Economic Terminology - II

INFLATION
• A general increase in prices and fall in the purchasing power of money, or, an increase in available currency.

DEFLATION
• Reduction of the amount of money in circulation in order to increase its value.

DISINFLATION
• A policy designed to counteract inflation without causing deflation.

STAGFLATION
• A state of inflation without corresponding increase of demand and employment.

Cash Reserve Ratio (CRR)
• The liquid cash that all banks are required to maintain with the RBI as a percentage of their demand and time liabilities.

REPO RATE
• It is the rate at which the banks can borrow money from a central bank of the country in order to avoid scarcity of funds.
• Thus, a reduction in the REPO rate will help banks to get money at a cheaper rate.
• It is also a financial & economic tool in the hands of the government to control the availability of money supply in the market by altering the REPO rate from time to time.

PRICE INDEX
• A normalized average (typically a weighted average) of prices for a given class of goods or services in a given region, during a given interval of time.
• It is a statistic designed to help to compare how these prices, taken as a whole, differ between time periods or geographical locations.

Consumer Price Index (CPI)
• A consumer price index (CPI) is a measure of the average price of consumer goods and services purchased by households.
• It is one of several price indices calculated by national statistical agencies.
• The percent change in the CPI is a measure of inflation.

MARKET LIQUIDITY
• Is a term that refers to an asset's ability to be easily converted through an act of buying or selling without causing a significant movement in the price and with minimum loss of value.

COMMODITY
• A commodity is anything for which there is demand, but which is supplied without qualitative differentiation across a market.

BONDS
• A bond is a debt security, in which the authorized issuer owes the holders a debt
and is obliged to repay the principal and interest at a later date, termed maturity.
• A bond can be considered as a loan in the form of a security
• Bonds enable the issuer to finance longterm investments with external funds.

SHARE
• A share (also referred to as equity share) of stock means a share of ownership in a corporation (company).

Difference between Bonds and Stocks
Bonds and stocks are both securities, but the major difference between the two is that stock-holders are the owners of the company (i.e., they have an equity stake), whereas bond-holders are lenders to the issuing company.
Bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely.

PROMISSORY NOTE
A promissory note is a written promise by the maker to pay money to the payee. The most common type of promissory note is a bank note, which is defined as a promissory note made by a bank and payable to bearer on demand.

COMMERCIAL PAPER
Commercial Paper is a money-market security issued by large banks and corporations to get money to meet short term debt obligations (for example, payroll. It has a fixed maturity of 1 to 270 days.

SECURITY
A security is a fungible, negotiable instrument representing financial value.
Securities are broadly categorized into:
debt securities (such as banknotes, bonds and debentures)and equity securities, e.g., common stocks.