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Definition of Financial Terms

July 3rd, 2009 Posted in Uncategorized

Financial Terminology is very important for MBA aspirants.As future managers you are expected to know the meanings of terms related to finance, accounts, economics, etc. irrespective of the stream of education you belong to.

These definitions could really help you in your interviews.



A group shares

Stocks having very high liquidity.

Company having large equity base and large public holding.

Company having consistantly good performance over the years

Alpha factor

Concept which measures the inherent volatility of share.A share with alpha factor of 1.5 is slated to rise in prise by 50% in a year on its inherent strength,such as growth in eps,regardless of the behavior of the market.

Asset management Account

An account which has both broking and banking facilities. It allows debit or credit card, automatic transfer of excess funds into a money management account and margin loans also called central assets account.


Shares having high liquidity

Company having an equity above Rs.30million

Company having fundamentals and financial parameters in line with the industry.


Shares having low trading volume at the EXCHANGES indicating low investor intrest

Shares trading below par value(face value)

Company having an equity below Rs.30million

Company’s shares being not widely held

Company having surveillance measure initiated against it by the EXCHANGES for suspected price manipulations.

Barren money

Money that is not currently earning interest.


An unwelcome takeover bidder

Bull Spread

An option strategy designed to profit from a rise in security’s price by buying a near month futures contract and selling a deferred month futures contract.


a system to curb excesive speculation in the stock market,applied by the stock exchange.when the index spurts or plunges more than a % decided by the authorities,then the trading is then suspended for some time to let the market cool.

Cold money

Money which flows in a country for long term as capital and is generally invested in assets.

Delta shares

The least liquid shares of stock market.


Decrease in the rate of inflation. Should not be confused with deflation which is decrease in the prices.In disinflation prices keep increasing but at a lower rate.

ECU(European currency unit)

A basket of european community memners’ currencies which served as the unit of account for the community members before ‘Euro’ was introduced. European exchange rate mechanism attempted to minimise the fluctuation between members’ currencies and common currency.

Face amount certificate

A debt security where the debt holder agrees to make payment periodically to the issuer and the issuer agrees to pay the face value at maturity. Mutual fund issuing this type of security is called a face amount certificate company.

Fiat Money

Money which is issued without being backed with any tangible asset such as gold, silver etc. The issuing Govt decrees that the money is legal. Value of fiat money depends totally on confidence and expectation of the economy.

Front money

The cash used to start a business


shares of small companies which are traded infrequently


A provision in an agreement with the underwriters of an issue which states that in event of exceptional investor interest the issuer will authorise additional share for distribution.

Hot money

In finance, hot money refers to funds which flow in a country to take advantage of favourable interest rates.They influnce the balance of payments and exchange rate of a country. They are highly volatile and are shifted to another market as interest rates change.They were the largely responsible for currency crisis in Mexico and Asia during 1990s. In crime world they refer to stolen currency that can be easily tracked to crime such as marked bills or new currency with consecutive serial numbers.


As evident from term, extremely rapid or out of control inflation. German hyperinflation from Jan’1922 to Nov’1923 is the most famous example when prices rose by a factor of 20billion.

Institutional Fund

A mutual fund that targets pension funds, endowments, and other high net worth entities and individuals.Institutional funds usually have lower operating costs and higher minimum investments than retail


Developed by Lars Kestner, this one examines the consistency of of an equity’s return over time. Data for the ratio is derived from value added monthly index(VAMI)

Kondratieff’s long-wave cycle (K-cycle).

A wave/cycle analysis of an economy’s performance. It predicts and analyses the performance of any economy viz boom, depression, bounce etc over a period of 50-54 years


Selling off unsubscribed portions of a rights offer by the issuer to the underwriter at the offer price.


This term originated in a military context, referring to how personnel acquire, transport and store supplies and equipment. In the business community, the term is used to refer to how resources are acquired, transported and stored along the supply chain. By having an efficient supply chain and proper logistical procedures, a company can cut costs and increase efficiency.

Love money

Seed money or capital money given by family or friends to an entrepreneur to start a business.

M1 money supply(also called NARROW MONEY)

One measure of the money supply that includes all coins, currency held by the public, traveler’s checks, checking account balances, NOW accounts, automatic transfer service accounts, and balances in credit unions.

M2 money supply(also called BROAD MONEY)

One measure of the money supply that includes M1, plus savings and small time deposits, overnight repos at commercial banks, and non-institutional money market accounts. A key economic indicator used to forecast inflation, since it is not as narrow as M1 and still relatively easy to track. All the components of M2 are very liquid, and the non-cash components can be converted into cash very easily.

M3 money supply

One measure of the money supply that includes M2, plus large time deposits, repos of maturity greater than one day at commercial banks, and institutional money market accounts.

Mom and Pop

An adjective denoting a small scale and a family like atmosphere, often used to describe these types of businesses and investors.

Near money

Highly liquid assets which are not cash but can easily be converted into cash, such as bank deposits and Treasury Bills. similar to cash equivalents.

NEER( Nominal Effective Exchange Rate)

It is the weighted average of a currency’s value against a number of currencies in the basket. Weights being the value of trade with the relevant country.

Open Repo

Repo which can be terminated by either party at any time, and which has an unspecified repurchase date.

Overnite Repo

A repo with a term of one day.

REER( Real Efective Exchange Rate)

It is the weighted average of a currency’s value against a number of currencies in the basket adjusted with inflation. Weights being the value of trade with the relevent country.


An economic policy whereby a Govt uses fiscal or monetary action(reducing tax rates, changing money supply and interest rates in order to expand a country’s output.


A contract in which the seller of securities, such as Treasury Bills, agrees to buy them back at a specified time and price. also called repurchase agreement or buyback.

Reverse Merger

The acquisition of a public company by a private company, allowing the private company to bypass the usually lengthy and complex process of going public.

Reverse repo

A purchase of securities with an agreement to resell them at a higher price at a specific future date. This is essentially just a loan of the security at a specific rate. also called reverse repurchase agreement.

Smart money

Experienced investors and traders, who tend to spot trends and find investment opportunities before everyone else.

Term Repo

A repo with a term of more than one day.

Turnkey Project

A situation where the high level management of a firm is in charge of the planning and execution of all business strategy. The client, who buys a franchise or part of the business, only has to “turn the key” for the operation to start.e.g. Franchise Business.

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