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Friday, September 20, 2013

Meanings of Finance Key Words and Phrases - Letter B

Meanings of Finance Key Words and Phrases  - Letter B

B2B exchange: Business-to-business Internet marketplace that matches supply and demand by real-time auction bidding.
Back-to-Back Loan: An intercompany loan, also known as a fronting loan or link financing that is channeled through a bank.
Backward bending: Refers to a curve that reverses direction, usually if, after moving out away from an origin or axis, it then turns back toward it. The term is used most frequently to describe supply curves for which the quantity supplied declines as price rises above some point, as may happen in a labor supply curve, the supply curve for foreign exchange, or an offer curve.
Backward innovation: Building a more basic version of an existing product for a lesser-developed market.
Backward integration: Acquisition by a firm of its suppliers.
Backward linkage: The use by one firm or industry of produced inputs from another firm or industry.
Baker Plan: A plan by U.S. Treasury Secretary James Baker under which 15 principal middle-income debtor countries (the Baker countries) would undertake growth-oriented structural reforms, to be supported by increased financing from the World Bank and continued lending from commercial banks.
Balance of merchandise trade: The value of a country's merchandise exports minus the value of its merchandise imports.
Balance of payments adjustment mechanism: Any process, especially any automatic one, by which a country with a payments imbalance moves toward balance of payments equilibrium. Under the gold standard, this was the specie flow mechanism.
Balance of payments argument for protection: A common reason for restricting imports, especially under fixed exchange rates, when a country is losing international reserves due to a trade deficit. It can be argued that this is a second best argument, since a devaluation could solve the problem without distorting the economy and therefore at smaller economic cost.
Balance of payments deficit: A negative balance of payments surplus.
Balance of payments equilibrium: Meaningful only under a pegged exchange rate, this referred to equality of credits and debits in the balance of payments using the traditional definition of the capital account. A surplus or deficit implied changing official reserves, so that something would ultimately have to change.
Balance of payments surplus: A number summarizing the state of a country's international transactions, usually equal to the balance on current account plus the balance on capital account. This equals zero* and is uninformative under the modern definition of the latter, but with official reserve transactions excluded, or omitting also other volatile short-term capital-account transactions, it indicates the stress on a regime of pegged exchange rates.
Balance of payments: Net value of all economic transactions-including trade in goods and services, transfer payments, loans, and investments-between residents of the same country and those of all other countries. The International Money Fund’s accounting system that tracks the flow of goods, services, and capital in and out of each country. It is a list or accounting, of all of a country's international transactions for a given time period, usually one year. Payments into the country (receipts) are entered as positive numbers, called credits; payments out of the country (payments) are entered as negative numbers called debits. A single number summarizing all of a country's international transactions: the balance of payments surplus.
Balance of trade: The difference between a country’s total imports and exports. It is the net flows of goods (exports minus imports) between countries. It is the value of a country's exports minus the value of its imports. Unless specified as the balance of merchandise trade, it normally incorporates trade in services, including earnings (interest, dividends, etc.) on capital.
Balance on capital account: A country's receipts minus payments for capital account transactions.
Balance on current account: A country's receipts minus payments for current account transactions. It equals the balance of trade plus net inflows of transfer payments.
Balance sheet: A statement showing a firm's accounting value on a particular date. It reflects the equation, Assets = Liabilities + Stockholders' equity. It is a summary of a firm's financial position on a given date that shows total assets = total liabilities - owners' equity.
Balanced budget:
1. A government budget surplus that is zero, thus with net tax revenue equaling expenditure.
2. A balanced budget change in policy or behavior is one in which a component of the government budget, usually taxes, is adjusted as necessary to maintain a balanced budget.
Balanced growth: Growth of an economy in which all aspects of it, especially factors of production, grow at the same rate.
Balanced trade:
1. A balance of trade equal to zero. 2. The assumption that the balance of trade must be zero in equilibrium, as would be the case with a floating exchange rate and no capital flows. This is a standard assumption in real models of international trade, which exclude financial assets.
Balance-Sheet exposure: Accounting exposure.
Balassa-Samuelson Effect: The hypothesis that an increase in the productivity of tradable relative to non-tradable, if larger than in other countries, will cause an appreciation of the real exchange rate.
Baldwin envelope: The consumption possibility frontier for a large country, constructed as the envelope formed by moving the foreign offer curve along the country's transformation curve.
Balloon payment: A payment on debt that is much larger than other payments. The ultimate balloon payment is the entire principal at maturity.
Bank capital: The equity capital and other reserves available to protect bank depositors against credit losses.
Bank draft: A draft addressed to a bank. A payment instrument used to make international payments.
Bank for International Settlements (BIS): Organization headquartered in Basle that acts as the central bank for the industrial countries’ central banks. The BIS helps central banks manage and invest their foreign exchange reserves and also holds deposits of central banks so that reserves are readily available. It is an international organization that acts as a bank for central banks, fostering cooperation among them and with other agencies.
Bank loan swap: Debt swap.
Bank rate: The interest rate charged by a central bank to commercial banks for very short term loans; the discount rate.
Bank-based corporate governance system: A system of corporate governance in which the supervisory board is dominated by bankers and other corporate insiders.
Banker’s acceptance: Draft accepted by a bank. It a time draft drawn on and accepted by a commercial bank. Short-term promissory trade notes for which a bank (by having accepted them) promises to pay the holder the face amount at maturity.
Bargain purchase option: A lease provision allowing the lessee, to purchase the equipment for a price predetermined at lease inception, which is substantially lower than the expected fair market value at the date the option can be exercised.
Barrier Option: knockout option.
Barrier:
1. Any impediment to the international movement of goods, services, capital, or other factors of production. Most commonly a trade barrier.
2. An entry barrier.
Barter economy: An economic model of international trade in which goods are exchanged for goods without the existence of money. Most theoretical trade models take this form in order to abstract from macroeconomic and monetary considerations.
Barter: The exchange of goods for goods, without using money.
Base year: The year used as the basis for comparison by a price index such as the CPI. The index for any year is the average of prices for that year compared to the base year; e.g., 110 means that prices are 10% higher than in the base year. The base year is also the year whose prices are used to value something in real terms or after adjusting for inflation.
Basic balance: One of the more frequently used measures of the balance of payments surplus or deficit under pegged exchange rates, the basic balance was equal to the current account balance plus the balance of long-term capital flows.
Basis point: One hundred basis points equal one percent of interest.
Basis risk: The risk of unexpected change in the relationship between futures and spot prices.
Basis swap: Swap in which two parties exchange floating interest payments based on different reference rates. It is a floating-for-floating interest rate swap that pairs two floating rate instruments at different maturities, such as six-month LIBOR versus thirty-day U.S. T-bills.
Basis: The simple difference between two nominal interest rates.
Bear spread: A currency spread designed to bet on a currency’s decline. It involves buying a put at one strike price and selling another put at a lower strike price.
Bearer Securities: Securities that are unregistered.
Beggar thy neighbor: For a country to use a policy for its own benefit that harms other countries. Examples are optimal tariffs and, in a recession, tariffs and/or devaluation to create employment.
Beggar-Thy-Neighbor Devaluation: A devaluation that is designed to cheapen a nation’s currency and thereby increase its exports at others’ expense and reduce imports. Such devaluations often led to trade wars.
Benchmarking: A systematic procedure of comparing a company’s practices against the best practice and modifying actual knowledge to achieve superior performance.
Bertrand competition: The assumption, assumed to be made by firms in an oligopoly, that other firms hold their prices constant as they themselves change behavior. It contrasts with Cournot competition. Both are used in models of international oligopoly, but Cournot competition is used more often.
Best efforts offering: A security offering in which the investment bankers agree to use only their best efforts to sell the issuer's securities. The investment bankers do not commit to purchase any unsold securities.
Beta: A measure of the systematic risk faced by an asset or project. Beta is calculated as the covariance between returns on the asset and returns on the market portfolio divided by the variance of returns on the market portfolio. It is an index of systematic risk. It measures the sensitivity of a stock's returns to changes in returns on the market portfolio. The beta of a portfolio is simply a weighted average of the individual stock betas in the portfolio.
Bias:
1. Bias of technology, either change or difference, refers to a shift towards or away from use of a factor. The exact meaning depends on the definition of neutral used to define absence of bias. Factor bias matters for the effects of technological progress on trade and welfare.
2. Bias of a trade regime refers to whether the structure of protection favors importable or exportable, based on comparing their effective rates of protection. If these are equal, the trade regime is said to be neutral.
3. Bias of growth refers to economic growth through factor accumulation and/or technological progress and whether if favors one sector or another. Growth is said to be export biased if the export sector expands faster than the rest of the economy, import biased if the import-competing sector does so.
Bicycle Theory: With regard to the process of multilateral trade liberalization, the theory that if it ceases to move forward (i.e., achieve further liberalization), then it will collapse (i.e., past liberalization will be reversed).
Bid rate: The rate at which a market maker is willing to buy the quoted asset.
Bid: The price at which one can buy a currency.
Bid-ask spread: The difference between the buying and selling rates. It is the difference between the price that a buyer must pay on a market and the price that a seller will receive for the same thing. The difference covers the cost of, and provides profit for, the broker or other intermediary, such as a bank on the foreign exchange market.
Bid-offer spread: The difference between the interest rate at which the bank borrows money and lends money.
Bilateral agreement: An agreement between two countries, as opposed to a multilateral agreement.
Bilateral exchange rate: The exchange rate between two countries' currencies, defined as the number of units of either currency needed to purchase one unit of the other.
Bilateral quota: An import (or export) quota applied to trade with a single trading partner, specifying the amount of a good that can be imported from (exported to) that single country only.
Bilateral trade: The trade between two countries; that is, the value or quantity of one country's exports to the other, or the sum of exports and imports between them.
Bilateral transfer: A transfer payment from one country to another.
Bilateral: Between two countries, in contrast to ploy-lateral and multilateral.
Bill of exchange: Any document demanding payment such as a bank draft.
Bill of lading: The receipt given by a transportation company to an exporter when the former accepts goods for transport. It includes the contract specifying what transport service will be provided and the limits of liability. A contract between a carrier and an exporter in which the former agrees to carry the latter’s goods from port of shipment to port of destination. It is also the exporter’s receipt for the goods. A document that establishes the terms and conditions of a contract between a shipper and a shipping company under which freight is to be moved between specified points for a specified charge. It is a shipping document indicating the details of the shipment and delivery of goods and their ownership.
Black market: An illegal market, in which something is bought and sold outside of official government-sanctioned channels. Black markets tend to arise when a government tries to fix a price without itself providing all of the necessary supply or demand. Black markets in foreign exchange almost always exist when there are exchange controls.
Black Market: An illegal market that often arises when price controls or official rationing lead to shortages of goods, services, or assets.
Black-Scholes Option Pricing Model: The most widely used model for pricing options.
Blank endorsement: The method whereby a bill of lading is made into a freely negotiable document of title.
Blanket bond: A bond that coves a group of people, articles or properties.
Blanket contracts: A long-term contract in which the supplier promises to re-supply the buyers as needed at agreed-upon prices over the contracting time.
Blocked Currency: A currency that is not freely convertible to other currencies due to exchange controls.
Blocked funds: Cash flows generated by a foreign project that cannot be immediately repatriated to the parent firm because of capital flow restrictions imposed by the host government.
Blue sky laws: State laws regulating the offering and sale of securities.
Bond discount: The amount by which the face value of a bond exceeds its current price.
Bond equivalent yield: A bond quotation convention based on a 365-day year and semiannual coupons. Contrast with effective annual yield.
Bond premium: The amount by which the current price of a bond exceeds its face value.
Bond: A long-term debt instrument issued by a corporation or government. A debt instrument, issued by a borrower and promising a specified stream of payments to the purchaser, usually regular interest payments plus a final repayment of principal. Bonds are exchanged on open markets including, in the absence of capital controls, internationally, providing a mechanism for international capital mobility.
Bonded Warehouse: A warehouse authorized for storage of good on which payment of duty is deferred until the goods are removed from the warehouse. A warehouse authorized by customs authorities for storage of goods on which payment of duties is deferred until the goods are removed.
Book value:
(1) An asset: the accounting value of an asset – the asset's cost minus its accumulated depreciation.
(2) a firm: total assets minus liabilities and preferred stock as listed on the balance sheet.
Boom-bust cycle: A pattern of performance over time in an economy or an industry that alternates between extremes of rapid growth and extremes of slow growth or decline, as opposed to sustained steady growth. For an economy, this indicates an extreme form of the business cycle.
Border price: The price of a good at a country's border.
Border tax adjustment: Rebate of indirect taxes (taxes on other than direct income, such as a sales tax or VAT) on exported goods and levying of them on imported goods. May distort trade when tax rates differ or when adjustment does not match the tax paid.
Borderless world: The concept that national borders no longer matter, perhaps for some specified purpose.
Borrowing: The amount that an entity, usually a country or its government, has borrowed. Thus it is often the (negative of) the net foreign asset position or the national debt.
Boycott: To protest by refusing to purchase from someone, or otherwise do business with them. In international trade, a boycott most often takes the form of refusal to import a country's goods.
BP-Curve: In the Mundell-Fleming model, the curve representing balance of payments equilibrium. It is normally upward sloping because an increase in income increases imports while an increase in the interest rate increases capital inflows. The curve is used under pegged exchange rates for effects on the balance of payments and under floating rates for effects on the exchange rate.
Brady Bonds: New government securities issued under the Brady Plan whose interest payments were backed with money from the International Monetary Fund.
Brady Plan: Plan developed by U.S. Treasury Secretary Nicholas Brady in 1989 that emphasized LDC debt relief through forgiveness instead of new lending. It gave banks the choice of either making new loans or writing off portions of their existing loans in exchange for Brady Bonds.
Brain drain: The migration of skilled workers out of a country.
Branch: A foreign operation incorporated in the home country.
Break-even analysis: Analysis of the level of sales at which a project would make zero profit. It is a technique for studying the relationship among fixed costs, variable costs, sales volume, and profits. It is also called cost/volume/profit (C/V/P) analysis.
Break-even chart: A graphic representation of the relationship between total revenues and total costs for various levels of production and sales, indicating areas of profit and loss.
Break-even point: The sales volume required so that total revenues and total costs are equal; may be expressed in units or in sales dollars.
Bretton Woods System: International monetary system established after World War II under which each government pledged to maintain a fixed, or pegged, exchange rate for its currency vis-à-vis the dollar or gold. As one ounce of gold was set equal to $35, fixing a currency’s gold price was equivalent to setting its exchange rate relative to the dollar. The U.S. government pledged to maintain convertibility of the dollar into gold for foreign official institutions.
Bretton Woods: A town in New Hampshire at which a 1944 conference launched the IMF and the World Bank. These, along with the GATT (General Agreement on Tariffs and Trade), WTO (World Trade Organization) became known as the Bretton Woods Institutions, and together they comprise the Bretton Woods System.
Bribe: A payment made to person, often a government official such as a customs officer, to induce them to treat the payer favorably.
Broker's fee: The fee for a transaction charged by an intermediary in a market, such as a bank in a foreign-exchange transaction.
Brown field investment: FDI (Foreign Direct Investment) that involves the purchase of an existing plant or firm, rather then construction of a new plant. It contrasts with green field investment.
Bubble economy: Term for an economy in which the presence of one or more bubbles in its asset markets is a dominant feature of its performance.
Bubble: A rise in the price of an asset based not on the current or prospective income that it provides but solely on expectations by market participants that the price will rise in the future. When those expectations cease, the bubble bursts and the price falls rapidly.
Budget constraint:
1. For an individual or household, the condition that income equals expenditure (in a static model), or that income minus expenditure equals the value of increased asset holdings (in a dynamic model).
2. For a country, the condition that the value of exports equals the value of imports or, if capital flows are permitted, that exports minus imports equals the net capital outflow. It is equivalent to income from production equaling expenditure on goods plus net acquisition of foreign assets.
3. It is a function usually a straight line representing either of these conditions.
Budget deficit: The negative of the budget surplus; thus the excess of expenditure over income.
Budget surplus: Refers in general to an excess of income over expenditure, but usually refers specifically to the government budget, where it is the excess of tax revenue over expenditure (including transfer and interest payments).
Buffer stock: A large quantity of a commodity held in storage to be used to stabilize the commodity's price. This is done by buying when the price is low and adding to the buffer stock, selling out of the buffer stock when the price is high, hoping to reduce the size of price fluctuations.
Bull Spread: A currency spread designed to bet on a currency’s appreciation. It involves buying a call at one strike price and selling another call at a higher strike price.
Bureau of Economic Analysis: The government agency within the United States Department of Commerce that collects macroeconomic data, especially the National Income and Product Accounts, as well as data on balance of payments and international investment.
Business cycle: The pattern followed by macroeconomic variables, such as GDP and unemployment that rise and fall irregularly over time, relative to trend. There is some tendency for cyclical movements of large countries to cause similar movements in other countries with whom they trade.
Business risk: The inherent uncertainty in the physical operations of the firm. Its impact is shown in the variability of the firm's operating income (EBIT).
Business-to-business (B2B): Communications and transactions conducted between businesses, as opposed to between businesses and end customers. Expressed in alphanumeric form (i.e., B2B), it refers to such transactions conducted over the Internet.

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