Capital account and Current account: The
capital account of international
purchase or sale of assets. The assets include any form which wealth may be
held. Money held as cash or in the form of bank deposits, shares, debentures,
debt instruments, real estate, land, antiques, etc…
The current account records all income
related flows. These flows could arise on account of trade in goods and
services and transfer payment among countries. A net outflow after taking all
entries in current account is a current account deficit. Govt. expenditure and
tax revenues do not fall in the current account.
Dividend Yield: It
gives the relationship between the current price of a stock and the dividend
paid by its issuing company during the last 12 months. It is calculated by
aggregating past year’s dividend and dividing it by the current stock price.
Historically, a higher dividend yield has been
considered to be desirable among investors. A high dividend yield is considered
to be evidence that a stock is under priced, where as a low dividend yield is
considered evidence that a stock is over priced.
Bridge Financing: It
refers to loans taken by a company normally from commercial banks for a short
period, pending disbursement of loans sanctioned by financial institutions.
Generally, the rate of interest on bridge finance is higher as compared with
term loans.
Shares
and Mutual Funds
Company:
Sec.3 (1) of the Companies act, 1956 defines a ‘company’. Company means a company formed and registered
under this Act or existing company”.
Public Company: A
corporate body other than a private company. In the public company, there is no
upper limit on the number of share holders and no restriction on transfer of
shares.
Private Company: A
corporate entity in which limits the number of its members to 50. Does not
invite public to subscribe to its capital and restricts the member’s right to
transfer shares.
Liquidity: A firm’s liquidity refers to its ability to
meet its obligations in the short run.
An asset’s liquidity refers to how quickly it can he sold at a
reasonable price.
Cost of Capital: The
minimum rate of the firm must earn on its investments in order to satisfy the
expectations of investors who provide the funds to the firm.
Capital
Structure: The composition of a firm’s financing consisting of equity,
preference, and debt.
Annual Report: The
report issued annually by a company to its shareholders. It primarily contains
financial statements. In addition, it represents the management’s view of the
operations of the previous year and the prospects for future.
Proxy: The authorization
given by one person to another to vote on his behalf in the shareholders
meeting.
Joint Venture: It
is a temporary partnership and comes to an end after the completion of a
particular venture. No limit in its.
Insolvency: In
case a debtor is not in a position to pay his debts in full, a petition can be
filled by the debtor himself or by any creditors to get the debtor declared as
an insolvent.
Long Term Debt: The
debt which is payable after one year is known as long term debt.
Short Term Debt: The
debt which is payable with in one year is known as short term debt.
Amortization: This
term is used in two senses 1. Repayment of loan over a period of time
2.Write-off of an expenditure (like issue cost of shares) over a period of
time.
Arbitrage: A
simultaneous purchase and sale of security or currency in different markets to
derive benefit from price differential.
Stock: The Stock of a
company when fully paid they may be converted into stock.
Share Premium:
Excess of issue price over the face value is called as share premium.
Equity Capital: It
represents ownership capital, as equity shareholders collectively own the
company. They enjoy the rewards and bear the risks of ownership. They will have
the voting rights.
Authorized Capital:
The amount of capital that a company can potentially issue, as per its
memorandum, represents the authorized capital.
Issued Capital: The
amount offered by the company to the investors.
Subscribed capital:
The part of issued capital which has been subscribed to by the investors
Paid-up Capital: The
actual amount paid up by the investors.
Typically
the issued, subscribed, paid-up capitals are the same.
Par Value:
The par value of an equity share is the value stated in the memorandum and
written on the share scrip. The par value of equity share is generally Rs.10 or
Rs.100.
Issued price: It is the price at which the equity share is
issued often, the issue price is higher than the Par Value
Book Value: The book value of an equity
share is
= Paid – up
equity Capital + Reserve and Surplus / No. Of outstanding shares equity
Market Value (M.V): The
Market Value of an equity share is the price at which it is traded in the
market.
Preference Capital: It
represents a hybrid form of financing it par takes some characteristics of
equity and some attributes of debentures. It resembles equity in the following
ways
1.
Preference dividend is payable only out of
distributable profits.
2.
Preference dividend is not an obligatory
payment.
3.
Preference dividend is not a tax –deductible
payment.
Preference
capital is similar to debentures in several ways.
1.
The dividend rate of Preference Capital is
fixed.
2.
Preference Capital is redeemable in nature.
3.
Preference Shareholders do not normally enjoy
the right to vote.
Debenture: For large publicly traded firms. These are
viable alternative to term loans. Skin
to promissory note, debentures is instruments for raising long term debt.
Debenture holders are creditors of company.
Stock Split: The dividing of a company’s
existing stock into multiple stocks.
When the Par Value of share is reduced and the number of share is increased.
Calls-in-Arrears: It
means that amount which is not yet been paid by share holders till the last day
for the payment.
Calls-in-advance:
When a shareholder pays with an installment in respect of call yet to make the
amount so received is known as calls-in-advance. Calls-in-advance can be
accepted by a company when it is authorized by the articles.
Forfeiture of share: It
means the cancellation or allotment of unpaid shareholders.
Forfeiture
and reissue of shares allotted on pro – rata basis in case of over
subscription.
Prospectus:
Inviting of the public for subscribing on shares or debentures of the company.
It is issued by the public companies.
The
amount must be subscribed with in 120 days from the date of prospects.
Simple Interest: It
is the interest paid only on the principal amount borrowed. No interest is paid
on the interest accrued during the term of the loan.
Compound Interest: It
means that, the interest will include interest calculated on interest.
Time Value of Money:
Money has time value. A rupee today is more valuable than a rupee a year. Hence
the relation between value of a rupee today and value of a rupee in future is
known as “Time Value of Money”.
NAV: Net Asset Value of
the fund is the cumulative market value of the fund net of its liabilities. NAV
per unit is simply the net value of assets divided by the number of units out
standing. Buying and Selling into funds is done on the basis of NAV related
prices. The NAV of a mutual fund are required to be published in news papers.
The NAV of an open end scheme should be disclosed on daily basis and the NAV of
a closed end scheme should be disclosed at least on a weekly basis.
Financial
markets: The financial markets
can broadly be divided into money and capital market.
Money
Market: Money market is a
market for debt securities that pay off in the short term usually less than one
year, for example the market for 90-days treasury bills. This market
encompasses the trading and issuance of short term non equity debt instruments including treasury bills, commercial
papers, banker’s acceptance, certificates of deposits, etc.
ΓΌ
Capital Market: Capital market is a market for long-term debt and
equity shares. In this market, the capital funds comprising of both equity and
debt are issued and traded. This also includes private placement sources of
debt and equity as well as organized markets like stock exchanges. Capital
market can be further divided into primary and secondary markets.
Primary Market: It
provides the channel for sale of new securities. Primary Market provides
opportunity to issuers of securities; Government as well as corporate, to raise
resources to meet their requirements of investment and/or discharge some
obligation.
They
may issue the securities at face value, or at a discount/premium and these
securities may take a variety of forms such as equity, debt etc. They may issue
the securities in domestic market and/or international market.
Secondary Market: It
refers to a market where securities are traded after being initially offered to
the public in the primary market and/or listed on the stock exchange. Majority
of the trading is done in the secondary market. It comprises of equity markets
and the debt markets.
Difference
between the primary market and the secondary market: In the primary market, securities are offered to
public for subscription for the purpose of raising capital or fund. Secondary 
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