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OCTOBER 25, 2012

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Securities markets in newly industrialized and other countries which are changing from planned to free-market economies

The term now also commonly refers to the countries themselves. These economies have been growing rapidly at rates several times greater than those others. How this has been achieved and, what the governments have done in this, is controversial. However, common factors have included high savings rate,  considerable investment in education, high exports and shifts in workforce from agriculture to industry and services. Counted among such countries are: Brazil, China, Hong Kong, Taiwan, India, Mexico, South Africa and Turkey.




Money can now be transferred electronically from account to account and stored in smart cards (credit cards) and other pre-paid instruments such as phone cards. Strictly speaking, e-money is a store of value in electronic form which can be transferred between individuals and organizations without necessarily involving bank accounts.



With given tastes or preferences, the proportion of one’s income spent on food and other essentials (e.g. clothing) diminishes as one’s income rises.





In simple language, equity mostly refers to the ordinary shares held by public shareholders. As compared to preference shareholding, ordinary equity holding carries much greater risk because the returns are not guaranteed. The dividends depend on divisible surplus coupled with management discretion and provisioning for other needs.  Equity yields,  although fluctuating, have historically been well above those of the risk-free securities.



The rate at which one currency is exchanged for another. Transactions in foreign exchange occur in spot or forward exchange markets. The actual rate is determined by market supply and demand for the relevant currencies. An economy has an internationally traded sector and a domestic sector. The prices obtained by the former are determined by the prevailing prices in the international market and the exchange rate, whereas prices in the latter are not determined so directly. A fall in the exchange rate will increase demand and make the internationally traded sector relatively more attractive compared with the domestic sector and therefore they will tend to redirect resources in its favour. The reverse would happen with an increase in the exchange rate.




Indirect taxes levied on goods produced for home consumption, as distinct from customs duties (import tariffs) which are levied on goods entering or leaving the country. Excise duties contribute the biggest chunk to indirect tax collections in India.





A form of direct taxation on spending. However, indirect taxes such as Value-Added Tax and Sales Tax, although taxes on expenditure, are quite different in the method of collection and in their applicability to all regardless of individual  circumstances.





The inputs used in the process of production. Land, labour and capital are the three primary groups used in the analysis of factors, with entrepreneurship (entrepreneur) often counted as the fourth variable.




An issue of currency not backed by gold or silver. Usually, as a norm, every currency note issued by the Reserve Bank of India has to be backed by an equivalent amount of gold kept in reserve. But there can be instances to the contrary called a fiduciary issue (based on trust).




The effect of inflation on effective tax rates, or the effect of growth in nominal Gross Domestic Product on tax revenues. Under a progressive income tax systems, increases in earnings may push taxpayers into higher tax brackets. In a tax system not adjusted for inflation (indexation), this can lead to higher earnings generating higher tax revenues.

Fiscal drag could result in an unintentional shift in fiscal policy, with a depressing effect on the growth of demand and output. A similar process can work in reverse and during deflation e.g. if prices fall, tax rates will also fall even though real incomes have increased. Fiscal drag, therefore, can have the effect of a built-in stabilizer.





Investment in a foreign country through the acquisition of a local company or the establishment of an operation on a new 'Greenfield’ site. Direct investment implies control and managerial and technical inputs even. India has tried to attract more and more FDI in different economic sectors after economic liberalization. Telecom, power, retail and food processing sectors have been some major beneficiaries of this trend.





Any market in futures, i.e. a market in which the promises or contracts to buy or sell securities or commodities at a future date at agreed prices are bought and sold. Examples of forward markets in India include the Future & Options segment of the National Stock Exchange, Multi-Commodity Exchange of India (MCX) and National Commodities and Derivatives Exchange (NCDEX).



A market in which supply and demand are not subject to regulation other than normal competition policy framed by regulators. The definition of a free market becomes blurred in cases where free trade and competition are incompatible. Most economists would not call the world diamond market as completely free, given its dominance by an international cartel arrangement.



An economic system in which the allocation of resources is determined solely by the market demand and supply, though in practice, there are some limitations on market freedom everywhere. Moreover, in some cases, governments intervene in free markets to promote competition that might otherwise disappear. It is usually used as synonymous with capitalism.



A customs-defined area in which goods or services may be processed or transacted without any taxes or government regulations. A special case is the freeport, into which goods are imported without any customs tariffs. As per the International Labour Organization, there are about 850 free trade zones throughout the world.




Frictional unemployment is a kind of structural unemployment which arises due to unavoidable time lags in a free-market economy mainly due to technological changes - there are search delays involved, for example, in moving from one job to another. 




Non-monetary rewards for employees, e.g. subsidized housing, telephone and company cars. Health insurance, club membership and discounts on goods purchased through the employer are other examples of fringe benefits. In India, there is a contentious Fringe Benefit Tax on some such benefits beyond a limit.




Contracts made in a 'future market' for the purchase or sale of commodities or financial assets, on a future date. Futures are negotiable instruments, i.e. they may be bought and sold.

Commodity exchanges in India like the MCX and NCDEX feature a wide variety of commodities in the futures markets that permit manufacturers and traders to hedge against changes in the price of the materials they deal in. Gold, silver, guar and spices account for significant trade volumes on these exchanges.






The tax burden which automatically arises due to inflation without any change in taxation rates applicable to a specific individual. Due to a wage hike, people automatically get shifted to a higher tax slab in this situation.





Mobile industries, which can be located up anywhere because the raw material is light or is of little importance. For instance, electronics, micro-processor chips etc.


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