many developing countries this is important for controlling population.

Fairtrade
Fairtrade means that producers always receive a fair price for their product, and receive a premium to reinvest in local projects such as schools and health care facilities.

Family
Consumers who have children still living at home.

Factors of production
The factors of production are the resources that are necessary for production. They are usually classified into 4 different groups: 1. Land - all natural resources (minerals and other raw materials) 2. Labour - all human resources 3. Capital - all man-made aids to production (machinery, equipment and so on). 4. Enterprise - entrepreneurial ability. The rate of economic growth that an economy can manage will be affected by the quantity and the quality of the factors of production they have.

Factor immobility
Barriers to the movement of land labour and capital

Factor incomes
Rewards to the factors of production e.g. labour receives wages.

Factor market
The place where inputs or resources are bought or sold. Factor markets usually refer to labour or capital.

Factor mobility
The ability of land, labour or capital to be put to an alternative use or moved to another location.

Factor endowments
The resources which a country possess. The main factors of prodduction are land, labour, capital and enterprise.

Extrapolation
Extrapolation is when the value of a variable is estimated at times which have not yet been observed. This estimate may be reasonably reliable for short times into the future, but for longer times, the estimate is liable to become less accurate.

Factor cost
The value of output measured in terms of the cost of the factors of production used to produce it.

Externalities
The spillover effects of production or consumption for which no payment is made. Externalities can be positive or negative. For example all fax users gain as new users become connected (positive); and smoke from factory chimneys (negative).

External liabilities
Movements of money into the UK on the capital account of the balance of payments.

External shocks
Unexpected adverse change to an economic variable which takes place outside a given economy. For example, an increase in the price of oil caused by war.

External diseconomies of scale
The disadvantages firms experience in the form of higher long run average costs as a result of an industry growing in size.

External growth
When a firm increases its size by taking over or merging with another firm (integration).

External debt
The total amount of private and public foreign debt owed by a country.

External costs
Negative spillover effects of production or consumption for which no compensation is paid. Externalities occur where the actions of firms and individuals have an effect on people other than themselves. In the case of negative externalities the external effects are costs on other people. These are known as external costs. There may be external costs from both production and consumption. If these are added to the private costs we get the total social costs. The most common example of external costs are things like pollution where people other than the firm may bear the health costs and other problems.

External constraints
Factors beyond the control of a consumer or firm which influence economic behaviour.

External benefits
The spillover advantages of production or consumption for which no money is paid by the beneficiary e.g. the sight of a well kept garden. Externalities occur where the actions of firms and individuals have an effect on people other than themselves. In the case of positive externalities the external effects are benefits on other people. There may be external benefits from both production and consumption. If these are added to the private benefits we get the total social benefits.

Exports
Goods, services and capital assets sold abroad.

Extension strategies
Firms will often try to use extension strategies. These are techniques to try to delay the decline stage of the product life cycle. The maturity stage is a good stage for the company in terms of generating cash. The costs of developing the product and establishing it in the market are paid and it tends to then be at a profitable stage. The longer the company can extend this stage the better it will be for them.

Export promotion
The government attempts to stimulate exports by giving incentives to exporting firms.

Experiment
An experiment is any process or study which results in the collection of data, the outcome of which is unknown. In statistics, the term is usually restricted to situations in which the researcher has control over some of the conditions under which the experiment takes place.

Expenditure switching
Policies designed to switch spending from overseas goods to domestic goods.