Dictionary of Business and Economics Terms [5 ed.] 0764147579, 9780764147579

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Dicticffiary cf

A iranrir rci,:r,.'ilr,r gui11... tt,r stri.l,ii-rts. blr^siness i.rolrirtor" and managcr-ri, trid generai readers. Tbpic.s covered dc'al

ui.th accounting, raxation, fhc intr:rneq intc ry,ationaI bu^siness, rnarketing, real estate. statistics, and more. hrrsincss law; computem and

General Editor

Dictionary of Business and E c o n o m i c s Te r m s Fifth Edition J a c k P. l - r i e d m a n . P h . D . , C PA / A B V

CONTRIBUTING

AUTHORS

Su/unnc S. Bunihill

.Stephen llariinaii

Jeffrey CUirk Michael Covinglon Barry A. Diskiii

Lowell B. Howard

John Oownes

Bruce Lindeman

Douglas Downing

Bob

Eric S. Friedman

Harvey W. Rubin

Jane Iinbcr Theodore C. Jones

McMahon

Stephen H. Gifis

Jae K. Shim

Jordan Elliot Goodman

Joel Siegel

Jack C. Harris J. hfanville Harris. Jr.

Michael B. Slade

Bclsy-Ann Toffler

BARRON’S

V

Jack P, Friedman is an author and consultant in Dallas.Texas.

eCopyright 2012 by Bairon's Educational Series. Inc. ©Copyright 2007.2000,1994. and 1987 by Barron's Educational Series. Inc- under the dile of Diciionary of Business Terms All ri^ts reserved.

No part of this book may be reproduced or distributed in any form or by anv means without the written permission of the copyright o w n e r .

Barron's books arc available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training programs. For more information, please write to the Special Sales Manager, Barron's Educational Scries. Inc. at the mailing address indicated below.

All inquiries shouM be addressed lo: Barron's Educational Series, Inc. 250 Wireless Boulevard

Hauppaugc, NY 11788 w w w. b a r r o a s e d u c . c o i n

Library of Congress Calaiog Curd No. 201 /0.12007 ISBN:978-0-7641-4757-9

Library of Congress Calaloglng'in-I'ublicatlon Data F r i e d m a n , l a c k P.

Dictionary of business and economics tcrms/lack Friedman, —5th ed. p.

cm.

Rev. cd. of: Dictionary of busiitess terms, 4lh cd. c2007, ISBN: 978-0-7641^757-9 1 . B u s i n e s s — D i c i i o n a r i e s . 2 . F i n . r n c e — D i c t i o n a r i e s . I . F r i e d m a n . J a c k P.

Dictionary of business tenns. II. Title. HF)001.F78 2012 330,03-dc23 2 0 11 0 3 2 0 0 7 Printed in China 9 8 7 6 5 4 3 2 1

CONTKNTS

Preface and Acknowledgments

I V

How to Use This Book Effectively

V I

Te r m s

APPENDIX: Abbreviations and Aeronyins

783

V

E»RKFACE

AND

ACKNOWLEDGMENTS

Whcliicryou are majoring in business at acollege or graduate school, starling afresh career in business, venturing into anew enterprise, or just

reading anewspaper or writing abusiness letter, you will find this book to be avaluable reference.

In class, at ameeting, nr at home you may read or hear abusiness term that is unfamiliar to you. Sometimes con.siderable discussion will revolve around that term, and not understanding it will pose an obstiicic

to participating in the entire conversation. Indeed, you may feel uneasy or ignorant if there is ju.st one term you don't recognize. At that point this book will be indispensable. Keeping acopy of this handy paperback by your side will provide auseful reference and prevent embarrassing moments in acla.ssroom. conference, meeting with asupervisor, or dis¬ cussion with an investment advisor or financial planner. Whether the

term relates to accounting or economics, management or marketing, business law or business statistics, advertising, transportation, finance, insurance, or real estate, you will probably find it here. Aconcise defin¬

ition is provided for more than 8,001) terms, and afurther explanation of the term or its use is shown to clarify the definition or use of the term. Terms ilcfincd here arc short enough to be read in afew seconds, but complete enough for the reader to fully grasp meanings and usage. Entrie.s have been li.sicd in strict alphabetical order, as if the entry were one unin¬

terrupted word. Terms that help define particular entries that appeiu else¬ where in this dictionary are shown in smai.l capitals. Terms that are similar to the one being defined are in ilalics. The book is designed to

make auser feel comfortable with the style right from the start. Its size and design features are intended to maximize use and convenience. Many people were involved in this project. Contributors listed by subject area.s include; Accounting

Joel Siegel

and Taxation

Jao K, Shim J a c k P. F r i e d m a n

Actuarial

Eric S. Friedman

Bob McMahon

Advertising

Jane Inibcr

and Direct Mail

Belsy-Ann Toffler

Business Law

Lowell B. Howard

Communications and

J a c k P. F r i e d m a n

Transportation

I

V

P R E FA C E A N D A C K N O W L E D G M E N T S

V

Compuleri anJ Iniemel

Douglas Downing Michiiol Covington Suzanne S. Barnhill

Economics

Bruce Lindeman

Stephen Hartman Jack C. Harris I'inatiec

John Downes Jordan Elliot Goodman

Insurance

Harvey W. Rubin

Iniernational Business

J- Manville Harris. Jr.

Law

Stephen H. Gifts Michael D. Slade

Management

Stephen Hartman

Marketing

Stephen Hartman

Real Estate

Jack C. Harris Jack P. Friedman

Barry A, Diskin Statistics

Theodore C. Jones

Jeffrey Clark Douglas Downing Iam also indebted to anumber of people for their suggestions and their evaluations of various sections of the word list and the manuscript. They include John Downes. Stephen Hartman. Au.stin Lynas. Robert Ambrio, Milton Amsel. Harold Baldauf, Donald Homolka. Robert Frick, and Mark Rush.

Suzanne Barnhill, friend and advisor, improved the manuscript in numerous ways. The editorial staff of Biirron’s Educational Series was

essential in producing this book. David Rodman earned special recogni¬ tion. Their efficiency and professional ethics in publishing were vital to the successful fruition of this project. To my wife Anita and to Eric and Renee: Ithank Ihcm for their love and encouragement. Jack I’. Friedman General Editor

V

HOW

TO

USE

THIS

BOOK

E F F E C T I V E LY

Alphabctizaliun: All entries are alphabetized by letter rather than by word so that multiple-word terms are treated as sincle words. For exam¬

ple, OPENING precedes OPEN INTEREST and DIRECTOR follows DIRECT MATERIAL. In some cases, abbreviations or acronyms appear a.s entries in the main text, usually as across-reference to the complete term, in addition to appearing in the Abbreviations and Acronyms section

of the Appendix. Where aterm has several meanings, alpiiabctical sequence is used for subheads, except in special instances where clarity dictates adifferent order. In some entries, the various meanings of the term are presented with simple numerical headings. Abbreviations and Acronyms; Aseparate list of abbreviations and acronyms follows the Dictionary, It contains shortened versions of terms defined in the book, plus some related business terms. Cross-References: In order to gain afuller understanding of aterm, it will sometimes help to refer to the definition of another term. In these cases the additional term is printed in smai.i. capitals. Such crossrefer¬ ences appear in the body of the definition or at the end of the entry (or subenlry). Cross-references a! the end of an entry (or subeniry) may refer to related or contrasting concepts rather than give more information about the concept under discussion. As arule, aterm is printed in small capitals only the first time it appears in an entry. Where an entry is fully defined at another entry, areference rather than atiefinition is provided; for example, PUBLIC CARRIER see common carrikr. Italics: Italic type is generally used to indicate the term itself, when used

in an example within the definition, or another term that has ameaning identical or very closely related to that of the entry. Occasionally, italic type is also u.scd to highlight the fact that aword used is abusiness term and not

just adescriptive phra.se. Italics are also used for the titles of publications. Parenihe.sfs; Parentheses are used in entry titles for three reasons. The first is to indicate that an entry's opposite is sucli an integral part of the concept that only one discussion is ncec.ssary; for example, CAPITAL GAIN (LOSS). The second and more common reason is to

indicate that an abbreviation is used w-ith about the same frequency as the term itself; fur example, DOING BUSINESS AS (DBA). Finally, infor¬ mation enclosed in parentheses may add to the understanding of the term: BORROWING POWER (OF SECURITIES).

Examples, Illustrations, and Tables: The examples in this Dictionary arc designed to help readers gain understanding and to help them relate abstract conccpi.s to the real world of busincss. Organizulioas and Associations: Those that play an active role in the field arc included in the Dictionary, along with abrief statement of their mission. They are also listed by initials in Abbreviations and Acronyms. V

I

1

A B S E N C E R AT E , A B S E N T E E I S M

A ABANDONMENT volumar>’, imcmional surrender of properly, or of a riyhi lo properly, without naming asuecessor as owner or tenant. The pro|>crty will generally revert to one holding aprior interest or. in eases where no owner is apparent, to the state. Abandonment docs not relieve

ii person from obligations associated with lease nr ownership iinle.ss tlie iibumlonnieni is accepted by the entity to which the obligation is owed. A B A T E M E N T

In general: Ic.ssening or reduction.

I.iiw: cither atermination ora temporary suspension of alawsuit. An (ihiiifmeni of taxes is atax rebate or decrease.

ABC ME THOD inventory management method that caiegoriites items in terms of importance. Thus, more emphasis is placed on higher dol¬ lar value items :ring prick.

2. per-share price at which mutual fund shares are offered to the pub¬ lic, usually the nit asset value per share plus asales charge, if any. See also Bit) and askfx>.

ASSAY test of ametal's purity to verify its conlem. such as to determine whether gold is 99.5% fine.

A.SSEMBI.AGE combining of two or more parcels of land. For exam¬ ple. suppose someone buys two adjolntng properties of land for SIODOO each. The large unified tract is worth $25.0(X).Thc prtKcss is as.semhlape. See ulsii pi.ottage value. ASSEMBLY LANGUAGE computer language in which each .state¬

ment corresponds to one machine language statement. Assembly lan¬ guages are more cumbersome to use than regular or high-level programming languages, but they arc much easier to use than pure machine languages, which require that all instructions he written in binary cixJo.

ASSEMBLE’ LINE production method requiring workers to perform a repetitive task on aproduct as it moves along on aconveyor bell or

A S S E M B LY

PLANT

3 8

track- An a.ssembly line has the iidvaniages of part standardization and rationalization of work. See also assembly plant.

ASSEMBLY PLANT physical plant where an assembly line is located, where production-line assembly work occurs. See also ASSEMBLY line. ASSESS

1. to determine the value of something.

2. to fix the value of property on the basis of which property taxes will be calculated.

ASSESSED VALUATION dollar value assigned to property by a municipality for purposes of assessing taxes, which are based on the number of mills per dollar of assessed valuation. If ahouse is assessed at $100,000 and the tax rate is 50 mills, the tax is $5,000. ASSESSMENT

1. amount of tax or special payment due to amunicipality or associa¬ tion. See also assessment rai io.

2. proportionate share of acommon expense. ASSESSMENT OF DEFICIENCY’ amount of lax determined to be due

after an appellate review within the Internal Revenue Sendee and atax court adjudication (if requested). A S S E S S M E N T R AT I O r a t i o o f a s s e s s e d v a l u e t o m a r k e t v a l u e . F o r

example, acounty requires a40?} assessmeni ratio on all properly to be taxed. Properly with a$10,000 market value is therefore assessed at $4,000 (40% of $10,000), and the tax rati-: is applied to $4,000. ASSESSMENT ROLL public record of the assessed value of property in ataxing jurisdiction. The assessment roll of atown, for instance, lists each individual tract of land within its taxing Jurisdiction and shows the assessed value of each. '

ASSESSOR official who determines property values, generally for real estate

laxe.s.

ASSET anything owned lhat has value; any inierc.st in rem vroperty or PERSONAL property ilitii Call bc Used for payment of debts. See also (. apital assets; current asset: fixed asset; quick asset.

ASSET ALLOCATION method of targeting investments to appropriate proportions of asset classes to achieve the highest investment reiiirii while minimizing risk. Proportions can vary according to market con¬ ditions. During ahigh-inierest-ratc period, alarge proportion of the investments will be targeted to interest-bearing securities, while dur¬

ing aperiod of low interest rates agreater proportion of the invest¬ ments will he directed into equity investments, See also investment POSTHOLIO.

ASSET-BACKED SECURITIES uonds or notes backed by loan paper or accounts receivable originated by banks, credit card companies.

39

ASSIGNOR

or other providers of credit and often enhanced by abank letter (>!!' CREDIT or by insurance coverage provided by an institution other than the issuer- ire COLLAn-.KAt.lZED MOKKIAOt- OBUGATtON (CMO). ASSET HUUHLE inflationary valuation of asset prices resulting from

excess demand. Typically, asset bubbles occur in one particular a.sset category, such as tulips in the first recorded asset bubble, the Dutch lulipomdiiid of 1637, which quickly collapsed. The 2005-2006 real estate bubble in the United Slates preccdcxl the Great Recession of

2007-2009. Low interest rales and govenimental stimulus programs for aparticular asset class exacerbate asset bubbles.

ASSET DEMAND FOR MONEY holding money, instead of other investment assets, for its function as astore of value.

ASSIGN sign adocument transferring ownership from one party to another. Ownership can be in anumber of forms, including tangible property, rights (usually arising out of contracts), or the right to trans¬

fer ownership at some later time. The party who assigns is the ASSIGNOR and the party who receives the transfer of title—the assign¬ ment—is the ASSIGNEE.

ASSIGNED RISK in automobile insurance, aclass of persons to whom insurance companies will not issue policies voluntarily, usually

because their record of prior accidents has made them ahigh risk, and who therefore are as.signed by state law to insurance companies and must pay higher rates. ASSIGNEE person to whom an agreement or contract i.s sold or trans¬ ferred. See also assignor.

ASSIGNMENT transfer of rights under an insurance policy to another person or business. For example, to secure adebt, it is not uncommon for the policyowner to transfer to the creditor his rights to borrow on the cash value. Life insurance policies are freely assignable to secure loans and notes (properly and casually insurance policies are not). Creditors such as banks often have printed assignment forms on hand at the time of making loans. ASSIGNMENT OF INCOME taxpayer's direction that income earned by him be paid to another person so lhal it will be considered the other person's income for federal tax purposes. ASSIGNMENT OF LEASE transfer of rights to use leased property. The .ASSIGNEE acquires the same rights and privileges as the a.ssig.nor. The assignor remains liable unless released by the landlord. y\SSIGNOR party who assigns or transfers an agreement or contrael to another. .Suppose Davis has an option to buy certain land. She assigns her rights to Baker, so that Baker now has the same rights. Davis is the assignor. Baker is the a.ssignee. See al.so a.ssion.

A S S I M I L AT I O N

4 0

ASSIMILATION absorption of anew issue of stock by the investing public after all shares have been sold by the issue's underwriters. See also ABSORBED-

ASSOCIATION abody of persons united without acharter, but upon the methods and forms used by incorporated bodies, for the prosecution of some common enterprise. Some entities may be associations taxable as acorporation. A S S O C I AT I O N O F C K R T I F I E D F R A U D E X A M I N E R S ( A C F E ) a

35.000-member global association dedicated to providing anti-fraud education and training in business. Awards the CFE designation. ASSUMABLE LOAN amortgage loan that allows anew home pur¬

chaser to undertake the obligation of the exi.sting loan with no change in loan terms. Loans without DUE-ON-SaLE clauses, including most

FHA and VA mortgages, are generally assumable. ASSL'MPTION FEE acharge levied by alender to abuyer who

assumes the existing loan on the subject property. ASSUMPTION OF MORTGAGE taking upon oneself the obligations

of amortgagor toward amortgagee, generally as part of the purchase price of aparcel of real estate. By assuming the mortgage rather than taking subject to the mortcaoe. the purchaser becomes personally liable on the debt. The seller is not relieved of the obligation unles.s the

lender agrees to do -so in anovation. Many lenders refuse to allow mortgage loans to be assumed unless they approve of the transaction; often they require points or increase the face rate of interest. See ASSUMABLE

LOAN.

ASSUMPTION OF RISK technique of risk management (better known as reteniion or SEi.H-iNSURANCt) under which an individual or business

firm assumes expected losses that are not catastrophic, but protects

against catastrophic losses through the purchase of insurance. For example, abusiness firm assumes the risk of absenteeism by its employees because of minor illness, but buys disability insurance to cover absences due to extended illness. Also refers to (1) instances

where insureds place themselves in situations that they realize pose a

danger, and (2) the acceptance of risks by an in.surance company. ASTERISK the *character, ll is used as areference mark for footnotes,

to represent multiplication in mathematical expressions, and as a "wildcard" variable in filename and data searches.

ASYNCHRONOUS processes that are not .synchroni/ed. For example, most computer terminals use asynchronous data transmission, in

which the terminal or the computer is free to transmit any number of characters at any time. (The bits constituting each character are trans¬ mitted at afixed rale, but the pauses between characters can be of any duration.) Synchronous terminals, by contrast, transmit an entire screen full of information at once.

AT T E N T I O N

41 A T M

1. (oficn lowercase) online abbreviation for “at the moment' (i.e.. iiow).

2. in banking, abbreviation for automated teller machine,

A'l' PAR at aprice equal to the face, or nominal, value of asecurity. See ulSiy PAR VALUE-

AT RISK exposed to the danger of loss. Investors in alimited pannership can claim tax deductions only if they can prove that there is a chance they can lose money. Deductions will be disallowed if the lim¬ ited partners are not exposed to economic risk—if, for example, the

general partner guarantees to return all capital to limited partners even if the busine.ss venture should lose money. It generally applies to taxsheltered investments, except real estate financed by qualified thirdparty debt. AT- R I S K R L X E S t a x l a w s t h a t l i m i t t h e a m o u n t o f t a x l o s s e s a n

investor (particularly alimited partner) can claim from certain

industries, including oil and gas, movie production, farming, and real estate. This means that losses will be deductible only to the extent of money the equity investor stands to lose. AT SIGN the character ®. which stands for the word at. Once used in

pricing (e.g., three items @SI each), it is now more common in E-MAll, ADDRESSES, wliich Usually liavc the formul [email protected]. A T T A C H M E N T

Computers: abinary Hie sent with an e-mail messageinsurance: .addition to abasic insurance policy to further explain cov¬ erages, add or exclude perils and locations covered, and add or delete positions covered. I'or example, an atiiiclwiem to the standard fire POLtcy might add coverage for vandalism and malicious mischief.

This form has largely been replaced by an endorsement or rider. ATTAINED AGE insured’s age at aparticular point in time. For exam¬ ple, many term life insurance policies allow an insured to convert to permanent insurance without aphysical examination at the insured’s then ulluincd age. Upon conversion, the premium usually rises sub¬ stantially to reflect (he insured's increased age and diminished life expectancy. Since later in life rales become prohibitive, many insureds do not make an attained age conversion. AITEN'I'ION act of noticing an advertisement or commercial; acom¬ ponent of iiifomiation or perceptual processing. Since consumers will usually take note of things relevant to their needs, attitudes, or beliefs, attention is selective. There have been cases in advertising history where aitcmion was drawn to the advertising but, unhappily, not to the product being advertised.

AT T E N T I O N

LINE

4 2

ATTENTION LINE place on alabel or envelope lo write the name of the person who should receive the shipment. ATTEST lo affirm a.s true or bear witness to. One may attest by signing one’s name as awitness to the execution of adocument.

AT THE CLOSE order to buy or sell ascciirily within the final 30 seconds

of tmding. Brokers never guiuaniee that such orders will be executed. AT THE MARKET see MARKET ORDBR-

AT THE OPENING customer's order lo abroker to buy or sell asecu¬

rity at the price that applies when an exchange opens. If the order is not executed at that time, it is automatically canceled. ATTITUDES mental position or emotional feelings about products, ser¬

vices, companies, ideas, is.sues.or institutions. Altitudes arc shaped by DEMOGRAPHICS, social values, and personality. In advertising, the

desire is to generate favorable perceptions toward the thing being advertised, and lo promote positive consumer altitudes. ATTORNEY-AT-l-AW person admitted to practice law in ajurisdiction, authorized to perform both civil and criminal legal functions for clients. These functions include drafting of legal documents, giving

legal advice, and representing clients before courts, administrative agencies, boards, etc. AT TO R N E Y- I N - E A C T o n e w h o i s a u t h o r i z e d t o a c t f o r a n o t h e r u n d e r

aPOWER OF ATTORNEY, which may be general or limited in .scope. A

person need not be an attorsey-at-law to be an aiiorney-m-facl. ATTORNMENT tenant’s formal agreement to be atenant of anew landlord.

ATTRACTIVE NUISANCE property that is inherently dangerous and particularly enticing to children. For example, aswimming pool has a strong attraction lo childicn and could lead to aliability judgment

against the pool’s owner. The owner must take all necessary steps to prevent accidents, such as building an adequate fence around the pool. ATTRIBUTE acharacteristic, such as acolor, product type, or name,

that can be used to group data with similarities. See attribute sam¬ pling. Also, in WORD pRocE-SSi.s'G programs, afont characicrisiic such as size.color, bold, italic, all caps, superscript, and die like. ATTRIBli'I'E SAMPLING statistical procedure used to study charac¬

teristics of apopulation. An atiribiite is aqualitative characteristic that aunit of apopulation either possesses or docs not possess. For exam¬

ple, an account receivable is either past due or not; proper authoriza¬ tion for apayment cither exists or docs not. Thus the population under consideration is composed of two mutually exclusive classes—units posses.sing the attribute and units not possessing i\.See uho VARlABl.iiS S A M I ' U N G .

43

AUDIT LIMITED

AT T R I T I O N n o r m a l a n d u n t o i i i r o l l a b l e r c i i u c i i o n o f a w o r k f o r c e because of rciiremciu.dcaih, sickness, and relocation. It is one method

of reducing the si« of awork force without management taking any overt actions. The drawback to reduction by attrition is that reductions

are often unpredicttibic and can leave gaps in an organi/aiion. AUCTION or AUCTION SAI.K way of marketing property without a set price. Bros are taken verbally on the spot, by phone, by mail, by

telegram, etc., and the properly is .sold to the highest bidder. Auctioning real estate may require both an auctioneer's license and a real estate license. See also Dirrcii al'ctio.s,

AUCTION EXCHANGES centralized securities trading markets where

si:CL'RiiiK.s are bought and sold in an orderly manner through security brokers. Securities, including equities, bonds, options, closed-end

funds, and futures, arc bought and sold through bid and offer prices. The highest bid and the lowest tiffcr have precedence in completing a purcliase or sale, respectively. The first bid or offer has priority over

later bids and offers. Of the nine major auction exchanges in the United Stales, the largest is the New York Stock Exchange, where more than 3,000 different securities are traded daily. See also DhALKR nXCHANOE.

AUCTIONING posting an online rcque.si for goods and services, allow¬ ing suppliers to hid for the business. AUDIENCE

In general; 1. group of people assembled in astudio, theater, or auditorium to witness apresentation or performance. 2. personal meeting of aformal nature, as an audience with the Pope. Advertising: total number of people who may receive an advertising message delivered by amedium or acombination of media. Communiculiuns; total number of readers, viewers, or listeners

reached by the appropriate medium. AUDIT inspection of the accounting recorils and procedures of abusi¬ ness. government unit, or other reporting entity by atrained accoun¬ tant. for the purpose of verifying the accuracy and com])lclcness of the records. It may be conducted by amember of the organization (inter¬ nal audit) or by an outsider (independent audit). ACPA audit deter¬ mines the overall validity of fmancial statements. Alax (IRS) audit determines whether the appropriate tax was paid. An imemal audit generally determines whether the company's procedures are followed and whether embezzlement or other illegal activity oceurred.

AUDIT LIMITED audit having anarrow scope, such as being limited to certain accounts, aperiod shorter than one year, or where the audi¬ tor's access to recisrds was restricted. Alax return audit may be lim¬ ited to certain deductions.

A U D I T I N G S TA N D A R D S

4 4

AUDITING STANDARDS guidelines to which an auditor adheres. See u/jo GENERALLY ACCEPTED ACCOUNTING PRINC1PLE.S (GAAP). A U D I T O R

1. public officer charged by law with the duly of examining and ver¬ ifying the expenditure of public funds. 2. accountant who performs asimilar function for private parties. AUDITOR'S CERTIITC.ATE, OPINION, OR REPORT see accounTA t r r ’ s o p i n i o n .

AUDIT PROGRAM detailed listing of the steps to he taken by an audi¬ tor, such as acerttpied puhi.ic accountant (cpa), when analyzing transactions to determine ihc acceptability of financial statements.

Major accounting firms may prepare an audit program for each client and require the person who docs the work to sign or initial each step performed.

AUDIT TRAIL siep-by-siep record by which accounting data can be traced to their source. Questions as to the validity or accuracy of an

accounting figure can be resolved by reviewing the sequence of events from which the figure resulted. AUTARKY policy of establishing aself-sufficient and independent national economy. See also closed economy. AUTHENTICATION identification of abond cenificate as having been issued under aspecific indenture, thus validating the bond. Also, legal

verification of the genuineness of adocument, as by the certification and seal of an authorized public official.

AUTHORITARIAN dictatorial and domineering. Authoritarian man¬ agers value employees’ unquestioned obedience. See also ranORY x. AUTHORITARIAN SOCIETY existence of governmental authority over numerous phases of human conduct while approval by the

people for goveramcnial action does not exist. An auihorharian soci¬ ety is distinguished from atotalitarian society in that the latter covers all phases of human conduct. A U T H O R I T Y

I. power over others by sanctioned personnel within an organization.

Managers have the authority to hire and fire personnel in an orga¬ nization. With authority comes responsibility for one's actions.

2. agovernment corporation or agency that administers apublic enterprise. AUTHORIZED SHARES or AUTHORIZED STOCK maximum

number of shares ucorporation may issue under its charter (as amended). Acorporation need not issue all authorized shares.

AUTOMOBILE LIABILITY INSURANCE

4 5

A U T ' O G E N ( A U r O M A I T v D G E N E R AT I O N < ) E I T C D E R A L TA X

DEPOSIT COUPON) form mailctl by ihe IRS to ataxpayer to accompany the employment tax deposit at any Federal Resen'e Bank.

AUTOMAI EI) TELLER MACHINTC (AIM) eompuieri/ed terminal providing cash dispensing and deposit acceptance hanking transac¬

tions. ATM lerminals have become very popular in many parts of the United States and provide individuals with 24-hour electronic access to their banking accounts without abank teller. See also DEBtr card.

AUTOMATED %'ALUATION MODEL (AVM) computerized method for estimating the value of apro|x;rty. Often used for mass APPRAi.SAt. purposes, such as the reassessment of acity’s property lax base. AU'I'OMATIC CHECKOFF in labor economics, authorization for the employer to deduct union dues and other assessments from tin employee's saltuy automatically and remit them to Ihe labor union; also

called comindsory checkoff. The deducliiui is aresult of commitments or coiiiraoiua) agreements. An example is acoi.i.KtTivE bargaining agreement that require.s union dues to he deducted each payroll period.

AUTOMATIC EXTENSION granting of more lime for ataxpayer to Tile atax return. By filing an IRS Form 4868 (Form 7004 for corpora¬ tions) by the original due date of the lax return, ataxpayer can auto¬ matically extend hi.s or her filing date, although the tax payment (based on (he taxpayer's best csiimaio) is still due on Ihe original fil¬ ing dale. AUTOMATIC (FISCAL) STABILIZERS built-in changes in govemmenl spending and taxation that lend to dampen the BUSINESS CYCLE. Nonindexed progressive income taxes increase tax collections during inflation, thus reducing demand; unemployment compensation increases during recession, thus increasing demand. A U T O M AT ' I C R E I N V E S ’ l ' M E N ' T . v e i ' d i v i d e n d r i - i n v e s t m e n ’ I ' i ’ l a n .

AUTOMATIC STAY' Ihe hold that abanknipley petition puls on all actions against adebtor, including sending demands for payment, fil¬ ing alawsuit, and repo.ssc.ssion or foreclosure actions. AUTOMATIC WITHDRAWAL miiliial fund program that allows shareholders to receive afixed payment each month or each tjuartcr. The payment comes from dividends, including short-term capital gains, and income on securities held by the fund. Long-term capital gains are disiribuicd annually when realized. AUTOMA'TION operating adevice by aulomalie (e.g., mechanical, electronic, or robotic) techniques. AU TOMOBILE LIABILITY' INSURANCE coverage in the event an insured is legally liable fur bodily injury or properly damage by auto¬ mobile.

V

AUTOMOBILE POLICY. PERSONAL

4 6

AUTOMOBILE POLICY, PERSONAL replacemeiU for the earliei

Family Aiilomobile Policy (FAP) with these nine basis coverages: 1. 2. 3. 4. 5. 6.

Coverage Coverage Coverage Coverage Coverage Coverage

A—Liability. fi—Medical Paytnenis. C—Uninsured Motorist Coverage. D—Comprehensive. £—Collision. F—Ci\r Rental Expense (optional).

7. Coverage G—Death, Dismemberment, tmd Loss of Sight (optional). 8. Coverage H—Total Disability (optional).

9. Coverage/—Lo.ss of Earnings (optional). AVATAR image representing acomputer user in an online forum, chat room, or virtual reality program or game. Avatars range from simple, abstract images to complex, personalized, three-dimensional models.

They may be used in place of photos on social networking sites such as Facebook and may be chosen by the user or randomly assigned, as when abstract images are used to denote anonymous conrments on blog sites. A V E R A G E

In general: arithmetic mean.

Finance: appropriately weighted and adjusted arithmelic mean of selected securities designed to represent market behavior generally or

important segment.s of the market, Among the most familiar averages lue the Dow Jones industrial and transportation averages.

AVERAGE COST total of all cost.s for all units bought (or produced), divided by the number of units acquired (or produced). AVERAGE COST CURVE—LONG RUN aline on agraph that rep¬

resents the average cost per unit to produce aproduct for agiven level of output based on optimal production technology and scale. AVERAGE COST CURVE—SHORT RUN agraphic depiction of the average cost per unit to produce aproduct for agiven level of output based on current technology and scale employed by existing firms. AVERAGE (DAILY! BALANCE often used by banks to compute inter¬

est charges, for example, on credit card haltmces, when issuing a monthly statement. It is calculated by summing the amount owed on

each day of the month and dividing by the number of days in the month.

AVERAGE DOWN strategy to lower the average price paid for acom¬ pany's shares. Instead of buying the desired number of shares all at once, the investor would buy some shares initially and then buy addi¬

tional shares as the price declined, thereby lowering the average cost for all shares bought. AV E R A G E F I X E D C O S T s e e n x f c u c o s t , a v e r a g e .

AXE TO GRIND

4 7

AVERAGE TAX RATE lolal taxes paid divided by income. Il indicates the amount of lux paid per dollar earned.

also marginal tax rate.

AVOIDANCE OF TAX method by which ataxpayer legally reduces his tax liahility, for example, by investing in aTAX SHELTl-R. ConirastM'ilh TA X

E VA . S I O N .

AVOIDING PRORATE using certain techniques to eliminate assets from the legal prohate process. Jointly held property, living trusts, and lifetime giving are some ways to avoid probate. AvoidirtR prohute docs not avoid federal estate or gift tax.

AVOIKDUPOI.S measure of weight customarily u.sed for agricultural products and nonpreciou.s metals. An avoirdupois ounce is lighter than aIro) ounce; there are 16 ounces in an avoirdupois pound. See also TROY

WEICtTr.

AVULSION sudden removal of land from one parcel to another, when a body of water, such as ariver, abruptly changes its channel. See also ACCRETION.

AWA R D S s e e p r i z e s a n d a w a r d s .

AWAY FROM HOME sleeping arrangements are necessary for at least one night before reluming home in order to deduct "ordinary and nec¬ essary" travel expenses on abusiness trip. AXE TO GRIND apersonal interest or hidden agenda. Someone with an (ivc III grind gets another person to work for no pay or uses others for his or her personal benefit.

BABY

BELL

48

B BABY BELL one of the regional telephone companies spun off in 1981 by the Justice Department's breakup of American Telephone and Telegraph (derived from the AT&T nickname, “Ma Bell’’)- Many Baby Bells have reconsolidated.

BABY BOND bond having apar value of less than Sl.tXIO. usually .5500 or $25. Baby bonds bring the bond market within reach of .small investors and. by the same token, open asource of funds to corporation.s that lack entree to the large institutional market. B.ABY BOOMERS individuals who were born during the years imme¬

diately following World War 11. This group of people represents asiz¬ able portion of the consuming public, and their spending habits and lifestyle have apowerful influence on the economy. They represent a TAROiRT AUDIENCE for many advettisers. BACHELOR 01' BUSINESS ADMINISTRATION (BBA) degree

from afour-year college where the graduate has concentrated in busi¬ ness subjects. The student lakes mostly liberal arts courses for the fiisi two years, an iniroduciion to various business courses in the second and third years, and then specializes in amajor subject such as accounting, finance, marketing, management, business statistics, or real estate in the fourth year. BACKDATING dating any stalemcnl, document, check, right to .stock options, or other instrument earlier than the date drawn. BACK-END LOAD redemption charge an investor pays when with¬

drawing money from an invostmeiil. Mo.st common in mutual funds and annuities, the back-end load is designed to discourage with¬ drawals. Back-end loads typically decline for each year that ashare¬ holder remains in afund. Also called coniingeni dejerred sates had,

deferred sales charge, exu fee. redemption charge. BACKGROUND INVESTIGATION process of examining ajob appli¬

cant's past to doiermine how well his or her experience and skills match iho.se required for the position. BACKGROUND PROCESSING inve.siigation by management of an

employee’s job liistory and pcisonal references; also called back¬ ground check. Acomplete backorounp investigation is very timeconsuming and expensive. However, background chects help to ensure that qualified personnel are placed in an organization.

BACK HAUL shipper’s movement when returning over aroute previ¬ ously used. BACKLIT illuminated from behind. The uyuiD crystal displays of notebook computers are much easier to sec with backlighting.

!v

■19

BAD

DEBT

BACKI.CKr value ol' unfilled orders plated with amanufacturing com¬ pany. Whether the firm’s backlog is rising or falling is aclue to its future sale.s and earnings.

BACK OEI'TCE bank or brokerage house departments not directly involved in selling or trading. The back office sce.s to accounting records.compliance with government regulations, and communication between branches.

BACK BAY salaries and wages from aprior |)ay periotl. BACKSLASH the character \as compared to the forward slash /. Backslashes are used mainly in internet addresses. BACK-TO-BACK LETTER Oh' CREDIT’ (l./C) second LiiTir-.K of

CRiiDii issued to adifferent beneficiary on the strength of aprimary letter of credit. The second L/C uses the first L'C as collateral for the

bank. Used in aihree-parfy iransaction. BACK Ul’ provide asecond mechanism, record, or contract to pri>tect against apossible failure of the primary mechanism. It is prudent to back I/p computer files regularly. See backup.

BACKUP computer security protection method whereby several dupli¬ cate diita files are stored on .sicondary storage DEVic'iiS in the event

acatastrophic event damages the computer's main file storage system. It is advisable to store backup data files in different locations to guard against loss in the event of afire, theft, or other unplanned event. BACKUP WITHHOLDING procedure used to ensure that federal income tax is paid on earnings oven though the recipient cannot be identified by aSocial Security number. Banks, brokers, and other enti¬ ties report nonwage earnings paid out on IRS Form 1099. When the form cannot be filed because it lacks the taxpayer's Social Security number. 28'^ (through December 31,2012) of the interest, dividends, or fees is withheld by the payer and remitted to the federal govern¬ m e n t .

BACKWARD-BENDING SUPPLY CURVE graph illuMraling the the¬ sis that as wages increase, people will suhstilulc leisure for working. Eventually wages cun get so high that if they increa.se. less labor will be offered in the markel.

BACKWARD VERTICAL INTEGRAT'ION process by which afirm takes ownership or increa.sed control of its .supply systems- It serves streamline the organization, to provide belter cost controls, and eliminate the middleman. Because of efficiency and lowered costs production it is po.ssible for the firm to become more competitive the marketplace.

to to of in

BAD CHECK see n.sk rubber check. BAD DIvHT debt that is not collectible and is therefore worthless to the

CREDITOR. Adebt may become uncolleelihlc because the debtor is

V

BAD-DEBT RECOVERY

50

insolvcni- Abusiness bad debt may be written off under the sPEcrFic-

THAROii-OFF METHOD. Apersonal bad debt is normally not deductible and, if allowed deductible by the IRS. would be treated as ashort-term capital loss, which is limited to $3,000 per year. BAD-DEI$T RECOVERY receipt of an amount, partially or in full, pre¬ viously written off us uncollectible. B.AD-DEBT RESERVE offset to accounts receivable, with amounts

that can be expected to be uncollectible. For example, if abusiness determines that, on the average. 3% of its accounts receivable

becomes worthless during the taxable year, the bu.siness may deduct 3% and add this amount to its bad-debt reserve. The Tax Reform Act

of 1986 repealed this reserve method for all businesses except certain financial and thrift institutions.

BAD TITI-E apurported title that is legally insufficient to convev prop¬ erty to the purchaser. Atitle that is not amarketable nnE is not nec¬ essarily abat/ lillc, but atitle that is bad is not markelabic and a purchaser ordinarily is not compelled to accept it. BAIL BOND monetary guarantee that an individual released from jail will be present in court at the appointed time. If the individual is nol

present in court at that time (has jumped hail), the monetary value of the bond is forfeited to the court.

B.AILEE person who has temporary custody of the personal property of another. The degree of liability for such property varies. For example, if furniture is turned over to amoving company for iransporialion. the mov¬

ing company is the bailee during the time the furniture is in its hands. BAILEE’S CUSTOMERS INSURANCE coverage for legal liability resulting from damage or destruction of (he bailor's property while under the bailee’s lemporar>’ care, custody, and control. Includes property on or in transit to and from the bailee's premises. BAILMENT delivery of personal propiiRTY to bo held in trust. The term alH> refers to the relationship that arises where one person, the BAILOR, delivers property to another, the BAUiE. to hold, with control and possession of the property passing to the bailee. BAILOR the party who has given custody of properly to abailee. BAILOUT an effort by the government to provide sufficient financial assistance to prevent the failure of aspecific private or quasi-private

entity. The program may consist of loans or grants to satisfy outstand¬ ing debts or may involve government purchase of an equity position in the firm.

BAIT AND SWITCH ADVERTISING method of consumer deception that involves advertising in such an attractive way as to bring the cus¬ tomer in, followed by disparagement of the advertised product (which

51

IIALANCK SHEET RESERVES

the seller in truth does not desire to sell) to cause the customer to

switch to antore expensive product. This device is also frequently termed dispara^emem. The Federal Trade Comntission and statutes in many states prohihit this sort of advertising.

BAIT AND SWITCH PRICING illegal practice based on aretailer lur¬ ing customers into astore by advertising items at exceptionally low prices and then telling the customers that the items arc out of stock or

are of inferior quality. The retailer has no intention of selling the advertised items; instead the consuntcr is switched to higher price (margin) items.

BAKER'S DOZEN thirteen. Bakers, concerned over possible penalties for short weight in aproduct, provided an extra for good measure. BALANCE I. amount owed on aloan. 2. amount shown in an account; difference between debits and credits

in an account. If credits exceed debits, it is called aCKEorr balA.SCt.

BALANCED BUDGET .we BUtXiBi'; gram.m-rudman-iioi.ungs AMi-NtJMENT. Conirasi with ntificiT; surplus.

BALANCED MUTUAL FUND fund that buys common stock, pre¬ ferred stock, and bonds in an effort to obtain the highest return con¬ sistent with alow-risk strategy.

BALANCE OF PAYMENTS system of recording all of acountry's eco¬ nomic transactions with the rest of the world during aparticular time period. The balance of payments is typically divided into three accounts—current, capital, and official reserves—and these can show asurplus or adeficit. There can be no surplus or deficit on the overall balatice of payments. See also BAi.ANCfc op traoi:.

BALANCE OK TRADE difference over aperkxi of time between the value of acountry's impttfls and exports of merchandise. When a

country exports ntore than it imports, it is said to have asurplus, or favorahle balance of trade; when imports predominate, the balance is in deficit and is called uiifinorahle. The balance of tnide is made up of transactions in merchandise.

BAL.ANCE SHEET fnancial statement that gives an accounting picture of property owned by acompany and of claims against the jtroperty on aspccifc date. The left (debit) side of ab;iiance .sheet stales assets; the right (credit) side shows liabilities and owners' equity. The two sides must be equal (balance). The balance sheet is like asnapshot of the posilion of an individu;i! or business at one point in lime.

BALANCE SHEET RESERVES an amount in pension plans expressed a.s aliability on the insurance company's bala.vcp: sheet for benefits

owed to policyowners. These reserves must be maintained according

V

52

BALLOON. BALLOON NOTE

lo strict actuarial formulas as they serve to guarantee that all benefit

payments for which the insurance company has received premiums will be made.

BALLOON. BALLOON NOTE see BaI.lOON Pay.MKNT,

BALLOON PAYMENT final payment on aloiin when that payment is greater than the preceding installment payments and pays the loan in full. For example, adebt requires interest-only payments annually for five years, at the end of which lime the principal balance (a balloon payment) is due.

BALLOON POPl'P, BALLOON PROMPT ;i message that pops up on the Windows taskbar in the shape of aballoon or cartoon speech bub¬ ble. See also POPUP advkrtising. B A L L O T 1. vote

2. voting method whereby members of awork group (bargaining unit) determine whether they shall be represented by aparticular union (bargaining agent). In order for abargaining agent lo be certified, it must receive amajority of the ballots ca.st in the bargaining unit. BALLPARK (slang) general range; often an expected or appropriate range of results. Aballpark figure is arough estimate. BAND-AID TREATMENT treatment of symptoms rather than causes; attempting lo cover up aproblem rather than gel to the root of it. BAND OF INVESTMENT aweighted average of debt and equity rates. See WI-tOHTED AVERAGE COST OF CAPITAL (WACC). Source of

Percentage

Purchase Capital

Contributed

Mortgage Equity

x

Rate of

Weighted

Interest

Rale

60%

10%

40%

15%

Band of Investment Rale

6 %

6% 12%

BANKbusinessentityformedlomaintainsavingsanddecking accounts, issue loans and credit, and deal in negotiable securities

issued by government agencies and by corporations. Banks are strictly regulated and fall into the following three categories according to the legal limitations upon their activities: commercial bank; SAVisris and LOAN ASSOCIATION (S&L); SAVINGS DANK. BANK DRAFT same as bill of exchange.

BANKER’S ACCEPTANCE time draft drawn on and accepted by a

bank, the customary means of effecting payment for merchandise sold in import-export transactions, and asource of financing used exten¬ sively in international trade. See also letieb OH Credit.

BANKER’S YEAR convention that standardizes the length of amonth at 30 days and ayear at 360 days.

53

BANNER

AD

BANK FOR INTERNATlONAt. SETTLEMENTS an iniemaiional

banking facility located in Switzerland that promotes cooperation among central btinks and serves as the lender of last resort to some

less-developed countries. BANK HOLDING COMPANY company that owns or controls two or more banks or other bank holding companies. Such companies mast register with the BOAKt) oh governors of the i^-dhral reserve sys¬

tem and hence arc called reuhlered bank holding companies. BANK LINE bank’s moral commitment, as opposed to its contractual commitment, to make loans to aparticular borrower up to aspecified maximum during aspecified period, usually one year. Because abank line—also called aline of iredii—is not alegal commitment, it is not customary to charge acommitment fee.

BANK MONEY money (hat is "created" by commercial banks in afrac¬ tional reserve system, whereby they make loans using money that has been deposited with them.

Bankruptcy state of insolvency of an individual or an organization, that is, an inability to pay debts. There are two kinds of legal bank¬ ruptcy under U.S. law: Chapter 7or involunlary, when one or more creditors petition to have adebtor judged insolveni by acourt; and Chapter 1i, or voluntary, when the debtor brings the |)clilion. In both cases the objective is an orderly and equitable setilcmcni of obliga¬ tions. See also chapter 7of the 1978 bankblt'icy act; chapter li OF THE 1978 BA.SKRLPTCY ACH CHAPTER 13 Oh THE 1978 BA.NKRL'PTCY A C T.

BANKRUPTCY' COURT specialized court esi.iblishcd by Congress, pursuant to Article 1of the Constitution, to address matters arising in or under abankruptcy case.

BANKRUPTCY PETITION the document filed with the bankruptcy clerk’s office to initiate the bankruptcy. It stales which chapter the debtor is filing under, ineitidcs infonnation about the debtor, its cred¬ itors. and lists a.sscts, liabilities, and asset transfers in the last 12 months.

BANK TRUST DEPARTMENT part of abank engaged in settling estates, administering trusts and guardianships. ;ind performing agency services- As part of its personal trust and estati; peanning ser¬ vices, it manages investments for large aceounts. Known for Ihcir con¬

servative investment philostiphy, such departments have custody over billions of dollars. The dcp;u1ments also act as trustees for corporate bonds, administer pension and profit-sharing plans, and function as TRANSFFJt AOE.STS.

BANNER AD rectangular advertisement displayed on aWeb page, often appearing at the top. Normally it contains ahyperi.isk to the adver¬ tiser’s Web site.

■V

54

B A R

B A R

1. in legal procedure, abarrier lo relitigating an ISSDE. Abor operates to deny aparty the right or privilege of rechallenging issues in sub.sequent litigation. The prevailing party in alawsuit can use his favorable decision to bar retrial of the action.

2. the legal profession.

BAR CODE pattern of wide and narrow bars, primed on paper or asim¬ ilar material. Acomputer read.s the bar code by scanning it with ala.scr beam or with awand that contains alight source and aphotocell- Bar codes have been utilized to encode many kinds of data, including com¬

plete programs for some programmable calculators. The most familiar

bar code is the Universal Product Code (see illustration) used with cash registers in supermarkets. D 2 9 6 2

5

0

27011'0089 BARGAIN AND SALE deed in the formofacontracl that conveys prop¬

erty and transfers title to the buyer but lacks any guarantee from the seller as to the validity of the title. It is commonly used today to con¬ vey title to real estate and transfers to the new owner whatever interest the grantor had. See also quitclaim deed; warranty deed. B.ARGAIN basement retail location of amain .store, often in the

basement, where discounied merchandise is sold. The original purpose was to move unsold merchandise. The term has been adopted by other reliiilcrs that are exclusively bargain basement. BARGAIN HUNTER

1. consumer very sensitive to price, who will buy the product or ser¬ vice from the cheapest source. 2. investor who buys undervalued stock hoping for price appreciation. See also bottom pusher .

BARGAINING negotiating for abetter price, terms, working condi¬ tions, etc. See also coli.i-ctive bargaining: pattern bargaining,

bargaining AGENT union or individual certified through asecret

ballot process to be the exclusive representative of till the employees in ahaROajning unit or group; also called bargaining represenrative.

In order for abargaining agent to be certified, it must receive amajor¬ ity of the BALLOTS cast in the bargaining unit. BARGAINING UNIT group of employees certified by the nationai. LABOR REI..ATIONS BOARD lo be able to be included in aunion or bar¬

gaining AGENT. Legal constrainl.s and guidelines exist for the unit.

BASE PERIOD

SS

Professional and nonprofessional groups cannoi be included in ihe same unit, and acrafi unit cannoi be placed in alarger unit unless both groups agree to it. BAR GRAPH atype of chart that displays information by representing

quantities as rectangular bars of different lengths (vertically or hori¬ zontally), Sometimes symbols are stacked or stretched to the appro¬ priate heights or widths to lend some visual interest to the chart. BAROMETER selective compilation of economic and market data

designed to represent larger trends. Consumer spending, housing starts, and interest rates arc haromeiers used in economic forecasiing.

The Dow Jones Industrial Average anti Standard &Ptxir's 500 Slock Index are prominent stock market baromciers-

BARRIER.S TO ENTRY conditions making entry into certain busi¬ nesses extremely difficult. These include high funding requirements, higli technological or trade learning curves, unknown or little known

business practices, tightly controlled markets, stringent licensing pro¬ cedures. the need for highly skilled or trained employees, long lead times, and specially designed facilities. BARRISTER in England, alegal practitioner whose function is similar to that of aU-S. trial lawyer, although the barrister does not prepare the case from the start. His solidtor assembles the materials necessary

for presentation to the court and settles eases out of court. BARTER trade of goods and services without use of money. Income from ahiirier transaction is taxable income. BASEI, A((CORDS three versions, with numerous amendments, of an

micrnalional banking agreement developed by the Basel Committee. The Hiisel Accords seek to establish astable international banking sys¬

tem by specifying capital requirements, internal measures of risk assess¬ ment, bank supervisory review standards, and market discipline by

disclosing available capital, risk exposure, and assessment as ameasure of the institution’s capital adequacy. See also dasb. capital accxirds. BASEL CAPITAL ACCORIXS consist of Basel I, Basel 11, and Basel III

accords. Each succc.ssive accord .seeks to develop better-defined mea¬

sures of bank capital requirements. Tier Icapital ret|iiiremenis define the quantity and quality of common equity. Tier 2capital levels arc other forms of assets bank.s may have. Under Basel 111.Tier Ilevels of

capital, primarily cash and cash equivalents, have been raised to of all bank assets. Sec (ilso baski. accords.

BASE PAY KATE, employee’s hourly wage; regular rate of pay upon which osertime and other wage supplements are computed.

BASE I’KRIOI) particular time in the past used as the yardstick or starl¬ ing point when measuring economic data. Abase period is usually a year or an average of years; it can also be amonth or other time period-

BASE RENT

56

BASE RENT minimum rent due under alease tliui has apercentage or participation requirement. For example. XYZ Corp. leases retail space

in amall. Under the lease XYZ mu.st pay abase rent of $2,000 per month plus 5% of all sales revenue over $50,000 per month. See also P E R C E N TA G E

LEASE-

BASE-YEAR ANALYSIS analysis of trends in economic data using parameters from aspecified year. Expressing data such as the gross

DOMESTIC HtODOCT in CONSTA.NT DOli-ARS uses price levels of aspe¬ cific base year so us to eliminate the effect of inflation upon the diita.

BASIC (Beginner’.s All-Purpose Symbolic /nstruction Code) program¬ ming language used in early PCs. BASIC INDUSTRY MULTIPLIER in economic base analysis, the ratio of total population in alocal area to employment in basic indus¬ try. Basie industry is considered to be any concern that attracts income from outside the local area. The jobs added in basic industry may also contribute to tlic need for local service jobs (telephone operator, nurse,

supermarket clerk, etc.); and. if the workers have families, additional new people may be brought to the area.

BASIS amount usually representing the taxpayer's cost in acquiring an asset. It is used for avariety of tax purposes including compulation of gain or loss on the sale or exchange of the asset and depreciation with respect to the asset. See also adjusted basis; carryover; recovery OF basis; stepped-up basis.

BASIS POINT smallest measure used in quoting yields on mortgages, bonds, and notes. One basis point is 0.01% of yield. Thus ayield that changed from 10.67% to 11.57% moved up by 90 harts/winis. BATCH PROCESSING procedure whereby auser gives acomputer a

batch of information, referred to as a; as Ihe blogospliere.

BLOOMBERG LP amajor business and financial news broadcaster, offering various services including inter.ictivc TV. telephone news ser¬ vices. apersonal finance magazine, book.s. and radio and television broadcasts. B L O M O U T

Merchandising: retail items sold quickly at very low prices.

.Securities: quick sale of all shares in anew offering of securities. Corporations like to sell securities in such environments, because they get ahigh price for their stock. Investors are likely to have ahard time

getting the number of shares they want during abloteoui. BLUE-CHIP STOCK common stock or anationally known company that has along record of profit growth and dividend payment and a rcputiilion for quality management, products, and services. Named for the color of the most valuable gambling tokens.

BLUE-COLLAR employee performing atype of work that often requires awork uniform, which may be blue in color, hence blue-

collar. Blue-collar workers range from unskilled to skilled employees.

■V

BLUE LAWS

6 6

They are not exempt from hour and wage laws and therefore must be paid overtime for working more than 40 hours per week. BLUE LAWS state or local laws prohibiting busine.ss on agiven day.

usually Sunday. Blue laws have been abolished in many places so that people may fteely choose activities on any day of the week. BLUEPRINT

1. photographic print where lines and solid shapes are developed in white on specially prepared blue paper, also called WuefsJ. Ablue¬ print of drawings or photographs to be included in apublication serves as aguide for positioning them in adummy copy of the mag¬ azine or other publication- It also assi.sts the printer when making plates for the completed work. 2. plan of action.

BLUE SHIELD independent, nonprofit, membership insunuicc plan.

BenefiLscoverexpensesassociatedwithmedicalandsurgicalprocedures. BLUE-SKY LAW state law regulating the sale of corporate securities

through investment companies, enacted to prevent the sale of securi¬ ties of fraudulent enterprises. BI-UETOOTH atechnical industry standard for seamless low-power,

short-range wireless communication of data and voice between elec¬ tronic devices such as mobile phones, computers (including hand¬ helds). PDAs, primers, and the like. The specification was designed by the Bluetooth Special Interest Croup, aconsortium of computer and telecommunications companies founded in 1998 by Ericsson, IBM, Intel, Nokia, and Toshiba. The SIO currently includes Promoter mem¬

ber companies Ericsson, Intel. Lenovo. Microsoft, Motorola. Nokia, and Toshiba, plus more than 13,000 Associate and Adopter member companies. BOARD FOOT aunit of measurement for lumber, defined as one foot

wide, one foot long, and one inch thick, or 144cubic inches. (Note that dimensions refer lo the nominal width and thickness oflumbcr, calcu¬

lated in principle on its size before drying and planing. Actual length is used.)

BOARD OF DIREC TORS group elected by stockholdbrs to set com¬

pany policy and appoint the chief executives and operating officers. Directors meet several times ayear and are paid for their services. They are considered insiders. BOARD OF EQUALIZATION government entity whose puritose is to

assure uniform property tax assessments. Aboarti of equalization at the local level may review tax assessments to be certain that the a.ssessmcm for eaclt parcel is fair. At the state level, the board will assure that each county is a,ssessing property at the mandated propor¬ tion of market value.

67

BONA FIDE PURCHASER (BFP)

BOARD OF GOVERNORS (OF THE FICDEKAl, RESERVI'; SYS¬

TEM) seven-member managing body of ihe federal reserve sys¬ tem; commonly tailed Federal Reserve Board. The board sets policy on issues relating to bankitig regulations as well as (o the money sup¬

ply. Regulating the money supply is important for regulating inflation, interest rates, and economic grow th.

BOARD OF REALTORS®- local group of real estate licensees who are members of tbe state and national associations of realtors. BOARDROOM

1. stockbroker's office where REaiSTtiREi) represk.vtatives (that is.

securities salespersons registered with the Securities and Exchange Commission! work and where the public is allowed to visit and obtain stock price quotations ibroughout tbe market day. OIRces arc equipped with electronic machines that provide information on trading in i.iSTEt) securitii-.s and ovkr-the-counti:r markei.s. and that also provide business news.

2. room where acorporation's board of directors holds its meetings. BODY LANGUAGE nonverbal and often unintended communication on the piirt of one individual to another. Nonverbal communication

takes place by means of facial expressions, head movetnencs, eye

c

o

n

-

tact, hand gestures, body positions and acts, lone.s of voice, and so on. In general, body language expresses an individual's emotions, feel¬ ings. and attitudes. B O I L E R P l . AT E

I. standardized or preprinted form for agreements. 2. standardized language, as on aprinted form cxiniaining the terms of alease or sales contract, often phrased to the advantage of the party furnishing the form, with the expectation that the contract will be signed without being carefully examined. BOILER ROOM or BOILER SHOP place devoted to high-pressure promotion by telephone of sltKks, bonds, commodities, contracts, etc.,

which arc of que.siionable value. Extensive fraud is usually involved, but successful prosecution may be difficult since operations often di.sband before detection and little tangible evidence is obtainable.

BOLSA Spanish term for siork e.vchimge. There are Bolsas in Spain, Mexico. Chile. Argentina, and many other Spanish-speaking countries. In French, die term is BOURSE: in Italian, Airso. All mean "purse." BONA FIDE Latin for "in good faith," that is, without fraud or deceit, genuine.

BONA FIDE PURCHASER (BFP) one who pays avaluable consider¬ ation. has no notice of outstanding rights of others, and acts in good Faith concerning the purchase. In commercial law, the phrase iioi.dhr IN DUE COURSE signifies the same thing.

(38

BOND

BOND obligation to pay. Most federal, municipal, and corporate bonds pay inlorcst twice ayear (.semiannually). Interest on municipal bond.s is generally noiitaxable for federal income lax purposes and in the municipality of issue. Interest on federal government bonds is taxable for federal purposes but tax-free for state income tax purposes, cobPORATii HOND interest is generally fully taxable. BOND BROKER broker who executes bond trades on the floor of an

exchange; also, one who trades corporate, U.S. government, or munic¬ ipal debt is.sucs over the counter, mostly for large institutional accounts.

BOND DISCOUNT difference between abond’s current market price

and its higher pace value or maturity value. Bonds may be issued at a DISCOUNT, or adiscount may result from ageneral interest rate increase or increased risk of default. In either case, abuyer who

acquires abond at adiscount realizes the discount as income as the bond matures, in addition to receiving periodic interest payments. The ZERO COUPON BOND offers an extreme example of abond discount. BONDED DEBT

1. thill pan of the entire indebtedness of acorporation or state that is represented by bonds it has issued. 2. debt contracted under the obligation of abond.

BONDED GOODS goods brought into acountry that are placed in a bonded warehouse until all duties are paid.

BOND PREMIUM amount the purchaser pays in buying abond that exceeds the face or call value of the bond. The premium can be amor¬

tized each year by the bondholder, to reflect that the true interest rale is less than the coupon rate, amortization is elective for taxable bonds and not allowed for tax-exempt boniis.

BOND RATINC; method of evaluating the possibility of default by a bond issuer. Fitch Ratings, Standard &Poor’s, and Moody’s Investors Service analyze the financial strength of each bond’s issuer, whether a corporation or agovernment body. Their ratings range from AAA (highly unlikely to default) to D(in default). Bonds rated BB or below are not investmi-nt-oradI;; that is, under most state laws, institutions

that invest other people's money may not buy them. BOND YIELD see yield. B O N U S

1. compensation paid to an employee or employees for achieving a particular sales goal or organizational objective. This is above and beyond cither acommi.ssion or asalary.

2. an unexpected benel'il occurring as the result of making aparticu¬ lar action.

V

BOONDOGGLE

6 9

BOOK

1. ill an underwriling of securities. (1) preliminar)- indications of interest on the part of prospective buyers of the issue—What is the

honk on XYZ Company? or (2) record of activity in the syndicate account—Who is managing the book on XYZ? 2. record maintained by aSPtciALtST of buy and sell orders in agiven security. The term derives from the notebook that specialists for¬ merly used for this purpo.se, and is now electronic.

3. as averb, to bixik is to give accounting recognition to something. For example, they booked aprofit on the tran.sactinn. 4. collectively, books are the journals, ledgers, and other accounting records of abusiness. See also book value.

BOOK DICPRECIATION same as depri:ciation (accou.sting). BOOK-ENTRY see book-entry SECURrriK.s.

BOOK-ICNTRY SECURITIES securities lliut arc not represented by a physical certificate. Purchases and .sales of some municipal bonds, for instance, are merely recorded on customers' accounts: no certificates change hands.

BOOK INVENTORY stock in hand according to recorded figures. See also PHYSICAL INVENTORY.

BOOKKEEPER person who enters transactions into an ACCOtJNTTNG SYSTEM. In general abookkeeper docs not have the advanced educa¬ t i o n o f a n A C C O U N TA N T. B O O K M A R K

I. amarker within afile that allows auser to easily return to agiven position. 2. aremembered address (URL) that allows auser to go directly to a given site on the internet. This terminology is used by Apple's S a f a r i ; M i c r o s o f t ’s i n t e r n e t e x p l o r e r u s e s t h e t e r m f a v o r i t e s . BOOK

OE

ACCOUNT

see

accounting

records.

BOOK PROFIT or LOSS see UNREALtZED proht (IX)SS).

BOOK-TO-BILL RATIO the ratio of orders booked for future delivery

to orders being shipped immediately, and therefore billed. The l>ooklo-bill ratio is released on amonthly basis for the semiconductor industry because it providc.s avery sensitive indicator of whether orders for chips arc rising or falling and at what pace. BOOK VALUE value of individual assets, calculated as actual cost less

allowances for any depri-Ciation- Book value may be much more or less than current market vai.ue.

BOOMIsRANG EFI'ECT use of exported technology to manufacture

products that compete with those produced by the original exporter. BOONDOGGLE amakework project that is useless in functiun.

■v

B O O T

70

B O O T

Compulcrs; to start up acomputer. Boot (earlier hoorsirap) derives from the idea that the computer has to "pull itself up by its bootstraps." that is. load into memory asmall pro^m that enables it to load larger programs. The operation of booting acomputer that has been com¬

pletely shut down is known as adead siort. or cold bool. Awarm .start or warm bool is arestarting operation in which some of the needed programs are already in memory.

Tax: unlike property included to balance the values of like properties exchanged under SltCTlON t03l of the Internal Revenue Code, BOOT DISK see startup t)iSK.

BOOTSTRAP ACQUISITION any of several forms of buyout where a buyer finances an acquisition in part with the target corporation's excess cash or liquid assets. BORROWKD RICSERVE funds borrowed by member banks from a FEDERAL RESERVE BANK for the puipose of maintaining the required reserve ratios.

BORROWER aperson who has received aloan and i.s obligated to repay the amount borrowed (PRtNCiPAL) with interest and other fees, according to loan terms. Same as debtor. BORROWING POWER OF SECURITIES amount of money that cus¬ tomers can borrow, using money from the loan to invest in securities. B O T T O M

In general: support level for market prices of any type. When prices fall below that level and appear to be continuing downward without

check, we say that the boiioin dropped out. When prices begin to trend upward again, wc say they have bottomed out. Economics: lowest point in an economic cycle, generally called a TROUGH.

Securities: lowest market price of asecurity or commodity during a day, aseason, ayear, acycle; also, lowest level of prices for the mar¬ ket as awhole, as measured by any of the stock market indexes. BOTTOM FISHER investor who is on the lookout for investinciils that

have fallen to their bottom prices before turning up. In extreme cases. bottom fishers invest in bankrupt or near-bankrupt fintis, BOTTOM LINE net profit or loss. It is often used a.s an expression when seeking the result without asking for the reasons, as in "What is the bottom lineT'

BOTTOM-UP APPROACH TO INVESTING search for outstanding performance of individual stocks before considering the broad per¬ spective of the fund. The companies may be identified from research reports, slock screens, or personal knowledge of the products and ser¬ vices. Contrast with TOP-l>OWN APPROACH TO INVESTtNCi.

71

URAINSTORMING

UOUl-KWARISM uike-ii-i>r-li-ave-ii offer made by management to l-^uoR in COLLFXTIVE B,\RGAININC. Boulewarism. named for (he General

EIccirie vice president who pioneered it. required the take ii-or-lcave-ii offer lo be presented directly to unioti members, thereby circumventing the union. The federal court ruled Boulewarism lobe an illegal violation of the WAGNER ACT (NATTONAl. LABOR Ri-.IATIONS ACT of 1935).

HOUNCiE return of acheck by abank because it is not payable, usually due to insufficient funds. In securities, the rejection and subsequent reclamation of asecurity because of hail delivery. Term also refers lo astock price's sudden decline and recovery; .lee dead-cat bounce.

Aha return of apiece of i:-maii, because it could not be delivered to the specified address.

BOL'NCE MESSAGE anotification relumed lo sender indicating that an t;-MAiL message could not he delivered. Usutiily the message is automatically generated by the Postmaster at the recipient’s site, sometimes with an indication of what went wrong, BOUNDARY see PROPERTY LINE.

BOURGEOISIE term used by Marxist economists to denote the social class that owns property and financial assets and thus derives income from investments. Also may be used to refer to the middle and upper classes and the prevailing social values of mainstream society. BOURSE French term (orsiock e.xchaiige. BOUTIQUE small, specialized .shop that deals with alimited clientele and offers alimited pniduct line. Ahoiilie/ue is the opposite of a department store, supermarket, or warehouse cluh that offers awide

array of products or services. Also, by extension, asmall, specialized brokerage firm as contrasted to afinancial siipermarkei. BOY abbreviation for beginning of year. BOYCO'n’ to refniin from commercial dealing with afirm by concerted effort. See also primary boycott: SEaiNDARV BOYcxxrr.

BPS bits per sectiml, ameasure of the speed at whieli computer data is transferred.

BR.ACKET CREEP edging into higher lax brackets a.s income rises with inflation. Bracket creep increases government revenue without iegislaled tax rate increases. BR.AIN DRAIN loss of anation's best-educated and most imelligcnl people lo other nations.

BRAINSIORMINC; group session of executives from different busi¬ ness discipline.s, where new ideas are expressed to solve abusines.s sit¬ uation or formulaic corporate policy. No criticism of the idea.s is allowed. However, the ideas may be mixlified or combined. Tlie pur-

BRANCH

OFnCE

72

pose of the session is to come up with originality in thinking based on gut feelings without inhibitions. The brainsionniiin concept was ini¬ tially developed by Alex Osborn.

BRANCH OFFICE ti place of operation for afirm that is located apart from the main office. The office is owned by the firm owner but is

managed by another person. BRANCH OFFICE MANAGER person in charge of abranch of a

securities brokerage firm or bank. BRAND identifying mark, symbol, word(s), or combination of same that

separate one company's product or servicc.s from another firm’s. Brand is acomprehensive term that includes all brand names and T C A D E M A R K S .

BRAND ASSOCIATION degree to which aparticular brand is associ¬ ated with the general product category. Often aconsumer will ask for aproduct by the specific brand name rather than the general name —

for example, aperson wanting facial tissues may ask for Kleenex. When this happens, the consumer is making abrand association. BRAND DEVELOPMENT measure of the infiltration of aproduct's sales, usually per thousand population. If 100 people in 1X100 buy a

product, the product has abrand development of 10%, BRAND DICVELOPMl'lNT INDEX (BDI) percentage of abrand’s sales in an area in relation to the population in that area as compared to the sales throughout the entire United States in relation to the total U.S.

population. For example, if Brand Xhas 15% of its U.S. sales in Area A. in which 20% of the U.S. population lives, the BDI for Area Ais 75. BRAND EQUITY attractiveness and familiarity of abrand .same in the general marketplace. Brand equity permits companies to charge pre¬ mium prices for products and services, contributing lo increased profit

margins. Brand equity is therefore avaluable asset that companies invest huge amounts of money to develop. BRAND EXTENSION addition of anew product to an already estab¬ lished line of products under the same brand name. Brand extension allows the new product the benefit of the older product’s established reputation.

BRAND IMAGE qualities llial consumers associate with aspecific BRAND, expressed in tcmis of human behavior and desires, but that also relate lo price, quality, and situational use of the brand. For exam¬ ple; Abrand such as Mercedes-Benz, will conjiue up astrong public image because of its sensory and physical chiuacteristics as well as its price. This image is not inherent in the brand name hut is created

through advertising.

73

BREACH OF CONTRACT

BRANDING creating aperception in the mind of consumers of tlie image and quality provided by acompany name. BRAND I.OYALTV degree to which aconsumer will repeatedly pur¬ chase aDKAND, For advertisers to achieve their ultimate goal of braml loyalty, the consumer must perceive that the brand offers the right

combination of quality and price. Many factors influence brand loy¬ alty. such as consumer attitudes, family or peer pressure, and friend¬ ship with the salesperson. The degree of brand loyalty—that is, the brand's .market SHARi-:—is known as the braml franchise. BRAND MANAGER marketing manager for abrand; also called prodi/rr rnoringer.Thispcrson makes most of the advertising decisions for that brand. Often in acompany with many different brand-name products, each product will have abrand nianafier. who competes with the others as if the products were competitive. Each may use a diffeient adsertising agency, and each will have aseparate advertising budget. BRAND NAME that part of abrand, trademark, or service mark that can be spoken, as distinguished frtim an identifying symbol. Abrand name may consist of aword, letter, or group of words or letters. BRAND FOTENTIAI. INDEX (BI’I) relation.ship between abrand's MARKET ttliVEtXIPMliNT INDEX and BRAND DEVlil.OPMENT INDEX (UDl) in a

particular markel area. The brand potential index is used to predict future sales and to aid in planning future advertising budget allocations. BRAND SHARE amount of dollars spent by consumers on aparticular

brand as compared to the amount in dollars spent by consumers on all compciiiive brands in the .same category, figured in terms of percent¬

ages; also called markei share, share of iiwrkci. Companies set mar¬ keting goals to achieve aspecific brand share. :ind plan their strategies to meet those goals.

BRASS top management of an organization; originally term of military origin. It is generally used by those not in top management to indicate abroad area of respsinsibilily without any fixed point of reference. BRASS 'I’ACKS, GET DOWN TO break off preliminaries and proceed to the main business.

BREACH failure to perform some contracled-for or agreed-upon act or

to comply with alegal duly owed to another or to society. See also B R E A C H o i ' c o n t r a c t ; b r e a c h o i - w a r r a n t y. BREACH

OF

CONTRACT

I. wrongful nonperformance of any contractual duly of immediate performance.

2. failing to perform ;icts promised by hindering or preventing such performance or by repudiating the duly to perform.

BREACH OF WARRANTY

7 4

BREACH OF WARRANTY infraction of an express or implied agree¬ ment as 10 the Tm.K. quality, content, or condition of athing sold. BREADWINNER individual capable of furnishing support to others who depend on the income earned. The breadwinner is the chief mon¬ etary achiever of the family. B R E A K

Finance: in apricing structure providing purchasing discounts at dif¬ ferent levels of volume, apoint at which the price changes—for exam¬ ple, a10*^ discount for ten cases.

Inveslnicnl: (!) sudden, marked drop in the price of asecurity or in market prices generally; (2) discrepancy in the accounts of brokerage firms: (,1) stroke of good luck.

BREAK-EVEN ANALYSIS financial analysis that identifies the point a! which expenses equal gross revenue for azero not difference. For

example, if amailing costs $100 and each item generates 55 in revenue, the break-even point is at 20 items sold. Aprofit will be made on items sold in excess of 20. Aloss will result on sales under 20.

The break-even point may be analyzed in terms of units, as above, or dollars. BREAK-EVEN

POINT

Finance: point at which revenues equal costs. The point is located by break-even analysis, which determines the volume of sales at which fixed and variable costs will be covered. All sales over the break-even

point produce profits; any drop in sales below that point will produce losses. See Figure 2.

Real estate: occupancy level needed to pay for operating expenses and debt service, but leaving no cash flow. See also cash flow; operAT LV O E X P E N S E S .

.Securities: dollar price at which atransaction produces neither again nor aloss.

BREAKING THE BECK decline in the normally constant $1 net asset value (NAV) of amoney MABKt-m fund. This could happen if the fund

suffered severe los.scs or if investment income fell below operating expenses-

BREAKHP dissolution of any unit, organization, or group of organiza¬ tions. An antitrust action by the Justice Department may result in the

breakup of alarge corporation into smaller companies if it is found to be in violation of antitrust laws.

BRETTON W'OODS CONFERENCE see RXEd exchange ra!1-..

BRIBE avoluntary payment offered, usually surreptitiously, in expecta¬ tion of uspecial favor. While offering abribe is not always illegal, accepting one is unethical or frequently illegal.

7 5

BROKER BREAK-EVEN POINT

> P f O fi l

S’ Break-Ev9n Point

c e

^Varrablo

C

< S

Costs

1 0,^S^

Fix»d Costs

Fixed

'Costs

Quantity FIGURE 2

BRIC acronym for the world’s four largest DhVbLOPiNG couNTCtES. namely Brazil, Russia, India, and China, Also BKICS with the inclu¬ sion of South Africa,

BRIDGE LOAN short-lerm loan, also called swing /tKni.madc in antic¬ ipation of intermediate-term or long-term financing, BROADBAND high-capacity transmission method that provides multiple chiuinels of data, voice, or video over asingle telecommunications medium (wire). Loosely used for high-speed Internet cxinneclions such as

cable and t)si„ which permit simultaneous transmission of voice and data over the same line, especially as contrasted to aDiAt.-uP co.mnix'don.

BROADBANDING personnel system that collapses numerous pay ranges and classifications into a.smaller numher of broader pay ranges and classifications. This offers the organization ahigh degree of salary

and job grouping flexibility and responsivenes-s. BROCHIJRK allyer or .small book used to advertise nr describe aprod¬ uct for sale or service available.

BROKEN LOT incomplete set of merchandise. Broken lot.s often are the result of breakage or improper packaging,

BROKER any person who, in the ordinary course of business, stands ready to execute the sales made by others. See also agent; DEAt.ER: I.ISTING AOKN"!'; listing BROKER.

V

V

BROKERAGE

76

BROKERAGE

1. business of being ii broker. One may open abn>kera|e office,

upon receiving abroker's license, for the purpose of engaging in brokerage.

2. commission received by abroker for his services. For example, the brokerage on the sale of a$100,000 house was S6.000. BROKIsRAGE ALLOWANCE commis.sion paid by the seller in aIrans-

action to the broker who arranged the sale, based upon some percentage of the selling price. Abrokerage allowance usually refers only to trans¬ actions in which the broker does not take possession of the goods sold. B R O K E R - D E A L E R x e e d e a l e r.

BROKERED CD acertificati: of deposit (cd) issued by abank or thrift institution but bought in bulk by abrokerage firm and resold to brokerage customers. Brokered CDs pay as much as 1% more than those issued directly by major banks, carry federal deposit insurance up to $250,00(1, enjoy aliquid secondary market made by the bro¬ ker. and do not require an investor to pay acommission. B R O K E R L O A N R AT E i n t e r e s t r a t e a t w h i c h s t o c k b r o k e r s b o r r o w

from banks to cover the securities positions of their clients. The bro¬ ker loan rate usually hovers close to the prime rate. BROKER'S OPINION OF VALUE (BOV) an analysis provided by a real estate broker to a.ssist abuyer or seller in making decisions about

the listing price of real estate or asuitable bid for purchase. Also com¬ parative MARKET ANALYSIS. Afce may or may not be charged. This analysis may noi be represented as an appraisperly filed. The corporation's existence begins upon the issuance of the cenificaie. CERTIFICATE OF OCCUPANCY document by alocal government

agency signifying that abuilding or dwelling conforms to liKal build¬ ing code regulations. Generally, initial occupancy of abuilding or transfer of title requires valid cenificaie of occui»mcy. CERTIFICATE OF REASONABLE VALUE (CRV) document issued

by the virri-KASs administration, based on an approved ai'PRaisal. It

C E R T I F I C AT E O F T I T L E

104

establishes aceiling on the maximum VA mongage loan principal. For example, acertificate of reasonable value is received for ahome that

was under acontract of sale. When the certificate is equal to the con¬ tracted price, the VA guarantees aloan for the full purchase price. CEUTII'ICATE OF TITLE document indicating ownership. It is simi¬ lar to aBILL OF SALE and is usually associated with the sale of new motor vehicles.

CERTIFICATE OF USE wananty card accompanying new merchan¬ dise, which the owner completes certilying his ownership. CERTIFICATION act of confirming formally as true, accurate, or genuine. C E RT I F I C AT I O N M A R K

1. license for an activity issued by government or by units authorized by the government.

2. in labor relations, formal recognition by government of aunion's status as the recognized collective BABGAiNtNG agent. C E RT I F I E D A D M I N I S T R AT I V E M A N A G E R ( C A M ) c e r t i fi c a t i o n

awarded by the Institute of Certified Professional Managers. It is a professional certificate awarded to an individual who has completed a series of five examinations and acase study. In order to be qualified the individual must have at least three years' management experience. CERTIFIED CHECK check containing acertification thni the drawer

of the check has sufficient funds in the bank set aside to cover pay¬ ment. Although considered absolutely safe by many, there is the pos¬ sibility of forgery. See also cashier’s check.

CERTIFIED FINANCIAL PLANNER (CFP) professional license conferred by the International Board of Standards and Practices for

Certified Financial Planners. In addition to professional business experience in financial planning, recipients must pass national exami¬ nations in insurance, investments, taxation, employee benefit plans, and estate planning. CERTIFIED FINANCIAL STATEMENT balance sheet, income stace-

mem, and perhaps other financial papers that are attested to by acer¬ tified PUBLIC ACCOUNTANT (CPA) who AUDITED the company. CERTIFIED GENERAL .APPRAISER one qualified to appraise any property, under appraiser certification law adopted by most states in the early 1990s. CERTII'IED HISTORIC STRIKITURE see HISTORIC .SIRUCTURh. CERTIFIED MAIL service of the U.S. Postal Service, avaiiahle at extra

cost, that provides proof of mailing and delivery. Asender may request areturn receipt or restricted delivery upon paying asupplementary fee. in.surance is not available. See also registered mail.

CHAMPERTY

105

CERTIKIKD MANAGEMENT ACCOUNTANT (CMA) certification

awarded by the Institute of Management Accountants to an individual who has passed afour-part cxtiminaiion and met certain education and experience requirements. CERI'll'li:i) PUBLIC ACCOUN'I'ANT (CPA) accountant who lias

piissed certain exams, achieved acertain amount ol' experience, reached acertain age, and met all other statutory and licensing require¬ ments of the U.S. state where he or she works. In addition to account¬

ing and auditing, CPAs prepare lax remras for corporations and individuals.

CERTIEIED RESIDENTIAl. APPRAISER one qualified to appraise

rc.sidences and up to four units of housing, under appraiser certifica¬ tion law. Standards call for less education, less experience, and aless comprehensive exam ihiin for aciiRTiPreo generai. appraiser.

“CETERIS PARIBUS” "all other things being equal." Holding all vari¬ ables the same, except one, when analyzing asituation to determine the influence of aparticular variable. CFA, CKA INSTITUTE see chartered elvancial analyst. CEE Certified Fraud Examiner, adesignation of the association op CERIIPltlD

PRAUD

EXAMINERS.

CEO Si’l' CHIEF PINANCiAI-OmCKR. CHAIN FEEDING

I. successive threading into amachine or device so that each succes¬ sive piece is held in place by the preceding onc2. inserting envelopes continuously into acomputer primer for rapid addressing. CHAIN OF COMMAND structure of decision-making respon.sibiliiies

from the higher levcLs of authority to the lower levels. It originated in the military and encourages compliance without dis.sension. CHAIN OF' TITLE achronological history of all conveyances and ENCUMBRANCES affecting aland title. See also abstract op titu:. CHAIN STORE individual retail store that is apan of agroup of simi¬ lar retail stores with the same management and ownership.

CHAIRMAN OF' THE BOARD member of acorporation's board of directors who presides over its meetings and who is the highest rank¬ ing officer in the corporation. The chairman of the board may or may not have ihc most actual executive authority in afirm. The .additional

title of CHIEP EXECUTIVE Ol IiciiR is reserved for the principtd executive. CHAMPERTY in common law. an arrangement, once illegal, whereby tin attorney or other party underwrites the costs of alawsuit in return for aportion of the expected damage award. Today the prohibition

V

CHANCERY

106

against champerty survives only in afew jurisdictions and only in m o d i fi e d f o r m .

CHANCERY Jurisprudence that is exercised in acourt of equity. See aiw l-QUiTY.

CHANGE AGENT aperson who.se presence or thought processes cause achange from the traditional way of handling or thinking about a problem. Management consultants are often hired as change agents for corporate organization development retreats.

CHANGE IN ACCOUNTING .METHOD change in the overall method of accounting and any change in amaterial item used in an overall accounting plan, See also accounting MirruoD. In general, a taxpayer may not change amethod of accounting without advance IRS approval. CHANGE IN DEMAND DISTINGUISHED ERO.M CH,\NGE IN QUANTITY DEMANDED achange in deniami refers to fundamen¬ tal changes to the factors of demand, such as incrca.sed income or a

shift in consumer tastes, whereas achange in i/iianlity demanded refers to the result of achange in price. The former is depicted graph¬ ically as ashift in the demand curve itself, while the latter is shown by movement along the curve. C H A N G E I N S U P P LY D I S T I N G U I S H E D F R O M C H A N G E I N

QUANTITY SUPPLIED change in supply refers to achange in the factors ihiU affect demand for agood, such as input costs and produc¬

tion technology, whereas achange in quaniit}- supplied is the response

from achange in the market price of the good. The former is indicated graphically by ashift in the position or slope of the supply curve, while the latter indicates amovement along the supply curve. CHANNEL CAPTAIN dominant company in avertical marketing sys¬ tem that controls the CHANNti- OF DtSTOtBuriON. This company has a major influence on what products or services are developed and dis¬ tributed throughout the channcl. CHANN'Iil. OF DISTRIBUTION means used to transfer merchandise

from the manufacturer to the end user. Intermediaries in the channel are called middlemen. Those who actually take title to the merchandise and resell the goods arc merchant middlemen. Thti.se who act as broKi'R but do not take title are agent middlemen. Mcrehant middlemen

include wholesalers and retailers. Agent middlemen include manu¬ facturer's REPRESE.NTAT1VES, brokers, and sales agents.

CHANNEL OF SALES in periodical publishing, SOURCE of subscrip¬ tion orders, such as direct mail advertising, agency, or newsstand.

CHAPTER 7OF THE 1978 BANKRUPTCY ACT chapter dealing with LIQUIDATION, which is the sale of the debtor',s noncxempi property, with adistribution of the proceeds to creditor. Chapter 7provides for

CHARTER

107

ucourt-appaimed imerini irusiee »ilh broad powers and discretion to make management changes, arrange unsecured financing, and gener¬ ally operate the debtor business in such away as to prevent loss. ClIAn EK II OK THE 1978 IJANKRUPTCY ACT diaptor dealing

with RiiOROANIZATlON; provides that, unless the court rules otherwise, the debtor remains in pos.session of the business and in control of its

operation. Debtors and creditors arc allowed considerable ficxibilily in working together. The debtor proposes aplan to keep the business oper¬ ating and pay creditors over time. Chapter 11 usually involves acorpo¬ ration or partnership, though individuals in business cun also use it. CHARI ER 13 OF THE 1978 BANKRUPTCY ACT wage earner s

bankruptcy plan, apayment plan between the borrower and the credi¬ tor. monitored by the court. The homeowner can keep the property but must make payments according to ihe court's terms; generally the loan is payable within a3- to S-year period. CHARCE

1. cost of goods or services.

2. purchasing goods or services prior to paying for them. The cost will b e b i l l e d l a t e r.

3. in criminal law. description of the underlying offense in an accusa¬ tion or indictment.

4. in trial practice, address delivered by the court to the jury at the close of the case, telling them the principles of law they are to apply in reaching adecision.

CHARGE BUYER one who makes apurchase on credit to be billed at alater dale; also called ckedit huyj:r. See o/io credit order. CHARGE

OFFreeBAD

D E B T,

C H A R I TA B L E C O N T R I B U T I O N D E D U C T I O N i l e m i / . e d d e d u c t i o n

allowed for donations to qualifying charities. Anumber of limitations apply to this deduction, especially for noncash property donationsCHARITABLE REMAINDER TRUST irrevocable trust that pays income to one or more individuals until the grantor’s death, at which time the balance, which is tax free, passes to adesignated charity. It is apopular lax-saving alternative for individuals who have no children or who arc wealthy enough to benefit both children and charity. CHARITABLE TRU.ST trust originated in an effort to make one or more gifts to acharitable organi COMMODITIES

EXCHANGES.

CHICAGO SCHOOL OK ECONOMICS an approach to normative ECONOMICS Chat emphasizes tlic benefits and efficiency of free markets over centrally planned economies. The term emanates from the writ¬

ings of several faculty members at the University of Chicago, notably Milton Friedman and F. A. Hayek. C H I E F E X E C U T I V E O F F I C E R ( C E O ) o f fi c e r w h o h a s u i t i m a t e

management respon.sibiliiy for an organization. The CEO reports directly to aboard of directors, which is accountable to the com¬

pany’s owners. The CEO appoints other managers, including apresi¬ dent, to assist in carrying out the responsibilities of the organization.

The CEO can also have the title CEO/Presidem ifthe responsibilities of both positions are combined.

CHIEF FINANCIAL OFFICER (CFO) corporate officer having full financial authority to make appropriations and authorize expenditures for an organization.

I l l

C I F ( C O S T. I N S U R A N C E . A N D F R E I G H T )

CHIEF OPERATING OFFICER (COO) person who has full oper.i(ional responsibilities for the day-lo-day aclivitie.s of an organi/alion. See also presiuknt. C H I L D A M ) D E P E N D E N T C A R E C R E D I T n o n r e f u n d a b l c TA X

CRi;oiT allowed for apercentage of the expenses incurred for house¬ hold services or for care of achild or other dkpkndent where atax¬

payer maintains ahou.schuld that includes one or mure dependents

who ate under 13 years of age or mentally or physically incapacitated. The percentage of credit varies inversely with the taxpayer's ADJUSTtio OROSS INCOMt: (ACI) between $15,000 and $43,000. CHILD SUPJ’ORT payment specifically designated for the purpose of

child support (or treated as such) under adixorce or separation agree¬ ment, Such payments arc neither deductible by the payer nor taxable to the payee. Conirasi with At.iMONV.

CHINESE WALL imaginary barrier between departments of a.service company (broker, consultatit) constructed in ati effort to avoid aconllicl of interest. C H I P. V C C I N T E G R AT E D C I R C U I T.

CHI-SQUARE TEST statistical method to test whether two (or more) variables are; (1) independent or (2) homogeneous. The chi-square test

for independence examines whether knowing the value of one variable helps toe.stiniate the value of another variable. The chi-square lest for homogeneity examines whether two populations have the same pro¬ portion of observations with acommon characteristic. Though the for¬ mula is the same for both tests, the underlying logic and sampling prcKcilurcs vary. CHOSE IN AC’I'ION claim or debt upon which recovery may be mtidc

in alawsuit. It is merely aright to sue, becoming apossessory thing only upon successful completion of alawsuit. CHURNING excessive trading in aslock investment account. If the pal-

lem of activity is inappropriate for the customer and if the prime result is excessive brokerage commissions for the registered reprijii.ntaTIVE. [hen the practice is illegal and recovery of damages by the cus¬ tomer is possible.

CHUTZI’AII unmitigated gall, generally unacceptable brazen behavior, in some types of business, it is regarded as an asset: apositive quality of heroic audacity or guts. CIF (COST. INSURANCE, AND FREIGHT) in acontract of sale, the

cost of the goods, the insurance, and the freight to the destination are included in the contract price. Unless there is something in aCIF con¬ tract to indicate the contrary, the seller completes the conir.icl when the merchandise is delivered to the shipper, the freight to the point of

11 2

CIPHER

destination is paid, and the buyer has been forwarded the rill of lad¬ ing, invoice, insurance policy, and reccipl showing payment of freight.

CIl’HKK coded me.ssage. Abusinessperson who is concerned about secret information may use acipher to prevent others from under¬ standing the secret. CIRCUIT territory in which acourt possesses jurisdiction or travels from place to place to hear and decide cases. CIRCUIT BREAKERS measures in.stitutcd by the major slock and commodities exchanges to halt trading in stocks and slock index

futures temporarily when the market has fallen by an amount based on specified percentage declines in aspecified period. Circuit breakers were originally instituted in 1987. They are subject to change from

time to time, but may include trading halls, curtailment of automated trading systems, and^r price movement limits on index futures. Their purpose IS to prevent amarket free-fall by permitting arebalancing of buy and sell orders tind to give the general public an opportunity to catch up on current news. See also pr(x;ra.vi tradf..

CIRCULAR Ean IRS publication that provides instructions for employ¬ ers concerning employment tax withholding amounts and procedures. CIRCULATION EXPENSES costs of establishing, maintaining, or increasing the circulation of aperiixlieal, CISCO SYSTEMS, INC. company headquartered in San Jose. California, that is the leading provider of high-speed networking hardware. CITIZEN see u.s. citizkn.

CIVILIAN LABOR FORCE all members of the population aged 16 or over in the United States who are not in the military or insiitudons such as prisons or mental hospitals and who are either employed or are unemployed and actively seeking and available for work. Every month

the U.S. Department of Labor releases the unemployment rate, which is the percentage of the civiZ/an labor force that is unemployed. In very bad economic limes, the unemployment tale can be deceptive because it does not consider discouraged workers, those who are unemployed but have stopped actively seeking employment. CIVIL LAW 1. Roman law embodied in the Justinian Code. See also common law. 2. law concerned with noncriminai matters.

3. body of laws established by astate or nation, as distinguished from natural law.

CIVIL LIABILITY negligent acts and/or of contract, normally independent of remedy can be provided in acourt injured in someone's home can bring

omissions, other than breach moral obligations for which a of law. For example, aperson suit under cmV liabiliiy law.

11 3

CLASS ACTION

CIV IL PENALTY fine or money damages. Civil penalties ;ire imposed as punishment for acertain activity and act as acriminal sanction,

while civil remedies redress wrongs between private parties. CIVN., RIGHTS rights protected by the U.S. Constitution. These rights can be enforced by court action. Among them arc the right to own property, to utilize the courts, to marry, to contract, and to obtain other benefits set out by law. including all rights .set out in federal statutes.

CIVIL WRONG act. or omission to act. that violates alegal duty; tort. It gives the victim of the wrong the right to bring acivil action for u remedy.

CLAIM request by an insured for indemnification by an insurance com¬ pany for loss incurred from an insured peril. Cl.AIM FOR REFUND claim by ataxpayer to the Internal Revenue Service for arefund of all or part of the taxes paid in earlier years. Such aclaim can result from the correction of an error or the avail-

;ibility of aloss or credit that can be carried back and used to reduce

the lax liability of aprior year. CLAIM REPORT report furnished by the ADJUSTER to the insurance COMPANY (insurer) iIuiI documents the amount of payment (he insurer is legally obligated to pay to or on behalf of the insured under the terms of the policy. C L A S S

I. group of people who meet together for an educational purpose (c.g., elementary school class) or siudeiUs nr alumni who share a certain year of graduation (e.g.. ABC College Class of 2012). 2. securities having similar features. Slocks and bonds are the two main classes; they are subdivided into various classes—for exam¬ ple. mortgage bonds and debentures, issues with different rates of

interest, common and preferred stock, and Class Aand Class B common. The different classes in acompany's capitalization are itemized on its b;ilancc sheet.

3. group of people who meet certain specified criteria, as in aclass ACTION suit.

CT.ASS A/CLASS BSHARES shares of stock issued by the same cornpan)'. having some difference, such as voting rights, or adividend preference or panicipution.

CI.ASS ACTION asun brought by one or more members of alarge group of persons on behalf of all members of the group. If the court permits the class action, all members must receive notice of the action and must be given an opportunity to exclude themselves. Members who do not exclude themselves are bound by the JUDGMENT, whether favorable or not.

V

CLASSICAL ECONOMICS

11 4

CLASSICAL ECONOMICS amajor Ihreatl in historical economic thought originated by the work of Adam Smith in the eighteenth cen¬ tury. Classical economists empha.sized the role of unregulated markets in achieving desirable social results, despite participants' following their own self-interests. Smith's "invisible hand" refers to the market's

ability to coordinate individual interests. Dissenters include Karl Marx and John Maynard Keynes. C L A S S I F I C AT I O N

1. classes or grades by which jobs are evaluated. 2. any method of delineating and categorizing business activities and products. CLASSIFIED STOCK common STOCK divided into two or more

classes. Atypical approach is for acompany to issue Class Astock to raise the bulk of KQUITY capital, while vesting voting rights in Class B Slock, which is retained by management and/or founders. C L A S S L I F E A S S E T D E P R E C I AT I O N s e t A S S fi T d d p r e c i a t i o n r a n g k .

CLASS STRUGGLE antagonism between social classes resulting fmm different economic and social interests; first identified by Karl Marx.

One of Marx's examples is the conflict between the owners of capital (bourgeoisie) and the nonowning employees (proleiariai). According to the Communist Manifesto, written during the Industrial Revolution, the workers will rise up and take over the state by force. CLAUSE in an insurance policy, sentences and paragraphs describing various coverages, exclusions, duties of the insured, locations cov¬ ered. and conditions that suspend or terminate coverage.

CLAWBACK provision in alaw or contract that limits or reverses apay¬ ment or distribution for specified reasons. For example, alimited part¬

nership agreement might have aclawback provision requiring that when cumulative profits arc tallied at expiration, distributions received by the general partner in excess of acertain percentage will be deemed excessive and returned to limited partners. Adividend

clawback requires the sponsors of aproject to contribute dividend payouts as equity to cover future cash deficiencies. Also, alegal mca.sure to force individuals to give up bonuses from acompany and for investors who benefited from PCNZI schemes to return profits. C L AY T O N A N T I - T R U S T A C T j e e ' a n t i t r u s t a c t s . CLEAN

Accounting; unqualified audit report; called aclean opinion. See also QUALIFIED OI’INION.

Finance: free of debt, as in adean balance shed. International trade; without dixiuments. as in clean versus docu¬

mentary drafts. Securities: blwk trade that mutches corresponding buy or sell orders,

thus sparing the block positioner any inventory risk.

CLERICAL ERROR

11 5

CLEAN HANDS

1. honest and professional behavior with nothing done improperly under the table. For e.xample, asalesperson dealing dirccil)' and

forthrightly with apurchasing agent is acting properly. There are no payoffs of any kind.

2. in law. plaintiff coming to court with no record of misconduct on his part in the same area as that to which ho is charging the defen¬ dant. An example is where one parly charges the other with unfair competition; the suit may be dropped if it can be shown that the complaining party has followed similar practices, CLEAN OPINION see clean; accountant's oi’inion.

CI.EANDP FUND informal phrase describing the "needs approach" to determine the amount of life insurance necessary for afamily. It is intended to cover la.st-minute expenses as well as those that surface after the death of an insured, such as burial costs, probate charges, and medical bills. C L E A R

Banking: cou.lction of funds on which acheck i.s drawn, and pay¬ ment of those funds to the holder of the check.

Finance; asset not securing aloan and not otherwise encumbered; to

make aprofit. For example, after all expenses, they tIeiimISi inillion. Securities: comp:irison of the details of atransaction between brokers prior to selllemeni; final exchange of securities for cash on delivery. CLEARANCK .SAI.K special retail sale, usually held to move out com¬ pletely atype i>r brand of product from inventory. C L E A R I N C l l O U S E

I. a.ssocialion, usually formed voluntarily by bunks, to cxcitange checks, drafts, or other forms of indebtedness held by one member

and owed to another. Its object is to settle balances between the banks of acity or region with aminimum of inconvenience and labor. 2. in astock or commodities exchange, an organii'alion to facilitate seulemeni of the debits and credits of its members with each other.

CLEARINC; MARKET situation in which supply and demand reach

i;guM.iiiKiUM quickly so that there is no excess supply or demand at the market price. Usually, the good being sold i.s .short-lived so that sup¬ pliers have an incentive to liquidate their inventories and there are no artificial constraints on price. CLEAR TITLE rm.l; free from any i-.NaiMBRANCTi, obstruction, burden,

or limitation that presents adoubtful or even areasonable question of law or fact as to its validity. See also gcx)d titi.I;; .makketaulk ittle. CLERICAL ERROR mistake made while copying or traiismilling a

document, as distinguished from ajiiilgmenl error, which is an error made in the exercise of Judgment or discretion, or alechnical error. which is an error in interpreting al;iw, regulation, or principle.

V

C L E R K

11 6

CI.ERK assistant or subordinate. Afile clerk maintains papers placed in anie cabinet; a. slock clerk maintains inventory. CLICK depress one of the buttons on acomputer mouse. Different

actions are performed by clicking the left (primary) and right (sec¬ ondary) buttons or the center button (if any) and by douulf.-Clicking. EiTects also vary from one application to another. CLIENT

In general: person, company, or organization that uses the profes¬ sional services of another.

Advertising: manufacturer, owner, or provider of aproduct or service who desires to advertise that product or service utilizing the help of a

ijualified specialist; also called ACCOUtrr. The client is the customer for whom the advertising agency works. CLIENT FOCUS company policy, philosophy, or mission intended to be responsive to client needs, attentive to developing client relation¬

ships. and committed to client service and innovation. CLIENT-SERVER MODEL aconfiguration in which one computer, designated as aserver, sends information to anumber of other “client" computers.

Cl.,!!’ ART computer graphics files that can be inserted into adocument or other file (the name derives from books of art from which design¬ ers literally clipped art to paste into their layouts). Clip art is included

in many programs (especially desktop poblishlng and drawing appli¬ cations such as Microsoft Publisher and Corel-DRAW!) and is also sold in separate packages.

Cldl’BOARD acomputer holding area that temporarily stores informa¬ tion cut or copied from adocument. Both macintosh and windows operating systems support this feature.

CLIPPING COUPONS removing an appropriate portion of acoupon BOND to submit in order to colleet (usually) semiannual interest; before the days of registkri-.d bonds, bearer bonds had such coupons

attached. It is because of these coupons that abond’s interest payments are called coupons. In recent years, the expression has come to describe clipping newspaper or magazine coupons to obtain dis¬ counts. Whereas clipping coupons used to evoke avision of awealthy

investor able to live on investment income alone, it now suggests the activity of apenny-pinching homemaker. CLONE

III general: genetically identical duplicate of an organism. Business: exact or nearly exact duplicate of some object, such as a credit card or micrtxiompuier. CLOSE

1. price of the final trade of asecurity at the end of atrading day. 2, last half-hour of atrading session on the exchanges.

CLOSED UNION

11 7

3. in accounting, transfer of revenue anil expense accounts at the enil of the period, called closing ihe hoohi. 4. consummating asale or agreemem. See also closing. 5. exit afile or program. The term OUIT is often used for the latter, but in wiNtXJWS the operator exits by closing an application window. In the MACINTOSH environment, close is the equivalent of Minimize

(reduce to an icon) in Windows, and Qurr is the proper term for exiting. C L O S E C O R I ' O U AT I O N s e e C L a s t i i . v i i i ; i . D c o r t o r a t i o n .

Cl-OSE CORl’ORA'nON Pl-AN prior arrangement for surviving stockholders to purchase shares of adeceased stockholder according to apredetermined formula for setting the value of the corporation. C T, O S E D A C C O U N T

1. abank or charge account that has been terminated.

2. in accounting, gbnkral i.kdoi-k account that has been prepared for the next year by closing off the previous year’s amount. See also Ct.OSISO

E N T R Y.

CLOSED ECONOMY self-sufficient economic system in which all pnxluction and con.sumption is contained within itself; no commerce (exporting or importing) outside the system itself exists. See aha A U TA R K Y-

CLOSED-END .\10RTG-AGE mortgage-bond issue with an indenture that prohibits repayment before maturity and the rcpledging of the same collateral without the permission of the bondholders; also called closed mortgage. See also OPt:s-i;ND mortgage. CI-OSED-END MUTUAL FUND invilstment cxtMi'ANY that operates a mutual fund with alimited number of shares outstanding. Unlike an open end mutual 1T;nd. which creates new shares to meet investor demand, aclosed-end fund starts with aset number of shares. CLO.SED FUND mutual fund that has become tiM> large and is no longer issuing shares.

CLO.SED PERIOD aperiod of time, often 10 years, after issuance of a bond when that bond cannot be called. See also callable.

CLOSED SHOP organization where workers arc required to be in a tlNtON before they can be hired. For all practical purposes, closed shops were made illegal by the tait-harti.ey act of 1947. See also O l ' E N S H O P.

CLOSED STOCK merchandise sold only in sets. Individual items from aset cannot be purchased und (here is no certainty (hat replacements will be available at afuture time. Examples are sel.s of glassware und china. Contrast with open stock. CLOSED UNION .see ci-OSED shop.

C L O S E LY H E L D C O R P O R AT I O N

11 8

C L O S E LY H E L D C O R P O R AT I O N

1. one that is publicly traded although it has few stockholders. It is distinguished from privately held or closed corporations, which are not publicly traded. 2 . i n t a x a t i o n , o n e i n w h i c h fi v e o r f e w e r i n d i v i d u a l s o w n 5 0 ^ 4 o r

more of the outstanding stock during the last half of the year. CLOSEOUT clearing out merchandise by asale. CLOSET INDEXING structuring aMUTtiAi. fund or other managed

poril'niio to nearly replicate an index and avoid the risk of underper¬ forming it. which would reflect negatively on the manager. Closet indexers do not admit they are indexers; they charge the regular fees

for active management but deliver results similar to index funds, which are unmanaged and have much lower fees. CLOSING

I. consummation of atransaction involving the sale of real estate or of an interest in real estate, usually by payment of the purchase price (or some agreed portion), delivery of the dkep or other INSTRU.MENT of liilc. and finalizing of collateral matters. 2. in accounting, (he process that (Kcurs at year-end when final accounting entries are made to close the books. See CLOSE.

CLOSING AGREEMIsNT written agreemenl between ataxpayer and the Internal Revenue Service that conclusively settles atax liahiliiy for the TAXABLE YEAR ending prior to the agreement date or settles one or more issues affecting atax liability. CLOSING COST various fees and expenses payable by the seller and

buyer at the time of areal estate closing; also termed ironsvciion cost. Some closing costs are brokerage commissions; lender discount points

and other fees; title insurance premiums; deed recording fees; loan prepayment penalty; inspection and appraisal fees; and attorney’s fees. CLOSING DATE in real estate, date on which the seller delivers the

DEED and the buyer pays for the properly. For example, the sales con¬

tract generally establishes aclosing date, at which time the parties will meet and settle all accounts necessary to transfer title to the property. CLOSING ENTRY in accounting, one of the final entries made at yearend to close accounts and transfer the amounts to financial statements. See also closed account.

CLOSING INLTNTORY value and quantities of slock in trade at the end of an ACCOU.Ni iNti period.

CLOSING PRICE or Cl-O.SING QUOTE price of the last transaction completed during aday's trading session on an organized securities

exchange. For purposes of valuation of stock, as in the case of chari¬ table contributions and estates, the closing quote is used.

U 9

COBOL

CLOSING STATEMENT accounting of funds from areal estate sale, made to both the seller anti the buyer separately. Most states require the broker to furnish accurate closing statements to all parties to the transaction.

CLOUD CO.MPUTINC; computer operation.s perUinned by computers

linked to the Web. Files and programs arc stored on adistant server rather than the local hard drive or network. Users pay for computing as aservice, reducing hardware and software espense. CLOUD ON TITLE any matter appearing in the record of aTtru; to real

e.state that on its face appears to reflect the existence of an outstanding CL,MM nr ENCUMBRANCt; that, if valid, would defeat or impair title, but

that might be proven invalid by evidence outside the title record. See also OUlTCLAtM DUEIX

CLU.STKR ANALYSIS method of statistical analysis that groups

people or things by common characteristics of interest to the researcher. Can be used to characterize the behavior or interests of var-

iiiiis customer clusters such as vum'ies. so that protnoiion copy and

design can be specifically targeted to them. Cluster analyses are frequcnily based upon geographic criteria so that mailings can be sent to the liesi clusters.

CLUSTER HOUSING subdivision technique in which detached

dwelling units are grouped relatively close together, leaving open spaces as common areas.

CME GROUP futures and options exchange formed in 2007 by the

merger of the CHICAGO hoard of trade (coot) tind the Chicago merCANTli.l- EXCHANGE (CME). Four exchanges (CBOT. CME. NYMF.X,

and COMEX) operate as designated coniriiet markets (DCMl of ilie CME Group. CMO see coixaterauzi:i> mortgage obugaiion.

CO.Atll FARE cost of passenger iransponalion based on an ordinary class of serx'icc that is less luxurious and less expensive than first-class service.

C'OA.SE THEOREM idea that markets have away of dealing with EXT1:knal RCONOMlliS or exiemaluies without governmeni interven¬ tion. Coase fell that negotiations between the panics (the entity pix>-

ducing the externality and the one affected by it) could mitigate the effects. Akey requirement is costless or inexpensive means of negoti¬ ating ascitlemenl. COBOL (common business-oriented fanguage) computer language

developed in the early l%()s by several compuler manufacturers and the U.S. Department of Defense. It was often u.sed to write programs to process business data such as payroll.s and accounts p.ayahle records.

V

CO-BORROWER

120

CO-BORROWER an addilionaJ person who is responsible for loan repayment and is lisied on the loan. See alxo cosign. COBRA acronym for Consolidated Omnibus Budget Reconciliation Act. S e e a l s o c o n t i n u a t i o n o h b e n e fi t s .

COBWEB THEOREM an explanation of market adjustments to changes in supply and demand, in which prices oscillate toward an EQUILIBRIUM HtiCE. On agraph of demand and supply curves, market

price moves from apoint on either curve in such away that its route resembles aspider web. C O D

1. cash on delivery. 2. cancellation of debt. CODA see cash or deferred ahra.sgement. C O D E

I. the Interna! Revenue Code. The latest version, the internal rhv-

KNUF; code of I980 (IRC), comprises the colleclivc statutes govern¬ ing the federal taxation of income, estates, gifi.s, employment, and excise transactions.

2. the instructions within acomputer program, known as source code. 3. compilation of laws, such as the Motor Vehicle Code.

CODE OF ETHICS statement of principles concerning the behavior of those who subscribe to the code. Acode of ethics defines proper pro¬ fessional behavior and practices that arc considered unbecoming a per.son in that prot'e.ssion. CODE OF PROFESSIONAL RKSPONSIBH.ITY set of rules based

on ethical considerations that govern the conduct of lawyers. It was passed by the American Bar Association and adopted by most stales and is enforced by state disciplinary boards. CODICIL supplement to awill, whose puqxise is to add to, subtmet from, or qualify, modify, or revoke the provisions of aprior will. CODING process of writing an algorithm or other problem-solving pro¬ cedure in acomputer programming language. CODING OF ACCOUNTS assignment of an identification number to e a c h a c c o u n t i n t h e fi n a n c i a l s t a t e m e n t s . A c h a r t o f a c c o u n t s l i s t s

the account titles and account numbers being u.sed by abusiness. For example, the numbers 1lo 29 may be used exclusively for a.sset

accounts; numbers from 30 to 49 may be reserved for liabilities: num¬ bers in the 50s may signify owner's equity accounts; numbers in the

60s may represent revenue accounts and numbers from 70 to 99 may designate expense accounts. In large or complex businesses with many more accounts, amore elaborate ctxiing system would be needed.

121

C O I N C I D E N T I N D I C AT O R S

C O K E K I C T E N T O F D E T E R M I N AT I O N l e s l s t a t i s t i c l l i a l s h o w s t h e

amiiuntofvariabilityinalicpentlenivariableexplainedh^theregres¬

sion nuxlel's independent variable(s). It is denoted by R- and ranges

from 0to 1. If 0, there is no explanation of the dependent variable at all: if I, the independent variables explain all the Viiriabilily of the

dependent variable. COFFEE IJREAK brief lime period allowed during the working day to

permit employees to unwind from the pressures of work so they are refreshed to carry out their choresCOGNTTIVE BEHAVIOR being able to judge and rea.son effectively and having aperecpiion of surroundings. An example is an advertis¬

ing executive who, based on awareness and thoughts, derives the con¬ tent of an ad or promotion for apoxlucl line. COGNITIVE DISSONANCE

In general: psychological theory of human behavior, llic theory sug¬

gests that human beings justify their behavior by changing their beliefs when these beliefs are inconsistent with behavior. For example,

aman who says he does not believe in violence punches asalesperson. This juxtaposition of belief and action creates dissonance (conllid). The theory says that he will change his belief in nonviolence to justify h i s b e h a v i o r.

Marketing (buyer's remorse); theory that aconsumer may use apar¬

ticular product because he or .she believes the advertising for that prod¬ uct, which claims that the prtxluel is the most effective of its kind in the job that it docs. The consumer may then see acompetitor's adver¬ tisement that seems to prove conclusively that this eompetilive prod¬ uct is better. This creates dissonance. The consumer must now relieve

the uncomfortable feeling that the dissonance brings about and will often do so by switching pnxlucts. Even though advertisers want to create dissonance for nonusors of their product, they do ntil want to create it for those who do use their product. Cognitive dissonance

most often occurs after the purchase of an expensive item such as an automobile. Aconsumer who is experiencing cognitive dissonance

after his or her purchase may iitlempt to return the protlucl or may seek positive information about it to justify the choice. If the buyer is unable to justify the purchase, he or she will also be less likely to pur¬ chase that brand again. COHESIVENESS measure of organizational work group interpersonal allegiance. C O I N C I D E N T I N D I C AT O R S e c o n o m i c m d i c . i l o r s t h a t c o i n c i d e w i t h

the current pace of economic activity. The Index of Coincident Indicators is published monthly by the Conference Board along with the Index of leading indicators and the Index of Ijsgoino ini)1i:ators to

give the public areading on whether the economy is expanding or coniraciiiig and at what pace. The components of the Index of Coincident

COINSURANCE

122

Indicaiors are nonfami payroll workers, personal income less transfer paymenis, industrial produciion, manufacturing, and u-ade sales. COINSURANCE iNSURAWt; plan in which the in.surer provides indem¬

nity for only acertain percentage of the insured's los.s, reflecting the relative division of risk between insurer and insured. Acoinsurance

clause of 80%. for example, requires the property owner to keep prop¬ erty insured to at least that percentage of the property value. If the

insured fails to keep that much insurance, he will not be reimbursed for the full loss. COl.A see cost-of-livino adjustment. C O l . D B O O T. C O L D S TA R T s e e b o o t .

COLD CALLING practice by securities and other .salespeople of mak¬ ing unsolicited calls to potential customers. The technique is often effective, even though the process is disliked hy both salespeople and customers.

COI-D CANVASS process of contacting potcniitil buyers in an area in order to solicit sales of one’s products.

COLD TYPE type set by computer, xerogrttphic, or photographic means. Many publications are produced in-house on sophisticated cold-type machines. Formerly much of this work was produced in out¬ side printing plants on itOT-TYPE printing presses.

COLLAPSIBLE CORPORATION acorporation dissolved before realizing asubstantial portion of the taxable income to be derived from the property. The Internal Revenue Service treats gain on the stile or i.iQitiDATiON of acollapsible corporation as ordinary income to the stockholder.

COLLAR index level at which aciRcurr breaker is tripped. COLI.ATE arrange in ordered sets. In priming several copies of amul-

tipage document, if the user checks the Collate box. one complete set of pages will be priniod. followed by another set. Otherwise, the

required number of copies of page 1will be printed, followed by page 2. and so on. C O L L A T E R A L

1. secondary; on the side.

2. in commercial transactions, the property offered as security, usu¬ ally as an inducement to another party, to lend money or extend ciedit.

COLLA'l'ERAI. ASSIGNMI'iNT designation of apolicy’s death bene¬ fit or its cash surrender value to acreditor as security for aloan. If the

loan is not repaid, the creditor receives the policy proceeds up to the balance of the outstanding loan, and the beneficiary receives the

remainder. Because life insurance is freely assignable, it is readily

123

COLLECTIVE BARGAINING

acceptable lo lending insiiiutions as securiiy. Also, the lender is certain to receive tlie iiionoy should death strike the borrower before the loan can be repaid. COl.LATERAI.lZI'l pledge property as security for adebt. See ulsi> HVPOTHECATI-.

C O L L AT E R A L I Z E D B O N D ( o r D E B T ) O B L I G AT I O N ( C B O o r

CDO) iNVESiMCNT-OKADE bond backed by apool of variously rated bonds, including JUNK bonds. CBOs are similar in concept to cou.atKRALIZED MORTtiAOK OBi.tGATiONS (CMOs) but differ in that CBOs rep¬ resent different degrees of credit quality rather than different maturities.

C O L L AT E R A L I Z E D M O R T G A G E O B L I G AT I O N ( C M O ) m o n ¬ gage-backed security that separates mortgage pools into short-,

medium-, and long-term portions. COLLEAGUE fellow member of aprofession, association, occupation, or organization. Colleagues are important for mutual cotisuitationsand di.scussionas well as for friendship. The basis of being one's colleague is respect for one's position and training. COLLECTIBLE r.ire object collected by investors. Examples arc stamps, coins, oriental rugs, antiques, baseball cards, and photographs. Collectibles typically rise in value during inflationary periods. Ollier than bullion and certain coins, collectibles are not valid investments

for IRAs and self-directed Keogh plans. C O L L E C T I O N

1. presentation of anegotiable instrument such as adraft or check lo the place at which it is payable. The term refers lo cheek clearing and payment and to such special banking services as foreign col¬

lections. coupon collection, and collection of returned items (bad checks).

2. referral of apast due account lo specialists in collecting loans or accounts receivable, cither an internal dcpannienl or aprivate col¬ lection agency. 3. in ageneral financial sense, conversion of accoimls receivable into cash4. one's set of coi.t.Exn'iBLES. COLLECTION TERIOD see COi.l.hCTlON ratio.

COLLECTION RATIO ratio of acompany's accounts receivable to its average daily sales. The coUeciion ratio is the avemge number of days It takes the company to convert receivables into cash. It is also called iii-erage colleclioii period. See aho accounts rix'Hvable tvrnoviiR. COLLECTIVE BARGAINING process of settling labor disputes by negotiation between the employer and representatives of employees. See also arhi iration.

COLLECTIVE GOODS

124

COI.LECTIVE GOODS goods consumed at the some time by large numbers of consumers, such as streets ami roads, police and fire pro¬

tection. and nationiil defense. These goods cannot be efficiently priced and quantities cannot be determined by markets, os can be done for market goods, so they usually are provided by government. Conirasi wilh MARKET GOOD.S.

COLLECT ON DELIVERY (COD) see cash on Dt-t.ivEKV. COLLEGE SAVINGS PLAN see qualikied TumoN program (529 plan). COLLUSION secret agreement among persons to commit fraud or

engage in another illegal activity or in alegal activity with an illegal end in mind.

COLLUSIVE OLIGOPOLY industry containing few producers (oli¬ gopoly), in which producers agree among one another us to pricing of

output and allocution of output markets among themselves. cartki-S, such as OPEC, are collusive oligopolies. COLUMNAR JOURNAL book or ledger with columns to facilitate entering numbers. COM sec DOMAIN, DOT-CX)M. C O M B I N AT I O N S 1. see BUSINESS combination.

2. different subgroups that can be formed by sampi.ing alarger group or population. Combinations do not depend on the order in which the elements are drawn. See also pi-rmutation.

C O M B I N E D S TAT I S T I C A L A R E A ( C S A ) d e fi n e d b y t h e U . S . Census Bureau as acombination of several adjacent metropolitan STATISTICAL AREAS Or MICROPOLITAN STATISTICAL ARF.AS or amix of the

two, which are linked by economic ties. COMEX see securities and commodities exchanges. COMFORT LETTER

I. independent auditor’s letter, required in securities underwriting agreements, to assure that information in the registration statement

and prospectus is correctly prepared and that no material changes have occurred since its preparation. 2. letter from one to another of the parties to alegal agreement stal¬

ing that certain actions not clearly covered in the agreement will — or will not—be taken.

COMMAND

I. order by asuperior to carry out an action. An individual can be commanded to do something. The word has amilitaristic connota¬ tion in that commands given to those lower in rank must be obeyed.

When one is commiutded to do something, one is compelled. 2. in computers, instruction to perform agiven procedure.

125

COMMERCIAL LAW

COMMAND ECONOMY economy in which supply and price are reg¬ ulated or imposed hy acentral nonmarket authority. Communist economies arc examples.

COMMENCEMENT OF COVERAGE date at which insurance pro¬ tection begins.

COMMERCE CLEARING HOUSE (CCH) one of the major publish¬ ers of tax services and other businc.ss publications. COMMERCIAI. term for an advertising message that is broadcast on television or radio. An advertising message in print is called an adverlisemem. Abroadcast message is structured by lime rather than by space (as is an advcrtisemenl), and so must be creatively designed around words, sound, and music for radio, plus sight and motion for television.

COMMERCIAL RANK most common and most unrestricted type of bank, allowed the most latitude in its services and investments.

Insurance for depositors may be prtivided by the hhijkkai. deposit INSURANCE CORPORATIOS (FDIC).

COMMERCIAI. BLANKET BOND covers the employer for all of the employees on ahUmkei basis, with the maximum limit of coverage iipplied to any one loss without regiird for the number of employees involved. Bulb aumnercial and posilioii blanket bonds work the same way if only one employee causes the loss, or if the guilty cmployec(s) cannot be identiried. COMMERCIAL BROKER in real estate, one who l.lST.s and sells com-

MEKCtAL PROPERTY, which may include shopping, office, industrial, and apartment projects. See also Ri-siDiiNTiAi. bkoki;k, COMMERCIAL CREDIT INSURANCE coverage for an insured firm if its business debtors fail to pay their obligations. The insured firm can be amanufacturer or aservice organization but it cannot sell its

products or services on aretail level to be covered under commercial c r e d i t i n s u r a n c e . U n d e r t h i s f o r m o f i n s u r a n c e , t h e i n s u r e d fi r m

assumes the expected loss up to the retention timounl and the insur¬ ance company pays the excess losses above thill amount, up to the lim¬ its of the credit insurance policy. COMMERCIAL FORGERY POLICY coverage for an insured who unknowingly accepts foiged checks. COMMERCIAL FORMS insurance policies covering various busines.s risks.

COMMERCIAL LAW body of law ilial concerns the rights and oblig¬ ations of persons in their commercial dealings with one another, such as the L'NiroR.M commercial code (i:cc). laws prohibiting unfair trade practices, etc. See also merCantii.E law.

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COMMERCIAL LOAN

126

COMMERCIAL LOAN shon-temi (lypically 90-day) renewable loan 10 finance the seasonal working capital needs of abusiness, such as the

purchase of inventory or the production and distribution of goods. COMMERCIALLY DONUCILED located at the principal place from which aCORPORATION'S trade or business is managed ordirected.

COMMERCIAL PAPER short-term obligations with inaturities rang¬ ing from 2to 270 days, issued by banks, corporations, and ocher bor¬ rowers to investors with temporiu’ily idle cash. Such instruments are

unsecured and usually discounted, although some arc interest-bearing. They can be issued directly or through brokers equipped to handle the enormous clerical volume involved. Issuers like commercial paper because the maturities are flexible tmd because the rates are usually marginally lower than bank rales, Investors— actually lenders, since commercial paper is aform of debt—like the flexibility and safety of an msirument that is issued only by top-rated concerns and is nearly always backed by bank lines of credit. COMMERCIAL PROPERTY properly intended for use by retail, wholesale, office, hotel, or service users, or for manufacturing or other

industrial purposes. Examples are shopping centers, olfice buildings, hotels and motels, and resorts or restauranns.

COMMERCIAL PROPERTY POLICY’ coverage for business risks including goods in transit, fire, burglary, and theft. Acommon exam¬

ple is the SPECIALMUI.TIPERII. POLICY(SMP). COMMERCIAL UNIT aunit considered by trade or usage to be a whole that cannot be divided without materially impairing its value, c h a r a c t e r, o r u s e . s u c h a s a m a c h i n e o r a s u i t e o f f u r n i t u r e . S i n c e

acceptance of any part of acommercial unit constitutes acceptance of the whole, the term becomes significant when abuyer attempts to reject part of acontract for nonconformance.

COMMINGLING OK FUNDS act of afiduciary or trustee, mixing his or her own funds with those belonging to aclient or customer. The practice is generally prohibited by law. It is sometimes legal when the fiduciary maintains an exact accounting of the client's funds and how they have been used. COMMISSARY store selling food and supplies, often at amilitary out¬

post. Commis.saries are often subsidized, allowing them to charge reduced prices for qualified clientele (c.g.. amilitary PX commissary). COMMISSION

1. fee paid to an employee or agent for sen’ices performed, especially apercentage of atotal amount received in atransaction, as distin¬

guished from sahuy, which is afixed amount payable periodically. 2. type of governmental regulatory body, such as the Federal Trade Commission.

COM.MOD1TY MONEY

127

COMMISSION BROKER broker, usuiilly afloor broker, who executes trades of stocks, bonds, or commodities for acommission. COMMITMENT

1. promise or pledge made by one individual to another. Example: a sales manager promises asalesperson acertain bonus if the sales quota for the year is met. 2. legal obligation to perform or not perform some act. Example; a purchaser enters into awritten purchase commilniem to buy goods from asupplier at aspecified price by aspecified date. See also MORTGAGE

C O M M I I ' M E N T.

COMMITMENT EKE lender's charge for contracting to hold credit available. Fee may be replaced by interest when money is borrowed, or both fees and interest may be charged, as with arevolving credit. COMMITMENT EETl'ER an official noiilication to aborrower from

alender indicating that the borrower’s loan application has been approved and staling the terms of the prospective loan. COMMITTEE

In general: group that meets regularly for discussion and decision making.

Oovernnient; group appointed to investigate some special matter or area of interest and report its findings and recommendations. C O M M I T T E E O N U N I E O R M S E C U R I I T E S I D E N T I M C AT T O N

PROCEDURES (CU.SIP) committee that assigns identifying num¬ bers and codes for all securities. These CUSIP numbers .and symbols

are used when recording all buy and sell orders. COMMODITIES EUTURES contracts in which sellers promise to

deliver agiven commodity by acertain dale at aprcdelonnincd price.

Price is agreed to by oi>cn outcry on the floor of the commodity exchange. The contract specifies the item, the price, (he expiration dale, and astandardized unit to be traded (e.g., 50.0IX) pounds). Commodity contracts may run up to two years. COMMODITIES FUTURES TRADING COMMISSION see R E O U . AT E D

COMMODITIES.

COMMODITY any tangible good; product that is the subject of sale or barter. Bulk goods such as grains, metals, and foods are traded on a commodities exchange or on the .sk)T market.

COMMODITY CARTEL organization, usually of producing countries, that tries to control the price and quantity supplied of aparticular COM-

MODITY (usually aniw material). Examples are OPEC (petroleum) and the International Coffee Organization.

COMMODITY MONEY money that is valued because of the commodity from which it is made, such as gold coins, whose value

V

COMMON AREA

128

usually is ihu value of the gold in them and not necessarily the denom¬ ination stamped on the coin. COMMON AREA area of aproperty that is used by all owners or ten¬ ants. Examples of common areas are the clubhouse and pool of acon¬ dominium development; the hallway.s and stairs of an apartment building; the elevators in an otftce building; and the mall area of a shopping center.

COMMON CARRIER carrier for hire who transports people or goods as apublic utility.

COMMON ELEMENTS in acONtxiMrNiUM.lhose portions of the prop¬ erly not owned individually by unit owners, but in which an indivisi¬

ble interest is held by all unit owners. Generally includes the grounds, parking areas, recreational facilities, and external structure of the building. See also community assodation.

COMMON LAW system of jurisprudence that originated in England and was later applied in the United States. It is based on judicial prece¬ dent (court decisions) raihcr than on legislative enactment (statutes) and is therefore derived from principles raihcr than rules. See also CIVU.

LAW.

COMMON SIZE standard used to compare Hinancial statements of different companies by convening account groupings to apercentage of the whole, sales revenues are 100% for each company, and vari¬ ous expenses are slated a.s apercentage of sales revenues.

COMMON STOCK security representing an ownership interest in a corporation. Ownership may also be shared with preeerred stock,

which has prior claim on any dividends to be paid and, in the event of liquidation, to the distribution of the corporation’s assets. As owners of the corporation, common stockholders assume the primary risk if business is poor, realize the greater return in the event of success, and elect the board of directors that controls the company. COMMON STOCK EQUIVALENT preferred stock or bond convertible into common slock, or warrant to purchase common slock at aspecified price or discount from market price. Common slock equivalents repre¬ sent potential dilution of existing common shareholder equity. COMMON STOCK FUND mutual fund that invests only in common slocks.

COMMON STOCK RATIO percentage of total capitalization repre¬ sented by common stock. From acreditor's standpoint, ahigh ratio represents amargin of safely in the event of liquidaiion. From investor's standpoint, ahigh ratio can mean alack of leverage.

a n

COMMUNICATIONS NETWORK well-defined pattern of communi¬ cations that emerges when asmall number of people link themselves

129

C O M M U T E R TA X

logciher (o exchange information, whether to iolve aproblem or to spread rumors.

COMMUNISM in theory, anti-capitalist proposals of Karl Marx and his followers that communal ownership of the means of production is

preferable; in practice, economic systems in which production facili¬ ties ore state-owned and production decisions are made by official pol¬ icy and not directed by market action. COMMUNITY ANTENNA TELEVISION (CATV) cable television;

using asatellite dish or high master antenna to receive distant televi¬ sion signals and then selling the service to residents of acity or town. Cable subscribers may receive national network television broadca.sts, other specialized stations, and the opportunity to subscribe to premium chimnels. such as HBO. at an additional cost.

COMMUNITY ASSOCIATION general name for any organization of pntperty owners to oversee some common interest. In acondominium or planned unit development, the association has the responsibility of managing the co.mmo.v elemksts in the project. Ahomkowners' associATiON may be established in asubdivision to enforce deed COVENANTS.

COMMUNITY I’HOI’ERTY property acquired during marriage and recognized in nine stales (Arizona, California, Idaho, Louisiana, Nevada. New Mexico, Texas, Washington, and Wisconsin), whereby the law presumes the property to be the product of joint efforts. Income from community property, salaries, wages, and other compen¬ sation is considered to be earned one-half by each spouse. Thus, in a divorce, the couple's total property is divided in half unless anegoti¬ ated settlement is reached, even if most of the assets were earned by one member of the couple. COMMUNITY REINVESTMENT ACT afederal law that requires

federal regulators of lending institutions to encourage lending within the local area of the institution, particularly to low- and moderateincome residents and those residing in inner-city neighborhoods. See also RbDLINISG.

COMMUTATION UKIIIT privilege of abeneficiary to take unpaid income payments under asettlement option of an annuity or life insur¬ ance policy in the form of alump sum. For example, if abeneficiary has aseries of 20 income payments remaining, the present value of these payments can be commuted to asingle lump-sum payment. COMMUTER individual who frequently travels between two places. A

person who lives in aresidential suburb and works each day in the city is acommiiier,

COMMUTER TAX tax imposed on those who work in aplace other than where they live.

CO-MORTGAGOR

130

CO-MORTGAGOR one who signs nmortgage contract with another party or parties iind is thereby jointly obligated to repay the loan. Generally aco-mortgagor provides some assistance in meeting the requirements of the loan and receives ashare of ownership in the encumbered property. See also cosigner.

COMPACT DISC (CD) an optical storage device capable of holding up to 650 MB of digital data optically encoded on a4.75-inch reOective

disk and read by ulaser beam. Some CDs are read-only (see cd-rom). Others (CD-RI arc recordable; thiit is. they can be written to in one or

more sessions. Still others (CD-RW) are rewriteable; that is, they can b e e r a s e d a n d w r i t t e n o v e r.

COMPANY group of people organi«d to perform an activity, business, nr industrial enteiprise. See also corporation; holding company; JOINT

STOCK

C O M P A N Y.

COMPANY BENEFITS see benehts; fringe benefits.

COMPANY CAR car owned by the firm, but available for use by employees.

COMPANY UNION labor union usually considered lo be very sympaIhclic to the management of the company where it is located. It there¬ fore may not represent the true interests of its members since it could be compromised by the company.

COMPARABLES in real estate, properties similar lo the one being sold or appraised. Also called comps. See also adjustmenp, appraisal.

COMPARABLE WORTH employment theory that maintains that jobs should be compensated according to their value lo the organization, not according to who holds them: also called equal pay for equal work. This is aparticular concern in the case of female employees in the United Stales.

COMPARATIVE ADVANTAGE the economic motive and cause of

international trade. Countries increase their economic prosperity by exporting the goods that they are relatively more efficient at produc¬ ing and importing the goods that other countries are relatively more efficient at producing. COMPARATIVE FINANCIAL STATEMENTS financial statements

covering different dales but prepared consistently and therefore lending themselves to comparative analysis, as accounting convention requires. C O M PA R AT I V E o r C O M P E T I T I V E M A R K E T A N A LY S I S

(CMA) an estimate of the value of real property using only afew indi¬

cators taken from sales of comparable properties, such as price per square foot. Such value estimates are not appraisai.s and do not meet

the professional standards of appraisal practice. COMPARATIVE NEGLIGENCE in some states, principle of tort law providing that in the event of an accident each parly’s negligence is

131

C O M P E N S AT O R Y T I M E

bai>e(Joii llial parly's toniribulioii lo the actidenl.I'or example, if in an

auto accident both parlies fail to obey the yield sign, their negligence would be equal, and neither would collect legal damages from the other.

COMPARISON .SHOPPING process whereby aconsumer gathers as much information as possible about particular products and services for comjtarison before purchtising them. Comparison shopping is iiccomplishcd by visiting stores having the merchandise, comparing advertisements, and doing related research. C O M PAT I B I . E

1. term describing two devicfs that can work together. For exaitiplc, a

particular brand of printer is tompatihle with ;i particular computer to which it can be connected.

2. two computers that can run the same programs. Many microcom¬ puter programs claim to be "IBM-PC comjMlihU." COMPENSATING BAI-ANCK average balance desired by abank to be kept on deposit in exchange for holding credit available. The more or less standard requirement fora bank line of credit, for example, is 10% of the line plus an additional 10% of the borrowings. Compensating balances increase the effective rale of interest on borrowings. COMPENSATING ERROR in accounting, mistake to offset aprior mistake tind thus reflect appropriate balances. COMPENSATION direct ;ind indirect monetary and nonmonetary rewards given lo employees on the basis of the value of the job. their persona! contributions, and (heir performanoe. These rewards must meet both the organization's ability to pay and any governing legal regulations. COMPENSATORY DAMAGES paymoiii lo someone who has suf¬

fered harm, such as for loss of income, expenses incurred, property destroyed, or personal injuo'- In general, except for damages for per¬ sonal INJURY, receipt of these payments is taxable. Recovery of aper¬ son's previously deducted expenses is taxtible under the tax be.nefit RULE. ColIlni.U with DOUlll.l: nxMACtlvS.

COMPENSATOR^' STOCK OKI'ICNS options offered to employees

as partial compensation for their sen ices. Compensation for .services is measured by the quoted market price of the stock at the measure¬ ment date less the amount the employee is required to pay (option price). The measuremcnl date is the earliest date on which both the number of shares lo be issued and the option price are known.,S'ern/jo INCESTIV1-: snx'K optio.n; nonstatutory oi'Vion; statutory oktion.

COMPENSATORYTIME lime off allowed an employee for oveilime. usually on an informal basis and at the discretion of the supervisor. This prevents llie company from having lo pay overtime for the time worked. Also called comp lime.

y

C O M P E T E N T PA R T Y

132

COMPETENT PAR'I'Y person legally capable of enicring aconlract. Aperson must be of legal age and not mentally incompetent or a drunkard.

COMPETITION rivalry in the marketplace. Goods and services will be bought from those who, in the view of buyers, provide "the most for the money.” Hence competition will tend to reward the more efficient

producers and/or suppliers and so lead the economy toward efficient use of resources.

CO.MPE’l'j riVE ADVANTAGE mciusure of an organization’s product or service distinctiveness in agiven market. See also CORE CO-MPEIENCE. COMPETITIVE BID sealed bid, containing price and terms, submitted by aprospective contractor to apurchaser, who awtirds the coniract to

the bidder with the best price and terms. Many municipalities and vir¬ tually all railroads and public utilities use this bid system. COMPETITIVE EQUILIBRIUM see equilibrium Wuce.

COMPETITIVE STRATEGY promotional strategy used in an adver¬ tising campaign that is designed to compete with rival brands. For example: Acompeuiive siralegy may try to discredit another brand or

undercut another brand in terms of price, or may point out qualities and consumer benefits that are not present in another brand. COMPETITOR

t.manufacturer or seller of aproduct or service that is sold in the same m a r k e t a s t h a t o f a n o t h e r m a n u f a c t u r e r o r s e l l e r.

2. seller of aproduct or service whose product nr service can be used to fill or satisfy aconsumer need (real or imagined) in amarket where other sellers offer products that will also fill or satisfy the same need. COMPILATION presentation of financial statement information by the

entity wUhoul the accountant's audit or assurance as to conformity with oenerally accei'I'Eo accounting principles (oaap). In per¬ forming this accounting service, the accounianl must conform to the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS Statements on

Standards for Accounting and Review Services (SSARS). The engage¬ ment letter should set fonh the type of services to be rendered, limita¬ tions of the service {such as nonreliance to disclose errors and

irregularities), and nature of the compilation report. COMPILER computer program that translates fortran, pascal, or a

similar high-level programming language into machine language. It contrasts with an interpreter, which executes high-level-language statements as it reads them.

COMPLAINT

I. in acivil action, the first pleading of the plaintiff setting out the facLs on which Ihe claim is based. The purpose is to give notice to the adversary of the nature and basis of Ihe claim asserted.

COMPLIANCE AUDIT

133

2. in criminiil law, the preliminary charge or accusation made by one person against another to the appropriate court or officer, usually a magistrate. However, court proceedings, such as atrial, cannot he instituted until an indictment or information has been handed down

against the defendant. COMPLEMENTARY GOODS goods that arc usually consumed together: demand for one falls when the price of the other rises; demand for one increases when the price of the other decreases. Blu-

ray discs and Biu-ray disc players are coiiiplerneiiuiry i f B l u ray discs become cheaper, people will be more likely to buy them, and, consequently, demand for Blu-ray disc players will increase.

COMPLETE AUDIT audit examining acompany's system of internal cotitrol and the details of the books of account, including subsidiary records and supporting documents. See also ACCOUNTANT'S opinion, COMPLKTED-CONTRACT METHOD an accounting method under

which net profit on an entire long-term contract is reported in the year when the contract is completed. Expenses connected with the job are not deducted until the contract is completed. This method maybe used

for lax purposes only for home construction contracts and certain other smiil! consiniciion contracts. See also pekcf.ntaoi-; of compli;TION

METIiOO.

COMPLETE LIQUIDATION aseries of distributions in redemption of all the STOCK of acorporation under aplan. COMPLETION HONI) legal instrument used to guarantee the comple¬ tion of areal-estate development according to siKcificalions. More

encompassing than a1'ERF‘ormanci; iiond, whicli ensures that one party will perform under acontract on condition that the other party performs. The completion bond assures production of the develop¬ ment without reference to any eonlract and without the requirement of payment to the contractor. C O M P L E X C A P I T A L S T R U C T U R E fi n a n c i a l s t r u c t u r e w i t h s t o c k

ouistiinding that has potential for dii.d i'ion. Dual preseniaiion of earn¬

ings per share by showing primary barnincs pkr common share and FULLY DILLTI-I) hARNINGS PER COMMON SHARE is required. CO.MPLEX TRUST trust that under the instrument of its creation or

under state law may cither distribute or retain income or atrust with a charitable benerciary. Acomplex trust is allowed only a$100 exemption.

COMPLIANCE AUDIT special auditor's report covering compliance with contractual agreements, such as bond indentures und loan agree¬ ments. and regulatory requirements. The lender or agency wishes to

obtain the audiior'.s assurance as to compliance with the terms of the agreement. The data need not be audited for compliance; however, if

V

134

C O M P O N E N T D E P R E C I AT I O N

the financial slalements have been audited, the auditor may provide negative assurance on compliance.

COMPONENT DEPRECIATION an effort to depreciate aproperty based on the lives of individual assets within it. For example, abuild¬ ing has electrical components and plumbing components that may be

assigned a20-year life, aroof with 15, and afoundation with a50-year life. Use has diminished bectiuse the 1981 lax act and subsei|ueni acts generally required coMPOsm; depreci-xtion. SeeofsoCOST SEOREOAnew. COMPONENT PART unit of asystem, which performs pan of the Iriinsformation or proccs.sing activity. Afuel injector is niiAi.Tii insl'ranci;; iikaltii main iknance ORGAMZ/VTtON (ilMO).

COMPREHENSIVE INSURANCE

136

COMPREHENSIVE INSURANCE coveruj’i: in automobile insurance providing protection in the event of physical damage (other than col¬ lision) or theft of the insured car. For example, fire damage to an insured car would be covered under the comprehensive section of the personal automobile policy.

COMPREHENSIVE LIAHILITY INSURANCE policy providing businesses with coverage for negligence-based civil liability in:

(I) bodily injury and property damage liability, on an occurrence basis, resulting from the ownership, use, and/or maintenance of the premises, completed operalion.s, and products; (2) bodily injury and property damage liability for operation of an elevator; (3) medical expenses resulting from bodily injury incurred by amember of the general public through the use of the premises or involvement in the operations. Medical expense reimbursement of the business is without regard to fault of the business. COMPREHENSIVE PERSONAL LIABILITY INSURANCE cover¬

age as Pari II—homeowners policy on an Mi. risk basis for personal acts and omissions by the insured and residents of the insured's house¬ hold. Included are sports activities, pci activities, and miscellaneous

events such as .someone tripping in an insured’s cemetery plot. COMPREHENSIVE PLAN aset of guidelines developed and adopted by alocal government to govern public policy toward future land

development within the jurisdiction. COMPRESSION see data compression.

COMPROMISE trade-off of one factor of comparable value for another in management practice and labor-management relations. In atrue compromise each party concedes something the other side finds acceptable. COMPS appraisal term, short for comparabi.es.

COMPTROLLER term for acorporate or public official; its meaning and pronunciation are identical to coniroller', see controller.

COMPTROLLER OF THE CURRENCY federal official, appointed by the President and confirmed by the Senate, who is responsible for chartering, examining, supervising, and liquidating all national banks. C O M P U L S O R Y A R B I T R AT I O N f o r c e f u l s u b m i s s i o n o f a l a b o r d i s ¬

pute to aneutral third party such as agovernment body or the American Arbitration A.ssoeialion for resolution; also called binding arhiiraiion. This method has been strongly resisted by labor unions

and employers who prefer to rely on collective bargaining and associ¬ ated economic pre.ssure, such as strikes and lockouts, to reach aset¬ tlement of such disputesCO-MPULSORV CHECKOFF see dues checkoff.

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137

COMPUTER INTEGRATED MANUFACTURING (CIM)

COMPULSORY INSURANCE coverage required by law. For exam¬ ple, more than half ihe stales require operators of auloinobilcs to have aminimum amount of liability insurance,

COMI’ULSORY RETIREMENT being forced to resign fmm one’s employmcni at an age specified by union contract or company policy; also called mandaiory reliremenl. In most cases in the past, the forced

retirement age was 65. However, effective January 1. 1979. federal legislation stipulated that the private sector cannot have compulsory retirement policies. There is no retirement age for federal employees. COMPUTER machine capable of executing instructions to pcrfotm operations on data. The distinguishing feature of acomputer is its abil¬ ity to store its own instructions. This ability makes it possible for a

computer to perform many operations without the need for aperson to enter new instructions each time. Mtxlern computers are made of high¬ speed electronic components tliiit enable the computer to perform mil¬ lions of operations each second. CO.MPL'TlsR-ASSISTED DICSIGN (CAD) computer-assisted method of developing three-dimensional designs. This design method is

extremely important for the engineering and architectural professions since it permits designs to be subjected to simulated real-time condi¬ tions such as lempcralurc changes, wind conditions, or crash impacts W'ilhoul actually building amodel. The computer dynamically devel¬ ops the images, performing all mathematical calculations and reflect¬

ing all conditions to which the design is subjected. This encourages design cx[wrimentation without large costs or extensive time delays, resulting in high-quality design.s mid faster product development. See also COMPU7T-R l^rBGKAlKP MANI.'WCTURINO (CIM).

COMl'UTER-ASSISTEI) MASS API’RAISAL (CAMA) proprietary software used to make fast VAt.LATiONs of one or more real properties. The program may be as simple u.s one that calculates and applies a simple percentage increase in properly values from the last time an APPRAISAL was made. Or, it may be based on complex slali.stical tech¬ niques that select and consider other properties. C O M P U T E R - A S S I S T E D T R A N . S C R I P T I O N ( C AT ) a u t o m a t i c t r a n ¬

scription of machine shorthand notes into acomputer from words recorded in electronic form.

COMPUTER CONFERENCING bringing participants together at dif¬

ferent locations to exchange information and discuss problem situa¬ tions. Conference members can take part in adiscussion whenever they wish by computer or terminal. See also webca.m. C O M P U T E R I N T E G R AT E D M A N U FA C T U R I N G ( C T M ) i n t e ¬

grated computerized manufacturing system combining all Ihe ele¬ ments of coMPUTER-ASSlSTlil) m-siON (cAD) and compulcr-aided inmuifaciuring (CAM), This is an interactive computer system usually

V

COMPUTERIZED LOAN ORIGINATION (CLO)

13g

insialled on alocal area networx Unking several related depart¬ mental functions such as design, engineering, production, and market¬

ing. The CIM concept insures rapid high-t|ualily product development and manufacturing through real-time coordination of all related func¬ tions- See also computer-assisted DEStON (cad).

CO.MPUTERIZED LOAN ORIGIN.ATION (CLO) origination of a

mortgage loan, usually by someone who is not aloan officer, with the assistance of specialised computer software that ties the originator to one or more mortgage lenders. CLO systems allow real estate brokers

to provide awider array of .services. COMPUTER NETWORK see local area network.

COMPUTER SCREEN screen on which acomputer or keyboard oper¬ ator sees what he is doing; similar to. but not the same as. atelevision screen. See also CATHODE ray tl-be; i.iquid crystal disH-AY (LCD).

COMPUTER SECURITY the protection of computers and the infor¬ mation contained in them. Security measure.s include frequent backups to protect against data loss due to machine failure, encryption, and password protection to prevent unauthorised access to data; nREWAi.i.s to prevent break-ins through network connections; and physical mea¬ sures lo prevent theft or damage from environmental hazards such as fire or flood.

CON ARTIST, CON MAN apractitioner of i-'Raud or ihefi by ileceprion who first wins the confidence of avictim. Con artists usually play on

the victim’s desire to gel something for nothiiig. CONCEALMENT intention to withhold or secrete information. If an insured withholds infonnation on amaterial fact, about which the

insurance company ha-s no knowledge, the company has grounds to void the contract.

C O N C E N T R AT I O N B A N K I N G a c c e l e r a t i o n o f c a s h c o l l e c t i o n s f r o m

customers by having I'lmds sent to several geographically situated regional banks and transferred to amain concentration account in

another bank. The transfer of funds can be accomplished through the use of depository transfer checks and electronic transfers. CONCENTRATION RATIO the proportion of sales provided by the (four or eight) largest firms in an industry. CONCEPTUAL SKILI,S ability to understand the intcrrelalion.ship of ideas or elements in relation to the totality, CONCEPT TEST research whose primary objective is to test an idea or concept that has been developed. Concept testing is done to assess the effectiveness of the advertising campaign in reaching its objectives. CONCERN

I. matter of interest lo management, requiring attention.

139

CONDITION

2. in labor relations, adiflicully that could affect the state of labor-

management reliitions if not properly addressed3. business otganization. For example, he heads alarge concern. C O N C E S S I O N

I. small shop or vending machine in ahotel or office building lobby, run by abusiness person.

2. right, usually granted by agovernment entity, to use property for a specified purpose, such as aservice station on ahighway. 3. reduced rent for the early portion of alease, used as an incentive. 4. selling group’s per-share or per-bond compensation in acorporate underwriting. CONCESSION AGREEMENT acontract between ahost country’s

government and aforeign firm that wants to invest in the host country. Concession ugreemenis are usually negotiated prior to investment and spell oul such things as taxes, remittance of profits, and transfer of ownershipCONCII.lATION in labor disputes, attempt to persuade management

and labor to meet and discuss their differences. The purpose of con¬ ciliation is to reconcile disputing parties, and Us effectiveness results from tlic likelihood that if tlic parties can be persuaded to meet, they might find aresolution of their dispute. CONCTLI.ATOR person who attempts to bring inanagemenl and labtir together. See also coNauAiioN. CONDEMN

see

condemnation.

CONDEMNA'nON

1. taking private property for public use will! cumpensaiion to the owner under eminent domain. Used by govemmenus to acquire Itind

for streets, parks, schools, etc., ajid by utilities to acquire necessary 1-ase.ments. Replacement of the asset with another of equal value within three years of condemnation results in lax deferment of the gain through abasis carryover. See also co.mpe-nsatoky damaoes. INVOLLTNIARY CONVERSION, SEVERANCE DAStAGES.

2. declaring astruciurc unfit for use. CONDEMNATION AWARD money or value of other properly

received for condemned properly; also, the amount received from the sale ol properly under ilireat of condemnation. CONDITION

1, aprerequisite or requirement.

2. apossible future event that will trigger the duty to perform alegal obligation or will cause areal property interest to arise, vest, or be extinguished.

3. alevel of physical quality or wear. For example, an apartment com¬ plex may be in good or ptxsr condition.

CONDITIONAL CONTRACT

140

CONDITIONAL CONTRACT contract whose performance depends upon ti future event, such as aconlraci to purchase acar if it passes a motor vehicle inspection. CONDITIONAL SALE

1. sale in which the vendee receives possession and right of use of the goods sold, but transfer of title to the vendee is dependent upon PERFORMANCE of some condition, usually full payment of purchase price. The conditional sale becomes ahsoluie on lulfillment of the condition.

2. purchase accompanied by an agreement to resell upon particular t e r m s .

CONDITIONAL-USE PERMIT see special-use permit.

CONDITION PRECEDENT express or implied provision of acontract calling for the happening of some event or the performance of some

act, before the contract will be binding upon the parties. CONDITIONS. COVENANTS, AND RESTRICTIONS (OCRs)

rules, slated in condominium or subdivision deeds or bylaws, that define how property may be used. They prevent properly owners from milking changes to their individual properties that could result in an unattractive or inharmonious setting that could adversely affect other owners. For example. CCRs may require acertain style for any house in asubdivision, resirict the height of afence, ban certain types of building materials, or limit or bar satellite dishes.

CONDITION SUBSEQUENT provision in acontract that describc.s an event or act, upon the happening of which certain obligations under the contract terminate.

CONDOMINIUM (CONDO) form of real estate ownership in which individual residents hold adeed and title to their housc.s or apartments and pay amaintenance fee to amanagement company for the upkeep of common properly such as ground.s, lobbies, and elevators as well as other amenities. The property so owned is often referred to as acondo,

but the shortened form is not used for the form of ownership. Condo owners pay real estate taxes on their units and can mortgage, sublet, or sell as they wish. Acondo owner's lax position is equivalent to that of asingle-family home owner. Compare cooperative. CONDOMINIUM CONVERSION .vee conversion, definition 4. CONDOMINIUM DECl.ARATION see declaration, definition 2.

CONDOMINIUM OWNERS’ASSOCIATION organization of all unit owners in aconwminium to oversee the common elements and

enforce the bylaws. See also COMMUNITY association.

CONDUIT APPROACH when income or deduction.s (low through to another entity (for example, partnership income (lows through to

M l

CONFLICT OF INTEREST

Ihc partners). Also, atrust beneficiary must include in gross income the amount that the trust is allowed as adeduction for distributions.

CONFERENCE CAI.I, telephone call that allows more than two lines to be connected at the same time so that three or more people can talk

together: also called ihree-n'ny call. CT)NFIDENCE CJAME scheme by which aswindler (cos akti.st.co.s MAS) wins the confidence of his victim and then cheats him of his money by taking advantage of the confidence reposed in him. CONFIDENCE INTERVAL two possible values, an upper and alower

one. of aparameter being estimated from asample in which aproba¬ bility can be assigned representing the likelihood that apopulation parameter is within the interval. Confidence intervals are typicallybased on 90.95. or 99% levels. A95% confidence inicrval will con¬

tain the population parameter 95 out of every 100 samples. As the sample size decreases, Ihe confidence interval widens. CONFIDENCE LEVEL probability that aconfidence inti-rval con¬ tains the population parameter being estimated from asa.mM-E; also called confidence coefficient.

CONFIDENTIAL private or secret; something treated with trust, result¬ ing in afeeling of security that information will not be disclosed to other parties. An example is the confidcnlialiiy of conversations and records between attorney and client. CONFIGURE set up acomputer system or application to be used in a particular way, C O N F I R M AT I O N

1. formal memorandum from abroker to aclient giving details of a securities transaction.

2. document sent by acompany's auditor to its customers and suppli¬ ers requesting verification of the book amouni.s of receivables and payables. Po.tiih econfirmations request the account balance to be confirmed, whereas negaiire confirmations request areply only if an error exists.

CONFIRMATION I’OSITTVE written or oral request hy the auditor of

aparty having financial dealings with Ihe client about the accuracy of an item. Aresponse is required whether the particular item is correct

or incorrect. For example, positive confirnwtinn can be sent to cus¬ tomers to verify account balances. CONFLICT OF INTEREST inconsistency between Ihe interests of a person, such as apublic official, which arises in connection with the performance of his duties. Examples are ajudge who decides azoning case on land he owns and alaw firm that represents both plaintiff and defendant.

V

CONFORMED COPY

142

CONFORMED COPY copy of an original document with the esseniial

legal features, such as signature and seal, being typed or indicated in writing.

CONFORMINCf loan residential mortgage loan that is eligible for purchii.se by FNMA or FHLMC. Such loans carry lower interest rates and more I'uvorable terms Ihtm nonconforming mortgage loans. The dollar limit on principal is revised each year according to the change in average sales price of conventionally tlnanccd single-family homes. CONG l.OMERATE corporation composed of companies in avariety of businesses. Conglomeraies v/em popular in the 1970s, when they were thouglii to provide better management and sounder financial backing, and therefore generate more profit, than small independent companies. C O N G R E S S O F I N D U S T R I A I . O R G A N I Z AT I O N S ( C T O )

s

e

e

AH.-c:io.

CONSENT ORDER/DECREE agreement by adefendant to tin action

to discontinue all activities viewed by the government as being illegal. This agreement occurs with the consent of both parties to the action and has court approval but stops short of adefinitive judicial determi¬ nation. Aconsent order is an unofficial though binding admission of guilt by the concerned parlies. Since the facts of the matter have never been proved, however, the government is not bound by aconsent o r d e r.

CONSEQLFNTIAL DAMAGES loss in value of aproperly caused by the taking of anearby property or development on another property. See also SEVERANCS DAMAGES.

C O N S E RVAT I S M , C O N S E RVAT I V E

Accounting: understating assets and revenues and overstating liabil lie.s and expenses. Expenses arc recognized sooner, revenues later. I -

Hence reported earnings are lower. Conservatism holds that in finan¬

cial reporting it is preferable to be pessimistic rather than optimistic

since there is less chance nf financial readers being hurt relying on the finimcial .statements. Excessive con.servatism may result in misguided

decisions.

Iiusinus.s: cautious and careful altitude, such as not taking excessive risk. An example is aportfolio manager who invests in safe securities.

Politics: limited government spending, resulting in lower taxes. CONSERVATOR court-appointed custodian of assets belonging to someone determined by the courts to be unable to manage his or her o w n p r o p e r t y. C O N S I D E R AT I O N

1. under contract law, something of value exchanged for apixrmise or

for performance; needed to make an instrument binding on the trading parties.

c o n -

143

C O N S O L I D AT E D TA X R E T U R N

2. adherence lo all provisions of an insurance policy by an insured; the insured agrees lo make all premium payments when due in

order to maintain apolicy in full force. 3. payment for an annuity. C O N S I G N E E

I. person to whom goods are shipped for sale under aconsignment contract.

2. person named in aBill of lading to whom the bill promises delivety. 3. one lo whom acarrier may lawfully make delivery in accordance with his contract of carriage. CONSIGNMENT uau.ment for care or sale. It is adelivery of goods, without -SALE, to adealer, who must try to sell the goixis and remit the price received less afee to the person making delivery. If the goods arc not sold, the dealer must return them to the owner. CONSIGNOR one who sends aconsignment. Aconsignor can be the person calling upon acommon carrier for transportation service, though

not necessarily the person in whose name aDILI. OF Iading is made. CONSISTENCY’ using the same accounting proceduro.s by an account¬

ing entity from period lo period; using similar measurement concepts and procedures for related items within the company's financial .siatcmcnis for one pcriixl. It is easier for financial siaicinciu users to make projections when data are measured and classified in the same manner over time.

CONSOLE device, such as acontrol panel, that allows people to eommiinieale directly with acomputer. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T fi n a n c i a l s i a t o m o n i

that brings together all assets, liabilities, and other operating accounts of aparent company and its subsidiaries. C O N S O L I D AT E D O M N I B U S B U D G E T R E C O N C I L AT I O N A C T

(COBRA) federal legislation under which group health plans spon¬

sored by employers with 20 or more employees must offer continua¬ tion of coverage to employees who leave their jobs, voluntarily or otherwise, and their dependents. The employee must pay the entire

premium up to 102^ of the cost of coverage extended by COBRA, COBRA was designed to help former employees maintain, at group rales, health insurance coverage thtit might otherwise be unobtainable or unalTordable. C O N S O L I D AT E D TA X A B L E I T E M S i t e m s t h a t a r e e l i m i n a t e d f r o m

.separate taxable income, computed on aconsolidated basis, and com¬ bined with the aggregated separate taxable income (for example, net operating loss, net capital gain or loss, total charitable contributions). CONSOLIDATED TAX RE TURN rolum combining the reports of the

companies in what the tax law defines as an Atrii.iATfci) group. Afirm

V

V

C O N S O L I D AT I O N

144

is part of an affiliated group if it is at least 80% owned by aparent or other inclusive corporation.

CONSOl.lDATION classifted as a“type A" reorganization, in which two or more corporations are combined into anew coiporation; also

called smiuiory merger. If no boot is received, the rcoiganization is tax-free.

C O N S O L I D AT I O N L O A N l o a n t h a t c o m b i n e s a n d r e f t n a n c e . s o t h e r

loans or debt. It is normally an installment loan designed to reduce the dollar amount of an individual's monthly payments. CONSOLIDATOR entity that combines le.'!s-ihan-carload shipments into full carloads to take advantage of lower shipping rates for full car¬ loads.

CONSORTIUM group of companies formed to promote acommon objective or engage in aproject of benefit to all members. The rela¬ tionship normiilly entails cooperation and asharing of resources, sometimes even common ownership.

CONSTANT value that remains unchanged, for example, during the execution of acomputer program. Literal ej:pressions, such as 3.5 and

Geoige Washington arc cansianis because they always stand for die same value.

CONSTANT DOLLARS dollars of abase year, used as agtiuge in adjusting the dollars of other years in order to ascertain actual pur¬ chasing power.

CONSTANT-PAYMENT LOAN loan on which equal payments are made periodically so as to pay off the debt when the last payment is made. See also ballcwn payment, conventional mortgage; t.EVELPAY M K N T

MORTGAGE.

C O N S TA N T R E T U R N S T O S C A L E a s i t u a t i o n i n w h i c h t h e a m o u n t

of output changes at the same rate as the quantity of inputs used. For example, adoubiing of raw materials and labor would result in adou¬ bling of the final product. See also returns to scale.

CONSTITUENT COMPANY company Ihiit is one of agroup of affili¬ ated, merged, or consolidated corporations. See also subsidiary. CONSTITUTION fundamental principles of law by which agovern¬ ment is created and acountry is administered. In Western democratic

iheoty. amandate from the people in their sovereign capacity, con¬ cerning how they shall be governed. Distinguished from astatute,

which is arule decided by legislative representatives and is subject to limitations of the constitution.

CONSTITUTIONAL RIGHTS rights guaranteed by either the federal or a.state constitution. One such right is the payment of ju.st compen-

CONSUMER

145

sation H> any owner who has property taken by the government in an liMlsiiST txiMAiN proceedingCONSTRAINING (LIMITINGi FACTOR item or factor that restricts

or limits production or sale of agiven prixiuct. Virlually ail finns suf¬ fer from one or more constraining factors. Examples include limited machine-hours and labor-hours and shortage of materials and skilled labor. Other limiting factors may be cubic feet of display or warehouse space, or working capital. C O N S T R U C T I O N L O A N s h o r t - t e r m r e a l e s t a t e l o a n t o fi n a n c e b u i l d ¬

ing costs. The funds are disbursed as needed or in accordance with a prearranged plan, and the money is repaid on completion of the pro¬ ject. usually from the proceeds of umortgage loan. The rate is nor¬ mally higher than prime, and there is usually an origination fee. C O N S T R U C T I V E D I V I D E N D d i s a l l o w a n c e o r r e c l a s s i fi c a t i o n o f a t r a n s a c t i o n b e t w e e n a c l o s e l y i i i - i . t ) c o r p o r a t i o n a n d a s h a r e h o l d e r.

Frequently aloan to astockholder is recharacterised as adividend, CONSTRUCTIVE NOTICE notice presumed by law to have been

given. It is often accomplished by posting notices or by mailing noti¬ fication to the defendant if he or she cannot be personally served. In real estate, recording adeed gives consinicriye notice of its existence. CONSTRUCTIVE OWNERSHIP OE STOCK see attribltios Kl LUS.

CONSTRUCTIVE RECEIPT OE INCOME doctrine under which a

taxpayer is required to include in gross income amounts that, though not actually received, are deemed received during the tax year. Thus there is coiisiruclive receipt when incoine is made available to the tax¬

payer. For example, alawyer performs services tind receives acheck for payment in December, but waits until January to deposit it and record it on business records. 11c is required to report it on his tax return in the year of the December receipt. CONSULTANT individual or organization providing professional advice to an organization for afee. Awide variety of consultants exist for many areas of organizational eoncems. including management, accounting, finance, and legal and technical matters. Aconsultant is an tSDlTl-NDV.NT CONTRACTOR, not an employee.

CONSUMER ultimate user of apnxluct or service. The consumer is not always the purchaser of aproduct (customer). In the case of pet food, for example, the pel is technically the consumer because it is the iiltimalc user, although of course the advertising is aimed at the pet owner. Consumers arc considered to bo the users of the final product. For

example, purchasers of building products are interim users of these prtxlucls while constructing the finished product, which may then be purchased by aconsumer.

C O N S U M E R B E H AV I O R

146

CONSUMER BEHAVIOR in marketing, understanding how and why consumers behave. An appropriate marketing stimulus is formulated based on customer personality and needs to prompt sales. Consumers adjust behavior to the marketplace based on internal )iccds and inter¬ personal factors. C O N S U M E R C O N F I D E N C E S U R V E Y l e a d i n g I N D I C AT O R o f c o n ¬

sumer spending that gauges public confidence about the health of the

U.S. economy. Arandom sampling ofSJXIO people are asked how they feel about business conditions, the labor market, consumer spending, economic growth, and their employment and financial expectations six months into the future. CONSUMER CREDIT I'RO'I ECTION ACT OE 1968 landmark fed¬

eral legislation e.stablishing rules of disclosure that lenders must observe in dealings with borrowers. The act stipulates that consumers

be told ANNUAL PERCENTAGE RATES, potential total cost, and any special loan terms. The act. enforced by the federal reserve board (frb). is also known as the truth tN i.ending act. See also regiu.ation z. C O N S U M E R - D R I V E N H E A LT H C A R E a b r o a d u m b r e l l a o f h e a l t h

insurance plan designs that are structured to provide insurance protec¬ tion for piirticipants while simultaneously encouraging them to be cost-conscious in their healthcare choices. C O N S U M E R F I N A N C E C O M PA N Y s e e f t n a n c k c o m p a n y.

CONSUMER GOODS goods bought for personal or household use. as distinguished from CAPtTAL goods, which are u.scd to produce other goods. CONSUMER INTEREST interest incurred on personal debt and con■sumer credit; not deductible after 1990.

CONSUMERISM public concern over the rights of consumers, the

quality of consumer goods, and the honesty of advertising. The ideol¬ ogy came into full focus in the 1960s after President John F. Kennedy introduced the Consumer Bill of Rights, which staled that the con¬ suming public has aright to be safe, to be informed, to choose, and to

be heard. The primary concern of this force is to fulfill and protect the rights of consumers articulated by President Kennedy four decades ago.

CONSUMER PRICE INDEX ICPI) measure of change in consumer prices, us determined by amonthly survey of the U.S Bureau of Labor Statistics. Many pension and employment contracts are tied to changes in consumer prices as protection against inflation and reduced purchasing power. Among the CPI components are the cosls of hous¬

ing, food, transportation, and electricity. Also known as the cost-ofliving index. Selected values of the index for all items, monthly aver¬ age, based on 1982-1984 =100. are;

147

C O N S U M M AT E

1920 1930

20.0

1992 1993

140.3

2002

179.9

16.7

144.4

2003

184.0

1940

140

1994

148.2

2(X)4

188.9

1950

24,1

1995

152.4

2005

195.3

1960

29.6

1996

156.9

2006

201.6

1970

38.8

1997

160.5

2007

207.3

1980

82.4

1998

2008

215.3

1985

107.6

1999

163.0 166.6

2009

214.5

1990

130.7

2000

172.2

2010

218.1

1991

136.2

2001

177.1

CONSUMER PRODUCTS any langible personal property normally used for personal, family, or houscliold purposes. CONSUMER PROTECTION laws designed to aid retail consumers of

gtxrds and services that have been improperly mamifaclured, deliv¬ ered, performed, handled, or deseribed. Such laws provide the retail consumer with additional protection and remedies not generally pro¬

vided to merchants and others who engage in business transactions. CONSUMER RESEARCH research conducted through the use of var¬ ious techniques and strategics, such as focus groups, in-depih inter¬ views, inquiry tests, aided recall interviews, con.sumcr surveys, and altitude testing, to obtain infomiution about consumers. One of the

major areas in advertising research (tilong with product research and market analysis), its purpose is to determine what influences consumer buying habits. Consumer research yields information concerning the motivations of con.sumers. their perceptions about advertising, the rea¬ son they buy aparticular product, and the things that influence their brand choices.

CONSUMER SOVEREIGNTY the ability of consumers to obtain

exactly what they want by paying aprice that is satisfactory of sup¬ pliers. Comumer sovereignly is considered aprerequisite of properly

functioning markets. Sovereignty is limited by lack of information or misinformation, constraints on prices and supplies, and situations in

which athird party influences the purchase decision—for example, when insurance companies pay for medical services provided to benc fi c i a r i e s .

CONSUMER .SURPl.US economic concept describing the excess of the value, to the consumer, of goods consumed over their money value

(cost to the consumer). Ahungry person pays S2 for ahamburger, hut may fee! that hc/shc gets much more than $2 worth of satisfaction from eating it; the excess of the value of the saiisfarlion over the $2 price is consumer surplus. CONSUMMATE to complete, such as to cimsumnuiie abusiness arrangeineni, contract, or other happening. For example, the consum¬

mation of amerger of two companies is when it finally lakes place.

CONSUMPTION

14«

CONSUMPTION total individual or national consumer macroeconomic

goods spending consumed (used up) during aslated time interval- In reality, many consumer items such as clothing, appliances, and auto¬ mobiles last far beyond the consumption period. CONSUMPTION FUNCTION mathematical relationship between level of consumption and level of income. It shows that consumption is greatly influenced by income. CONSUMPTION POSSIBILITY LINE the maximum amounts of

consumption possible at varying levels of disposable income, or of GROSS DOMESTIC PRODUCT ((It)l').

CONTAINER SHIP ship used for carrying cargo that has been pack¬ aged in large, standardized containers. C O N T E S TA B L E C L A U S E s e e t N C O N T T S TA B L E c l a u s e . C O N T I N G E N C Y s e e c o n t ( n g e n c y f u n d ; c o n i i n g e n t u a i s i u t y.

CONTINGENCY FUND amount reserved for apossible loss, such as caused by abu-sincss setback. Coniingencx funds and other reserves set aside are not deductible for lax purposes. CONTINGENCY LEADERSHIP leadership theory, advanced by Frederick E. Fiedler, that postulates that successful leadership styles

arc best established by situational determinants. Winning leadership styles conform to varying organizational requirements and events.

CONTINGENCY PLANNING approach seeking to anticipate future events that are not expected to occur but arc possible. Should those future events occur, aplan of iiction to respond effectively would be in place. The concept of civilian defense is based on contingency planning. CONTINGENCY TABLE table presenting sample observations classi¬

fied by two or more characteristics, such a.s Rand C. into as many clas.ses.The division of homeowners in acondominium project by sex (/? =male or female) and by age groups (C =20 to 30, 21 to 40, and 41 and above) would be representative of atypical contingency table. CONTINGENT BENEFICIARY one who receives the proceeds or benefits of atrust or estate only when aspecified event occurs (such as the death of anamed beneficiary). CONTINGENT l''EE charge made by aprofessional for services ren¬

dered to aclient, recovery of which depends upon asuccessful out¬ come of the case. The amount is often agreed to be apercentage of the client's recovery.

CONTINGENT LIABILITY (VICARIOUS LIABILITY) liability incurred by NME.vrofCLOSl.sGCOSTS,andinclusionofpersonalproperty. COUNTRY SCREENTNTj use of countries as the basic unit of analysis for market evaluation.

COUPON printed ticket, ol'lcii appearing in amagazine or newspaper, offering aproduct at adiscount. Coupons must be presented with tlie purchase to claim the discount. They generally have an expiration date and frequently have terms and conditions that limit their use.

COUPON HON'D bond issued with detachable coupons that must be presented to apaying agent or the issuer for semiannual interest pay¬ ment. These are bearkr honos. so whoever presents the coupon is

entitled to the interest. The coupon bond has not been offered recently. Contrast with RI;OISTi:RI-D ItOND.

COUPON COU.ECTION sec collection,

COUPONING advertising method where vouchers arc distributed to consumers allowing discounts on merchandise or service purchased within astaled period of lime. Couponing provides an incentive for increasing sales. COURT HON'D see JUDtctAl- bond.

COURT OE RECORD court that, like most modern courts, is required by law to keep arecord of its proceedings, including the orders and judgments it enters. It has the authority to imprison and to levy fines. COVARIANCE statistical term for the correlaliim between two vari¬ ables multiplied by the standard deviation for each of the variables, A

positive covariance indicates that the two variables tend to move up and down together; anegative covariance indicates that when one moves liigher. the other tends to go lower. COVENANT

1. to enter aforma! agreement; to bind oneself in contract; to make astipulation.

COVENANT NOT TO COMPETE

162

2. agreement to do or not to do aparticular thing. 3. promise incidental to aori-D or contract, either expressed or implied.

COVENANT NOT TO COMPETE contractual promise to refrain from

conducting business or professional activities similar to those of another party. Such acovenant is encountered principally in contracts

ofemployment,partnership,orsaleofabusiness.Theprotectionof TRADE SECRPS, customer li.sis. business methods specific to aparticu¬

lar employer, and the unique qualifications of the employee have been

held to constitute legitimate interests for protection by covenants not

to compete. If too restrictive, covenants may be declared invalid. COVER

1. to buy back contracts previously sold; said of an investor who has sold stock or commodities short.

2. in corporate finance, to meet fixed annual charges on bonds, leases, and other obligations out of earnings. 3. amount of net-asset value underlying abond or equity security.

Coverage is an important aspect of abond’s safety rating- See also DEBT

COVERAGE

RAHO-

COVERDELL EDUCATION SAVINGS ACCOUNT (ESA) form of INDIVIDUAL RETIREMENT AcaiUNT (formerly Education IRA) allowing

parents to contribute up to $2IX)0 per year ftir each child up to the age of 18- Beginning in 2011, this $2^)00 limit is reduced for married cou¬ plesfilingjointlywithADJUSTEDGROSSINCOMESbetween$190,000and $220,000, or singles reporting incomes between $95,000 and $110000. Couples with incomes over $220,000 and singles with incomes over $110,0(X) may not contribute to Coverdeil ESAs. Contributions to Coverdell ESAs do not generate lax deductions. However, assets in the Coverdeil ESA grow tax free, and principal and earnings can be with¬ drawn tax free, and principal and earnings can be withdrawn tax free as

long as the proceeds are used to pay for education expenses at apostsecondary school, including tuition, fees, books, supplies, and room

and board. Money in Coverdeil ESAs cun be invested in stocks, BONDS. MUTUAl. FUNDS, and Other investments suitable for IRAs.

COVERED OPTION option contract backed by the shares underlying the option. See also naked option, C PA s e e c k k t i u h d p u b l i c a c c o u n t a n t .

CPI see consumer price index. CPU see CENTRAL PROCESSING UNIT. CR abbreviation for credit.

CRACKER person who “breaks into" computers via the Internet and

uses them without authorization, either with malicious intent or sim¬

ply to show that it can be done. Compare hacker.

163

C R I i AT l V E F I N A N C I N G

CRAFT UNION union of skilled Icadespcoplc sharing comparable trade

skills. Mo.st of these unions are organized on alocal basis, but are often affiliated with the AFL-CIO. The oppo.site of acraft union is an industr>'-wide union, such as the United Auto Workers or the United Steelworkers.

CRAM DOWN in BANKRtJiTCY. the reduction of various classes of debt

to alower amount. For confirming abankruptcy plan, creditors are divided into classes ba.sed on the nature of their claims against the debtor. Each cla.ss gets the opportunity to vote yes or no on the plan for reorganization, which can be confirmed only if at least one class votes yes—which means ayes vote from more than .^0% in the num¬ ber of creditors (called iiumerosity) and 75% in the total value of chiirns. If one or more classes vote against the plan, but at least one cliiss votes in favor, the debtor can still get the plan of reorganization ajiprovcd through the process of cram down. Cram down (under

Section 1129(b) of the Bankruptcy Code), requires adebtor to prove

that the plan is fair and equitable to the nonconscnling class and that the plan doesn't unfairly discriminate against them. If the debtor docs so, the pliin is crammed down the nonconsenting class and approved. For esample. the United Airlines plan was crammed down the retired pilots, who voted against it. CUA.SII

I'imince: precipitate drop in stock prices and economic activity, as in the crash of 1929. which initiated the Great Depression. Crashes are usually brought on by aloss in investor confidence.

Data processing: hardware failure or program error causing acom¬ puter to become inoperable. Awell-designed operating sy.stem con¬ tains protection against inappropriate input so that auser's program will not be able to cause asystem crash. Sec also i-lasii cards. CRAVVI.KR acomjsutcr program Ihtit automatically explores the world wiDti WEB (WWW) and collects information; also called a.spider. CRKATIVE black book annual two-volume svorldwido directory of creative suppliers such as photographers, illustrators, directors, produc¬ tion facilities, and photofinishcrs. Sometimes callcxl the Black Book, the

Creative Black Book sells advertising space on an annual basis. CREATIVE DESTRUCTION free-market concept popularized by economist Joseph Schumpeter and holding that economic progress results from entrepreneurial innovation, anecessary consequence of which is the destruction of established busiiic.sses that then become

obsolete. I'or example, the invention of the automobile destroyed the buggy whip industry, but created avital new industry, contributing to growth and progress.

CREAT IVE FINANCING any h.sancinG arrangement other than atra¬ ditional MORiOAOfc from athird-party lending in.siitution. Creative financing devices include loans from seller; hai.i.(H)n-I'avmest loans;

CREDIT

164

WRAPAROUND mortgages; ASSUMPTION OF MORTGAOF.; SALE AND

i.iiASE-BACKS; land contrncis and alternative mongage instrumemsCREDIT

1. loans, bonds, charge-account obligations, and open-account bal¬ ances with commercial finns.

2. available but unused bank letters of credit and other standby com¬

mitments as well as avariety of consumer credit facilities. 3. adjustment in the customer’s favor or increase in equity. 4. in accounting, entry that increases liabilities, owners' equity, rev¬ enue, and gains. Acredit entry decreases assets and expenses. S. tax credit, adollar-for-doliar reduction in ataxpayer's tax LtABtLITY. See also specific credits, including CHILD and dependent care CREDIT. INVF.STMF.NT TAX CREDIT, IJDW-INCOMB HOUSING CREDIT. C R I ' l D i r A N A LY S T

I. person who analyzes the financial affairs of an individual or acor¬ poration to asccrlain creditworthiness. 2. person who determines the credit ratings of corporate and munici¬

pal bonds by studying the financial condition and trends of the issuers.

CRI'IDIT BALANCE

I. account balance in the customer's favor. See also credit,

2. overpayment by aDEFiNED-BENEFtr pension pi.an sponsor that con¬ tributes more than the minimum funding requirement in any plan

year; serves to offset future contribution requiremenus. CREDIT BUREAU private organization that maintains consumer credit data files. Acredit bureau provides credit information to authorized users for afee. C R E D I T B U R E A U . S C O R E S s e e C R F. D t r s c o r i n g ; H a > s c o r e .

CREDIT CARD indication to sellers that the person who received the card from the issuer has asatisfactory credit rating and that if credit is extended, the issuer of die card will pay (or see to it that the seller

receives payment) for the merchandise delivered. Most credit cards arc made of plastic with raised letters to facilitate creation of machinereadable sales slips and amagnetically coded strip that is read elec¬ tronically and verified by telephone. C R E D I T- C A R D A C C O U N TA B I L I T Y, R E S P O N S I B I L I T Y, A N D DISCLOSURE (CARD) ACT OF 2009 legislation designed to curb fees and interest rate increases and other abusive practices by credit

card companies. The legislation went into effect fully in February 2010.

CREDIT DEFAULT SWAP (CDS) in its most ba.sic form, acontract

whereby one party, called aprotection buyer, periodically makes fixed payments to another party, the protection seller, in exchange for an

V

165

CREDIT REQUIREMENTS

ugrccincnt to pay an amount of money in the event of default by athird parly, called the rejerence entity. The reference entity is typically a loan or bond but can also be acompany in some sort of duress. What makes the CDS different from an insuriince contract is ihiil the buyer need not have any interest whatever in the reference entity or its debt

and need not even suffer aloss if the entity defaults. CREDIT ENHANCEMENT techniques used by debt issuers to raise the credit rating of their offering and thereby lower their interest costs. Amunicipality may have its bonds insured by one of the large insur¬ ance companies such as Municipal Hond Investor’s Assurance (MB!A) or American Municipal Bond Assurance Corporation (AMBAC), thereby raising the bond’s credit rating. CREDIT HISTORY an individual’s past behavior regarding the taking

out and repayment of loans and the use of revolving credit, such as credit cards. Credit histories are recorded by national credit reporting companies (CREDi rbureaus) that issue credit reports, Those reports are used by lenders to assess an applicants creditworthiness. See aim CREDIT scoring: HLX) score.

CREDIT LIMIT the maximum balance allowed for aparticular cus¬ t o m e r o f a c r e d i t c a r d i s s u e r. CREDIT

LINE

see

line

ok

credit.

CREDITOR one to whom money is owed by the debtor; one to whom an obligation exi.sis. In its strict legal sense, acreditor is one who vol¬ untarily gives credit to another for money or other property. In its more general sense it is one who has aright by law to demand and recover of another asum of money on any account.

CREDIT ORDER order that is received without payment and that require.s billing at alater date; also called hill me order. See also cash ordij?. CREDIT RATING Idmial evaluation of an individual's or acompany's

credit history and capability of repaying obligations. Anumber of firms investigate, analyze, and maintain records on the credit responsibility of individuals and businesses, for example Experian (individuals) and Dun &Bradsireet (commercial firms). The bond nuings assigned by Fitch Ratings. Standard &Poor’s, and Mosxly’s are also aform of credit rating. See also Hco score. CREDIT RATIONING allocation of loans to creditworthy bsnrowers by other than pure market means. Credit rationing occurs when iniercsi rales arc kepi below the level at which an unregulaicd market

would set. leading to an excess of demand for loans. CREDIT REQUIREMENTS standard.s established by creditors that must be satisfied by polenliai debtors in order for credit to be given. These requirements typically reflect the applicant’s ability to repay the

loan nr make payments for goods or services acquired. An example is

CREDIT

RISK

166

the conditions that amortgage applicant must meet, such as acceptable

siilmy level, crcdil history, satisfactory job history, and sufficient down payment.

CREDIT RISK financial and moral risk that an obligation will not be paid and aloss will result. CREDIT SCORINC objective melhtxlology used by crcdil grantors to determine how much credit to grant to an applicant. Some of the most common factors in scoring are income, assets, length of employment, length of living in one place, and past record of using credit. Any neg¬ ative events in the past, such as bankruptcies or lax delinquencies, will sharply reduce an applicant's credit score. See also rcx) .score.

CREDIT STANDINfi reputation one cams for paying debts, credit RATING lends to be more quantitative Ihtin credit standing. CREDIT TENANT ashopping center or office building tenant that is large enough, old enough, and financially strong enough to be rated at

lea-si investment grade by one of the major credit rating services. A property leased to such atenant may obtain mortgage financing under¬ written on the basis of the tenant's likelihood of honoring its lease. CREDIT UNION not-for-profit financial institution, typically formed by employees of acompany, alabor union, or areligious group and

operated as acooperative. Credit unions may offer afull range of financial services and may pay higher rates on depitsits and charge lower rales on loans than commercial banks. Credit unions are regu¬ lated by the Federal Credit Union Administration. CREDIT WATCH used by bond rating agencies to indicate that acom¬

pany's credit is under review and its rating subject to change. The implication is that if the rating is changed, it will be lowered, usually because of some event that adversely affects the income statement or balance sheet.

CREDITWORTHINESS general eligibility of aperson or company to borrow money. 5cc credit rating; credit scoring; credit standing.

CREDO acorporate philosophy that guides the way acompany does bu.sincss.

CREEPING INI'l.ATION slow but inexorable continuing inflation Ihal, though it seems tolerable in the short run, nonetheless leads to

significant long-run price increases. Asustained infiation of 2% per year will cause prices to increase over fivefold in acentury. C.'RIME awrong that the government has determined is injurious to the

public and that may therefore be prosecuted in acriminal proceeding. Crimes include

and

misdcmEaNORS.

(’RISIS MANAGEMENT management system devcloircd for the pur¬ pose of diminishing potentially serious outcomes in certain targeted

V

167

CROSS-PRICE ELASTICITY

siiuaiioiis- Examples ineiude aircraft and naval disaster management, fire and emergency evacuation procedures, and flixxl protection. CRITICAL MASS the si?,e or scale at which abusiness activity acquire.s self-sustaining viability (an extension of its scientific meaning of the amount of fissile material needed to sustain fission).

CRITICAL PATH MKTIIOI) (CPM) planning and control technique that optimizes the order of steps in aprocess given the costs associated with each step. Manufacturing industry uses CPM to plan and control the complete process of material deliveries, paperwork, inspections, and production.

CRITICAL REGION in slatUtical testing, range of values in which the calculated value of the test statistic falls when the nuu. hypothesis is rejected.

CRONY CAPITALIS.M favoritism that develops in free-market economies as aresult of close personal relationships between govern¬ ment offtcials and industr)' leaders or other powers, such as labor unions or, in some societies, ethnic, religious, or racial interests.

CROSS securities transaction in which the same broker acts as agent in both sides of the trade. The practice, called ('nw.viiig, is legal only if the broker first offers the .securities publicly at aprice higher Ihim the bid.

CROSS-EOOTING in aSPKl-ADSIltiCT. totaling rows and columns of numbers and comparing the sums. If the sums am in agreement, then the loials of each row and column are most likely correct.

CROSS-KUNCTIONAL TEAMS employee teams con.sisiing of two or more functional organizational areas.

CROS.S MERCHANDISING setting up displays of complementary merchandise, usually hi asupermarket, so that they are opposite each tithcr; also called related item approach (to merchandising). In this way. acustomer may be tempted to "cross over" from one product to another. For example: Amanufacturer's displaj' of shampoo may be set opposite adisplay of hair c D AT l - . .

CUMULATIVE HULLETIN iCB) ahardbound compilation of the material in the Iniernal Revenue Bullelin, usually issued semiannually. CUMULATIVE DIVIDEND see cumulative preherkeo srocK. C U M U L AT I V E

UAHILITY

Reinsurance: total of the limits of liability of all reinsurance policies

that areinsurer has outstanding on asingle risk. The total of all such

limits includes all contracts from all insurers representing all lines of coverage for the single risk.

Liability insuruiicc: total of the limits of liability of all policies that an in.surer has outstanding on asingle risk. Examples are the personal aiilomobile paliey (PAP), and personal umbrella liahilily policv. CUMULATIVE I’REKEHRED STOCK slock whose dividends, if omitted because of insufficient earnings or any other reasitn, accumu¬ late until paid out. They have precedence over common dividends,

which cannot be paid as long as acumulative preferred obligation exists. Mo.st preferred stock issued today is cumulative.

CUMULATIVE VOTING system of skx'KHOI.dhr voting for aboard

of directors that allows all the votes an individual is eligible to cast to

be cast for asingle candidate. The system is designed to give minority

stockholders representation on the Ixiard. For example, the owner of a single share of stixik voting in an election for five directors would be

able to cast one vote for each position under astraight voting system, but would bo able to cast all five votes for asingle position or distrib¬ ute them in any manner desired under acumulative voting system. CURABLE DEPRECIATION in appraisal, depreciation or deteriora¬ tion that can be corrected at acost less than the value that will be ailded. See also incurable depkec'jation.

CURB EXCHANGE see American skk'k lixciiANOE.

CURRENCY money; coins and bills that are authorized by agovern¬ ment as legal lender for the payment of obligations. CU RRENCY APPRECIATION OR DEPRECl.ATTON .see devalua¬ t i o n . R E VA L U A n O N .

CURRENCY FUTURE.S contracts in the futures markets that arc for

delivery in amajor currency such as U..S, dollars. Euros, or Japanese yen. Corporations that sell products around the world can hedge the risk of adverse exchange rate movements with these futures.

C U R R E N C Y I N C I R C U L AT I O N

170

CURRENCY IN CIRCULATION piiper money ami coins circulaiing

in the economy, cmmied as pan of the total money in circulation, which includes okmano deposits in hanks.

CURRENCY SWAP an exchange of currencies between two firms that is reversed at aspecific rate and lime in the future. CURRENT not overdue; occurring this period. CURRENT ACCOUNT anational balance of payments account that

includes international trade in gnod.s and services along with transfer payments and short-term credit. CURRENT ASSET cash, accounts receivable, inventory, and other

assets that arc likely to be converted into cash, sold, exchanged, or

expensed in the normal course of business, usually within ayear. CURRENT COST present market value of aproduct or asset, as con¬ trasted with its ACQUISITION COST.

CURRENT DOLLARS cost of an asset in terms of today's price level.

For example, if today the consumw price index is 180, an automo¬ bile that cost $20,01X1 when the CPI base was 100 would cost S36.000 in current dollars.

CURRENT EARNINGS AND PROFITS arrived at by adding non-

taxable or tax-exempt income to taxable income for the tax year. Current earnlng.t and profits, if not paid out. become accumulated Earnings and profits. Adistribution comes first from current earn¬

ings and profil.s and then from accumulated earning.s and profits and is taxable to the .shareholder to the extent of cuncm and accumulated

earnings and profits. Adistribution is taxable to the extent of current earnings and profits even when accumulated earnings and profits arc negative. CliRRENT EMPLOYMENT STAITSTICS iCES) monthly data on

national employment and unemployment, wages and earnings, across all nonagricultiire industries, used as indicators of economic trends, Employment data show the well-being of the economy and laiior FORCE. Wage changes indicate earnings trends and related li^r costs. Economists focus on monthly change in total nonfarm payrolls and locations where jobs were gained or lost. Payroll data show the labor market condition.

CURRENT LIAHILITY (lES) debt incurred by the reporting entity as

part of normal operations and that is expected to be repaid during the following 12 months. Examples are accounts payable, short-term loans, and that portion of long-term loans due in one year. CURRENT MARKET VAI.UE worth of property if sold in present-day market.

! v

171

C U S T O D Y

CURRKNT RATIO currem assets divided by current liabilities. The

ratio shows acompany's ability to pay its current obligations from cur¬ rent assets. See also quick Katio.

CURRKNT VALUE ACCOUNTING attempt to provide

an

income

statement and balance sheet in terms of currk.stixh.i.ars, in an effort

to provide better financial information during an inflationary period. See also inki.aiion accounting.

CURRENT YIELD annual interest on an investment divided by the market price. In the case of abond, it is the actual income rale of

return as opposeil to the coupon rale or the yield to maturity. For

example, a10% (coupon rate) bond with aface (or par) value of $1,000 is bought at amarket price of $8(K). The annual income from the bond is SKX). But since only $800 was paid for the bond, the cur¬ rent yield is S100 divided by S800. or 12'4%.

CURRICULUM VITAE biographical resume of one’s career, including educational credentials and professional experience. Its purpose is to gi\e the pixsspcctivc employer an understanding of the professional abilities of the applicant. CURSOR symbol on acomputer terminal that shows where on the screen the next character to he typed will appear. Cursors often appear as blinking dashes or rectangles. CURTESY liusbiind's right in common law. u[X)ii the dcatli of his wife, to ai.ii i- l!s^ATl; in ali lands that his wife owned in l-Ki: simple or in fee

tail at any lime during the marriage, provided that there was issue bom of the marriage capable of inheriting the estate. See also dower.

CURTILAGE in common law. land around the dwelling house. C U S i r S e e C O M M I T T E E O N U N I F O R M S E C U R I T I E S I D E N T I F I C AT I O N I'ROCI-.DLRIiS.

CUSTODIAL ACCOUNT account that parents create for aminor, usually at abank or brokerage firm. Minors cannot make securities transactions without the approval of the ticcouni trustee. See also KIDDIE

TA X .

CUSTODIAN

1. bank or other financial in.stitulion that keeps custody of slock cerlificalos and other assets of amutual fund, individual, or corporate client.

2. person who has the custody or care of something, such as afacility or building; also called caretaker or juniior. C U S T O D Y

I. as applied to property, condition of holding athing within one's personal care and control.

2. as applied to persons, such control over aperson us will ensure his presence at ahearing; actual imprisonment of aperson.

!v

CUSTOM

172

CUSTOM usual business or individual practice; habitual tendency fol¬ lowed as amatter of course; traditional policy. An example is for the firm to be clo.sed for busine.ss on Sunday.

CUSTOM BUILDEK one who builds unique houses, often for aspe¬ cific customer. Con^are production builder.

CUSTOMER buyer of aproduct or service. CUSTOMER PROFILE description of acustomer group or type

of customer based on various demographic, psychographic, an^or geographic characteristics. For example, magazine advertisbg sales¬ people provide advertisers with customer profiles describing the type

of person who will be exposed to advertisement.s in that magazine. The description may include income, occupation, level of education, age, gender, hobbies, and/or area of residence. C U S T O . M E R R E L AT I O N S H I P M A N A G E M E N T ( C R M ) t h e

process of storing and analyzing data produced by sales calls, cus¬

tomer service centers, and actual purchases to improve insight into customer behavior.

CUSTOMER SERVICE department or function of an organization that

responds to inquiries or complaints from customers of that organiza¬ tion. Customers may communicate in person or via written correspon¬ dence, loll telephone, or 8(X) number. Customer service correspondence may be in letterhead or postcard format. Cusiortter senice is an impor¬ tant part of the fulfillment funedon, ensuring that customers will buy again and/or continue to be good customers. CUSTOMER SERVICE REPRESENTATIVE employee re.sponsible

for miiiniaining goodwill between abusiness organization and its cus¬ tomers by answering questions, solving problems, and providing advice or assistance in utilizing the goods or services of the organiza¬ tion. See also customer service. CUSTOMS

1. agency of the federal government responsible for checking all imported goods and assessing and collecting duties. 2. duties, taxes, or tariffs levied on imported goods. CUSTOMS COURT fcdertil court that reviews decisions of customs collectors. CUT

1. tv,I stop (as in ending the filming of amovie scene). 2. (»i.) point of pass/fail, as in making the cut, or being cut from fur¬ ther consideration.

3. (v.) in electronic media, to intentionally remove from adocument.

In most applications, cut material is placed on the cupboard and can be pasted multiple limes; the Cut command thus differs from Delete, which removes the material entirely.

173

C Y C L I C VA R I AT I O N

CUTOFF POINT in capital budgeting, the minimum acceptable rate of return on invesltnents. See alio discountkd cash n.ow.

C^'BERSPACE the place where computer networking hardware, nkt-

WORKsoftware,anilpeopleusingthemconverge.

CYCLE see busimlss CYCXk-

CYCLE BILLING sending invoices to customers systematically throughout the month rather than billing all customers on the same day each month, thus spreading work evenly over lime.

CYCLICAL DEMAND demand that varies cyclically over time, usually in resptsnsc to some effect of season or business cyci.h. Demand for eleciriciiy and Chrisimas omameni.s is seasonally cycli¬ cal; demand for housing is affecied by the effecis of the business cycle.

CYCLICAL INDUSTRY indusiry in which varialicm in output occurs frequently. Consiruclion is seasonally cyclical (less work in winter) and also depends on the business cycle (changes in interest rates and demand).

CYCLICAL STOCK slock that lends to rise quickly when the economy turns up and to fall quickly when the economy turns down. Examples are housing, automobiles, and paper. Stocks of noncyciical industries, such as food, insurance, and drugs, are not as directly affected by eco¬ nomic change.

CYCLICAL UNEMPLOYMENT unemployment caused by adown¬ turn in the iiusiNi;ss cycle.

CYCLIC VARIATION any change in economic aclivity that is due to some regular and/or recurring cause, such as the Business cyci.e or s e a s o n a l i n fl u e n c e s .

V

174

D A G G E R

D DA(jGER the tcharacter, used as afootnote reference mark. DAILY TRADING LIMIT maximum that many commodities and

options are allowed to rise or fall in one day. When amarket reaches its limit early and stays there all day, it is said to be having an up-limit or down-limit day. DAISY

CHAIN

I. connecting devices in sequence.

2. trading between market manipulators to create the appearance of active volume as alure for legitimate investors. When the price is driven up, the manipulators unload their holdings, leaving the unwary investors without buyers to trade with in tum. DAMAGES amount received (other than workers’ compensation)

through prosecution of alegal suit or action bused on tort or tort-type rights, or through asettlement agreement entered into in iieu of such prosecution. Reimbursement for los.s of income or recovery of previ¬ ously deducted expenses is normally taxable. Damage income for per¬ sonal injuries or sickness is generally not taxable. See also C O M P E N S ATO RY D A M A G E S , S E V E R A N C E D A M . A G E S .

DATA factual information. Diita is the plural of datum, which means a

single fact. Data processing is ,soning, recording, and classifying data for making calculations or decisions. DATABASE collection of data stored on acomputer storage medium in a

common pool for access on an as-needed basis. The same pool of

information can serve many applications, even those not anticipated at the lime the database was created. This is in contrast to traditional

methods of data .storage that hold afixed amount of data retrievable in

,1 predetermined format, often duplicating the .storage of information in as many files as there are applications. For example, the name and address of the same customer may be in amarketing file, abilling file, and an addressing file. If any one of these applications changes, and the programs that access and use the customer record change, then the customer file must change. D.ATABASE MANAGEMENT methodology of storing, manipulating,

and retrieving data in adatabase. Some ajipects of database manage¬ ment are entering, classifying, modifying and updating data and pre¬ senting output reports. DATABASE MARKETING method of using data collected from a

wide number of consumer purchiusing sources to target individual.s for marketing campaign.s. This is an accurate, expensive methtxi of reach¬ ing aselect target audience. The proliferation of computerized data¬ bases has created ahuge flood of junk mail and junk faxes. See also DIRECT

MAIL.

175

DAUBERT (STANDARD, TEST)

DATA COMMUNICATION exchange of data between two or more eoimected computers, DATA COMPRESSION atechnology that reduces the size of acompiiicr file. Especially iniponam for files used on Web pages: graphics and sound files arc compressed so they can he downloaded faster.

Compression methods arc described as lossless (no data is lost) or lossy (some data is sacrificed to achieve greater compression). D ATA E N C R Y P T I O N K E Y s e e e . n c r y f t i o n .

DATA ENCRYPTION SlANDARD (DES) .tee encryption.

DAl'A IN’I’ERCHANCJE I'ORMAT (DIF) FILE system to tran.sfcr computer files from one program to another. Dip files created on other sy.siems (e g., the client's) can be imported into the practitioner's spreadsheet or database. The DIF format is produced as an output or exptirt option by many of the existing spreadsheet programs and by some database programs. Various accounting packages cun generate

DIF files. An example of an application is extracting aspreadsheet from Excel and putting it into another spreadsheet program or aword processing program.

DATA MINING nontrivial extraction of implicit, previously unknown, and potentially useful information from existing data. It uses machine learning, statistical, and visualization techniques to explore and orga¬ nize existing knowledge in acomprehensible format. DATA PROCESSING INSURANCE coverage on data processing equipment, data processing media (such as magnetic tapes, disks), and extra expense involved in reluming to usual business conditions. Coverage can bo obtained on aspecified perils basis or on an aix RISK/ALL PERIL basis. The daia processing equipment is usually written as all risk/all peril on aspecifically scheduled basis. The data process¬

ing media is usually written on an all risk/all peril basis. D/\TK OF GIFT date on which the donor's dominion and control over

the property ceases.

DATE OF ISSUE date when an insurance company issues apolicy, 'litis dale may be different from the date the insurance becomes effective. DATE OF RECORD dale on which acorpttration uses its list of stitckholdcr.s to mail adividend check. It is usually two days after the hxOlviDEND I5ATE. Also called record dale.

D.ATING in commercial transactions, extension of credit beyond the

supplier's customary ti-r.sls; for example. 90 days instead of 30 days. DAUHKRT (.STANDARD, TEST) in court proceeding.s. astandard or

lest that the judge may use to allow or restrict testimony from apro¬ posed expert witness. The purpose of the test is to allow relevant and reliable testimony by aqualified expert hut prevent expert testimony

DAVIS-BACON ACT (193 i)

176

that doesn’t meet those standards. Established in the case of Daubert

vs. Merrell Dow Pharmaceuticals, the test was extended to apply to all expert testimony, not just scientific issues, by Kumlio Tire vs.

CiUTTiichael- Although the Daubert standard is now the law in federal court and more than half of the states, the less rigorous Robinson and Frye standards remain (he law in some jurisdictions.

DAVIS-BACON ACT (1931) United States federal law requiring the payment of prevailing wages on public works projects. All federal government construction contracts, and most contracts for federally

assisted construction over $2,000, must include provisions for paying on-site workers no less than the locally prevailing wages and benefius paid on similar projects,

DAX Eleutscher Aktienindex, astock performance index (dividends added in) composed of (he 30 most actively traded German BLUE chip stocks on the Frankfurt Stock Exchange. DAY ORDER order to buy or sell securities that expires unless executed

or canceled the day it is placed. All orders are day orders unless oth¬ erwise specified. TTie chief exception is aoood-till-canceled order

(GTC), though even it can be executed the same day if the price is right. DAY TRADE purchase and sale of aposition during the same day. DAY TRADER person who buys and sells within ashort time, generally minutes or hours, most frequently within the day, though some mtiy hold aposition for 2to 3days. DBA see DOING business as.

D C F s e e d i s c o u n t e d c a s h fl o w. D E A D B E A T

In general: one who does not pay his bills. In contrast to afreeloader or DEADHEAD, who docsnT pay the (train) ftire but doesn't necessarily add cost to the service provider, the deadbeat runs up abill for gixjds and services that he uses individually, without payment. Accounting: credit customer who, without just cause, has not paid for his order by the end of the billing cycle. Names of deadbeats are

removed from the active customer list and may be used later as apurge file against promotion lists. See also BAD debt.

DEAD-CAT BOUNCE sharp rise in stock prices after asevere decline. The saying refers to the assumption that adead cat dropped from a high place will bounce. Often, the bounce is the result of short-sellers covering their positions at aprofit.

DEAD-END JOB position lhal offers no opportunity for promotion, increased pay. or increased responsibility; also called ablind alley job. DEADHEAD act of moving apiece of transportation equipment when it is not carrying apaying load (people or freight). For example, this

V

DEALER EXCHANGE

177

occurs when abus is moved to agarage after the route is run for the day. Also, anonpaid trip or someone who does not pay for abus ride, movie, or other service.

DEAD KEY nonfunctioning key on atypewriter, computer keyboard, or word processor, by design or disrepair. Also, akey that prints achar¬ acter for the purpose of placing agrammatical marit or statistical sym¬ bol over or under another character, but does not move the cursor or

carriage. DE.AD [.EITER letter that i.s undcliverable by the post office and can¬ not be returned to the sender.

DEADLINE due date, latest time for the completion of anegotiation, project, servic'e, or product. The failure to meet adeadline has nega¬ tive consequences, such as loss of business, lack of credibility, and penalty charges. DEADLOCK situation in which each of two or more parties or

processes is waiting for the other to do something: thus, neither one can proceed.

DEAD STOCK gixtds that cannot be sold. DEAD TIME pcritxi during which aworker is idled because of a machine malfunction or because the flow of materials is interrupted: also called spective issuer of securitiIsS that the

preliminary prospectus needs revision or expansion. Deficiency let¬ ters require prompt action: otherwise, the regi.stration pcritxJ may be prolonged. D E F I C I T

I. insufficiency in an account or nuinher, whether as tile result of DEFAULTS and misappropriations or of mistakes or shrinkage in value. 2. excess of the U.S. government's spendings over its revenues. Many economists believe that federal deficits can lead to inflation.

DEFICIT FINANCING borrowing by agovernment agency to make up for arevenue shortfall. Deficit financing stimulates the economy fora lime but eventually can become adrag on the economy by pushing up interest rates. See also crowding OUT. KF.v nesian economics; DEFicrr SPESDI.se.

D I s F I C I T N E T W O RT H e x c e s s o f l i a b i i . i t i i - s o v e r a s s e i s a n d c a p i t a i .

STOCK, perhaps as aresult of operating losses; also called nef;ative net \mnh.

DFIFICIT SPENDING excess of govemmem expenditures over gov¬ ernment revenue, creating ashortfall that must be financed through borrowing. See also BUIXIET; GRamm-RUDMan-hollings amendment.

DEFINED-BENEFIT PFIN.SION PLAN plan lhal promises to pay a specified amount (based on apredetermined formula) to each person who retires after aset number of years of .service. Such trust plans pay no taxes on their investment income. Employees contribute to them in some cases; in others, all contributions arc made by the employer. DEFINED-CONTRIBUTION PENSION PLAN pension plan in which the amount of contributions is fixed at acertain level, while

benefits vary depending on the return from the invesimcnls. In some cases, such as 40l(k). 403(b). and 457 plans, employees make volun¬ tary contributions into alax-deferred account, uhich may or may not

be matched by employers. The level of contribution may be selected by the employee within arange set by the employer, such ;is between 2and 10*^ of annual salary. In other cases, contributions are made by an employer into aprofit-sharing account based on each employee's salary level, years of service, age. and other factors. Dcfincd-contri-

buiion pension plans, unlike deitned-benemt pfjvsion plans, give the employee options of where li> invest the aeeounl, usually among stock, bond, and money market accounts. Defined contribution plans have become increasingly popular in recent years because they limit acom¬ pany's pension outlay and shift the liability for investment perfor¬ mance from the company's pension plan to employees. DEFLATION decline in the prices of gcx)Ds and service.s, Deflation is the reverse of inflation; it should not be confused with ilisiiijlalion,

which is aslowing down in the rate of price increases.

D E F L AT I O N A R Y G A P

188

DliFl^ATIONARY GAP economic term describing the situaiion when GROSS DOMESTIC PRODUCT is bclow its full-employmeni level. In the¬

ory. such asituation would lead to the existence of unemployed resources, which should lead to falling prices (deflation) for those resources as the unemployed ones compete in the market. DI'1I''I.AT0U statistical factor or device designed to remove the effect intlation has on variables. Inflation-adjusted variables are said to be in real, or constant-value, terms. For example, inflation-adjusted gross NATIONAL PRODUCT figures are said to show real CNP. See also con¬ stant

DOLLARS.

DEI^UNCT COMPANY company that no longer exists; company that

has suspended all operations and is out of business. DKGRESSION tendency to descend or decrease; progressive decline in an item, such as value, over time. An example is adeterioration in a company's market share for its product line.

DEIIIRING laying off. firing, or rejecting aprevious hiring decision. DEINDUSTRIALIZATION collapse or flight of industry previously operating in an area as aresult of technological and economic factors. The United Slates has experienced substantial deindiisiriallzaiion as

foreign competition has threatened the U.S. steel, automotive, and electronic induslries.

DE JURE by right; lawful; legitimate. Generally used in contrast to de facto; de jure connotes "as amatter of law." whereas de facto con¬

notes “as amailer of practice not founded upon law,” D E L AY E D E X C H A N G E s e e s e c t i o n 1 0 . 1 I ; t a x - f r e e e x c h a n g e , DELAVED.

DEI.AYED OPENINCJ postponement of the start of trading in aslock until agross imbalance in buy and sell orders is overcome. Such an imbalance is likely to follow asignificant event such as atakeover offer. D E L E G AT E

1. (verb) appoint, authorise, or commis.sion; tran.sfer authority from one person to another. Efficient management requires delegating

authority but not necessarily responsibility. 2. (noun) person commissioned to act instead of another. DEI.ETE acommand used to remove unwanted characters or objects from adocument or data from astorage medium. Deleted Hies are not actually era.sed, but reference to them is removed from the “table of contents” that tells the computer where they are. and the space they occupy is designated as available for reuse. Until they arc actually overwritten by new data, however, they can often be retrieved. DELEVERAGE become less reliant on debt. Traditionally, the term usually referred to financial leverage in corporations. Since the 2007

DliLPHl TECHNIQUE

] 8 9

debt crisis, usage his broadened to include any entity that suffers from loo much debt, including the U.S. government, economic sectors such as real estate, and individuals.

DELINQUENCY Past-due though not yet in Dt-l-Ata.T.

In general: failure to make apayment on an obligation svhen due. Finance: amount of past due balances, determined on either acon¬ tractual or arecency-of-payment bisis. DELINQUENCY RATE slacisticaliy, the number of loans with delin¬

quent payments divided by the number of loans held in aportfolio. Sometimes, llie rale is based on the total dollar volume of the loans

instead of the number. Generally, delinquency is qualified to include

only loans where payments are three or more months past due. DELINQUENT payable but overdue and unpaid. 5'cc aiso deadbeat. D E PA U l . T.

DELINQUENT RETURN lax return not filed within the time pre¬ scribed by the tmcmal Revenue Code (due date). Adelinquent return may be subject to aflat penalty or penalties based on any unpaid tax liability. See al.\o failure-to-Fii.e pe.salty; faii.uri:-to-pay pilsalty.

DELISTING removal of an issue from trading on an organized stock KXCliANtii; such as the New York Slock Exchange. If the issuer fails to maiiUain the minimum listing requirements, trading of its securities on the exchange can be suspended or eliminated. DELIVERABLES the reports aconsiiliani expects to prepare.

DELIVERY voluntary transfer of Tin.E or possession from one parly to another; legtilly recognized handing over to another of one's posses¬ sory rights. Actual delivery of adeed is usually required fora transfer of real estate ownership. Where acmal delivery is cumbersome or imptrssiblc. the courts may find consrniciive delivery sufficient if the intention is clearly to transfer title. Thus, one may deliver the contents of asafety deposit box by handing over the key together with any nec¬ essary authorization. See also good delivery. D F. L I V E R ^ ’

D . AT E

I. first day on which delivery is to be made under afutures contract. 2. third business day following aregular-way transaction on the New York Stock Exchange.

DELI’III TECHNIQUE method of providing members of agroup with the ideas of others without aface-to-face meoiing. An individual mem¬

ber writes down his thoughts on aproblem and submits them to acoor¬ dinator. The coordinator then compiles all comments received from the members and sends them to every member for review. Each mem¬

ber then provides feedback on the other members' comments and submits revised recommendations to the coordinator. Finally, the

DEMAND

190

coordinator attempts to reach aconsensus of opinion based on all com¬ ments received.

DEMAND economic expression of desire, and ability to pay. for goods and services. Demand i.s neither need nor desire; the essence of demand

is the willingness to exchange value (goods, ltd>or. money) for varying amounts of goods or services, depending upon the price asked.

DEMAND CURVE graphic depiction of demand scheduu;. With price on the vertical axis iiiid quantity on the horizontai, the demand curve

normally slopes downward from left to right, reflecting higher quan¬ tity demanded at lower prices. DEMAND DEPOSIT account balance that, without prior notice to the bank, can be drawn on by check, by cash withdrawal from an auto MA’IED TELLER MACtllNli (ATM). OT by transfer to other accounts using a

telephone or home computer. See n/so money .supply. DEMAND FOR MONEY the cumulative desire to hold ca.sh as opposed to financial assets. Money demand increases as people and companies conduct more transactions requiring money, with the desire for liquid¬ ity and the security of cash. Central hanks attempt to match the supply of money with its demand in order to control monetary innation. DEMAND LOAN loan payable on request by the creditor rather than on aspecific date. DEMAND NOTE

1. INSTRUMENT that by its EXPRESS terms i.s payable immediately on an agreed-upon dale of maturity without further demand for payment.

2. in.scrumem payable at sight or upon presentation, or one in which no lime for payment is .staled. DEMAND PRICE price that will be offered in the market by consumers for agiven quantity of output. It is derived from the DEMAND sched¬ ule

or

DEMAND

CURVE.

DEMAND-rLTyL INEl-ATION price increases occuning when supply is not adequate to meet demand. Sec also cost-push inh.ation.

DEMAND SCHEDULE table expressing the relationship between price and quantity demanded of agood.

DEMING, W. EDWARDS consulting statistician and management expert (1900-1993). best known for his work on statistical quality

control in Japan. The Union of Japanese Scientists and Engineers awards its annual Denting Prize to astatistician for contributions to slalislical theory. The Deming Appliciuion Prize is awarded to acom¬ pany for improved use of statistical theory in organization, consumer research, design of product, and prtxiiiclion. Deming's System of

Profound Knowledge is the basis for his UPoints for Management. Sec also TOTAI, QUAl.tTY .ma.\agement.

191

DE NOVO

DE MINIMIS irilling; of insulTicient signillcatice lo warrani judicial iir tax attention. From the Judicial principle Dc 'H"i cumi /c.v (i.e., "The law d used to describe people who are paid but don’t produce anything.

DISHONOR refuse, rightly or wrongly, to make payment on a NEOOTlABl.E insirumcnl when such an inslrximcnt is duly presented for payment.

DISINFLATION slowing down of the rate at which prices increase — usually during aRbCLSsioN, when sales drop and retailers arc not always able to pass on higher prices to consumers. Not to be confused with DEFLATION, when prices acliiaily drop.

D I S I N T E R M E D I AT I O N

20S

DISINTERMEDIATION movement of savings from banks anti savings and loan associations directly into money market instruments, such as U.S. Treasury bills and notes. When interest rates are rising, investors can often receive ahigher return by investing directly rather than going thixiugh afinancial INTERMEDIARY. DISINVESTMENT withdrawal of capital re.sulting from in.sufficient investment revenues needed to offset depreciation, creating anega¬ tive net investment.

DISJOINT EVENTS two events that cannot both happen.

DISK computer memory device; aplatter with amagnetically encoded surface that is spun past read heads to retrieve data. Disks may be internal (hard disks) or removable. See also compact disc (cd). DISK DRIVE device that enables acomputer to read and write data on disks.

DISK-OPERATING SYSTEM (DOS) one of various computer operat¬

ing SYSTEMS, including an early operating system for the IBM 360; the

disk-operating system for Apple 11; ms-dos, developed by Microsoft originally for 16-bit microcomputers; and PC-DOS, aversion of MSDOS commonly sold with the IBM Personal Computer (PC).

DISMISSAL permanent termination of employment with an organiza¬ tion; being fired from ajob. severance Pay is sometimes awarded to employees who are dismissed or laid off. DISPATCHER in transportation, organizer who is responsible for main¬ taining the route schedule and informing workers of when they are needed.

DISPOSABLE INCOME personal income remaining after personal

taxes and noncommercial government fees have been paid. This money can be spent on essentials or nonessentials, or it can be saved. See also discretionary income.

DISPOSSESS to oust, eject, or exclude another from the po.ssession of lands or premises, whether by legal process, as where alandiudro lawfully evicts atenant, or wrongfully. DISPOSSP2SS PROCEEDINGS legal process by aLANDLORDio i-cmove atenant and regain possession of property. See also eviction. D I S P R O P O R T I O N AT E D I S T R I B LT T O N a d i s t r i b u t i o n i n w h i c h

some shareholders receive cash or other property and others receive

increased proportionate interests in the assets or eaming.s and profits of ihc corporation.

DISSAVING negative saving. This occurs when consumer goods spend¬ ing exceeds disposable income. Financing the difference may be achieved through accumulated savings or loans.

209

DISTRIBUTION IN KIND

DISSOLUTION in corporation law, the end of the legal existence of a corporation, whether by expiration of eharter, decree of court, act of legislature, vote of shareholders, or other means.

DISTRAINT legal right of alandlord to seize atenant's personal prop¬ erty to satisfy payment of back rent. I)IS TRESSED PROPERTY real estate that is under eoreclosure or

impending foreclosure because of insufficient income production. Sec also WORKOUT.

DISTRESS SALE forced sale of property. For example, stock, bond, MUTUAL FUND, or FUTtiRES positions ill aportfolio may have to be sold if there is aMARGtN call. Real estate may have to be sold because a

bank is in the process of foreclosure on the property. Because distress sellers are being forced to sell, they usually do not receive as favorable aprice as if they were able to wait for improved selling conditions. D I S T R E S S T E R M I N AT I O N s e e T E R M l N AT t O N o i ' a p l a n . DISTRIBUTION

I. in corporate finance, allocation of income and expenses to the appropriate suBSiDtARY accounts.

2. in economics, (1) movement of goods from manufacturers, or (2) way in which wealth is shared in any particular economic system. 3. in ESTATE law. parceling out of assets to the BK.s’EFiciARib.s named in awill, as carried out by the executor under the guidance of acourt.

4. in MUTUAL FUNDS and dosed-end investment companies, payout of realized capital gains on securities in the portfolio of the fund or closed-end investment company. 5. in securities, sale of alarge block of stock in such amanner that

the price is not adversely affected. Technical analysis look at apat¬ tern of distribution as alipoff that the stock will soon fall in price. The opposite of distribution, known as occumulaiion, may signal a rUe in price. DISTRIBUTION ALLOWANCE price reduction offered by amanu¬ facturer 10 adistributor, retail chain, or wholesaler, which allows for the cost of distributing the merchandise. Adistribution allowance is frequentiy ofl'ered in anew product introduction. DISTRIBUTION CENTER warehouse facility specializing in the col¬ lection and shipment of merchandise. DISTRIBUTION CHANNEL set of institutions that perform all the activities required to move aproduct and its title from produclion to con.su mplion. DISTRIBUTION COST ANALYSIS breaking down direct and indirect costs for marketing uproduct or service in aspecific area. DISTRIBUTION IN KIND transfer of property other than money. For example, if acorporation distributes an automobile to ashareholder, a disirihutum in ii'/idhas occurred.

DISTRIBUTION

S T R AT E G Y

210

DISTRIBUTION STRATEGY managemenrs plan for moving prod¬ ucts 10 intermediaries and final cusiomers.

DISTRIBUTIVE SHARE allocation of any item or kind of income, gain, loss, deduction, or credit to apartner. This allocation is. with important exceptions, generally determined by the partnership agreement. DISTRIBUTOR firm or individual, particularly awholesaler, who sells or delivers merchandise to eustomers.such as retail stores. Distributors

act as intermediaries between manufacturers and retailers. They main¬

tain awarehouse of merehandisc. which Is often purchased from many different manufacturers and then is sold {or disiribuied) among various

retailers. By buying through adistributor, aretailer can have the advan¬ tage of one-stop shopping, rather than having to make individual stock purchases from each of the different manufacturers. DISTRICT COURT court that hears civil actions against the United States for the recovery of any tax alleged to have been erroneously or

illegally assessed or collected by the IRS. DISTRICT DIRECTOR the chief operating officer of one of the IRS's districts; reports to the appropriate regional commissioner. D I V E R S I F I C AT I O N

1. reduction of RtSK by putting assets in several categories of inve,stMENTS—stocks, bonds, money market instruments, precious met¬ als. and real estate, for instance—or several industries, or amutual

FUND with abroad range of slocks in one portkoi.io. 2. at the corporate level, entering into different business areas, as a CONGLOMER.^TE does.

DIVERSIFIED COMPANY company that has many products and ser¬

vices serving several markets. Acompany may attempt to manufacture the products itself, or it may acquire or merge willi an ongoing orga¬ nization. The advantages of diversification include being better able to weather business cycles since some product lines or services may be countercyclical. See also conglomerate. DIVERSIFY

sec

d i v e r s i fi c a t i o n .

D I V E S T I T U R E

1. loss or voluntary surrender of aright, TITLE, or interest. 2. REMEDY by which the court orders tlie offending parly to rid itself

of assets before the party would normally have done so. This rem¬ edy is sometimes used in the enforcement of the antitrust laws,

whereby acorporation must shed apan of it.s business to comply w i t h t h e l a w.

DIVIDEND payment by acorporation to shareholders, generally taxable as ordinary income, for which most corporations receive no deduction. DIVIDEND ADDITION LIFE INSURANCE in addition to the face value

of the POLICY, purchased with dividends of the policy.

211

DIVISION

DIVIDEND EXCLUSION the concept that income earned by corpora¬ tions is taxed at the corponitc level, so corporate dividends should not be taxed again at the stockholder level.

DIVIDEND PAYOUT HATH) percentage of earnings paid to share¬ holders in cash. In general, the higher the payout ratio, the more mature the company. Electric and telephone UTii.iTlliS tend to have the

highest payout ratios, whereas fast-growing companies usually rein¬ vest all earnings and pay no dividends. DIVIDEND REINVESTMENT PLAN (DKP) automatic reinvestment

of shareholder divjdend.s in more shares of the company's stock. Reinvested dividends are taxable when credited to the taxpayer’s account, even though no cash is received. The reinvested dividentls

also increase the taxpayer’s basis in the stock, so it i.s imponam to retain all records for calculation of gain or loss upon sale.

DIVIDEND REQUIREMENT amount of annual earnings necessary to pay DIVrOENDS on PRt-ll-.RRKO STOCK.

DIVIDEND ROLLOVER PLAN method of buying and selling stocks around their LX-oiviDt-Ni) datk so as to collect the pivideno and—

hopefully—make asmall profit on the trade. DIVIDENDS-PAID DKDUCnON an adjustment from taxable income

in computing both the accumulated earnings tax and the persona! holding company tax. The amount of the adjustment includes regular dividends, dividends paid during a21^-monlh grace period, consent dividends, and deficiency dividends (for the personal holding com¬ pany tax only).

DIVIDENDS PAYABLE dollar amount of dividends that are to be paid, as reported in rnanciai. .stat-kment.s. These tlividends become an obligation once declared by the board of directors and arc listed as lialiiuTIES in annual and quarterly reports. DIVIDENDS-RECEIVED DEDUCTION lax deduction allowed to a

corporation owning shares in another corporation for the dividends it

receives. The deduction is often 70%. but in some cases it may be as high as 100% depending on the love! of ownership the dividendreceiving company has in the dividend-paying entity. DIVIDEND YIELD annual pcivciilagc of return canied by an investor on acommon or preferred stock. The yield is determined by dividing the amount of the annual dividends per share by llie current market

price per share of the stock, Forexample.a stock paying aSI dividend per year that sells forSIO ashare has a10% dividend yield. DIVISION self-sufficient unit within acompany. Adivision contains all of the departments necessary to operate independently from the parent company. An example is the Chevrolet Division of the General Motors Coiporalion.

V

DIVISION OF LABOR

212

DIVISION OF LABOR separation of the work force into different cat¬ egories of labor; dividing the work required to produce aproduct into ii number of different tasks that are performed by different workers. DIVISIVE REORGANIZATION transfer of all or part of adivision, a subsidiary, or acorporate segment in atax-free manner. There are three types of divisive reorganizations in which all or pan of the assets are transferred to one or more controlled corporations—split-up. !Si'i.iT-OFF. and spin-opk. If atransaction falls within the divisive reor¬

ganization provisions, no gain or loss is recognized to ashareholder who receives only stock or securities (that is, receives no boot). DIVORCED TAXPAYER ataxpayer who was divorced under afinal

decree of divorce or separate maintenance by the last day of the tax year; considered unmarried for the whole year. DOCKING charging an employee time from his time sheet or card for an infraction of company rules, usually in connection with lateness or ab.scnce.

D O C K I N G S TA l T O N a d e v i c e t h a t a c t s a s a t e r m i n a l t o c o n n e c t a

NOTEBOOK COMPUTER to Other equipment, such as anetwork or a

desktop monitor and keyboard. May also contain acharger for the notebook's battery and possibly additional disk drives. DOCUMENT

I. any writing, recording, computer file, blueprint. Xray. photograph, or other physical object upon which information is set forth by means of letters, numbers, or other symbols.

2. regarding computers, aword processing file. D O C U M E N TA R Y D R A I T s e e D K A P r. D O C U M E N TA R Y E V I D E N C E e v i d e n c e i n t h e f o r m o f w r i t t e n o r

printed papers. DOCUMENTATION written description of acomputer reocRAM. it

falls into several categories: (I) internal documentation, consisting of comments within the program; (2) on-line documentation, displayed

as the program runs or called up with acommand such as help; (3) reference cards, containing easily forgotten details for quick reference; (4) reference manuals, setting out complete instructions for the pro¬

gram in a.systematic way; and (5) tutorials, serving as introduction for new

users.

D O C U M E N T L O C ATO R N U M B E R a n u m b e r s t a m p e d o n a l a x return, check, or other document that allows the IR.S to quickly iden¬ tify and locate aparticular document. DOING BUSINESS carrying on. conducting, or managing abusiness. A

corporation is doing business in astale if it performs some of the ordi¬ nary functions for which it was organized or engages in activities that

subject it to the laws and jurisdiction of that state.

DOMICILE

213

DOING BDSlNIiSS AS (DBA) assumed name aperson uses for abusi¬ ness inslcad of the actual business name or one’s personal name. A certificate should be filed in the courthouse to use an assumed name,

and to assure that no one else in that jurisdiction is using the same n a m e .

DOI.I.AR COS'I' AVERAGING buying amutlai. HtNt) or skclrities

using aconsistent dollar amount of money each month (or other pcruxl). More securities will be bought when prices are low, resulting in lowering the average cost per share.

DOLLAR DRAIN amount by which aforeign country's imi>ori'.s from the United States exceed its exports to the United States. As the coun¬

try spends more dollars to finance the imports than it receives in pay¬ ment for the exports, its dollar reserves drain away. DOLLAR VALUE LIFO inventory method computed in (hllars (ia;..

cost figures) rather than units. After inventoty is divided into homo¬ geneous groupings or "pools,” each pool is converted to base-year prices by means of appropriate price indices. The difference between beginning and ending balances, as converted, becomes ameasure of change in inventory quantity for the year. An increase is recognized as an inventory layer to be added to beginning inventory. It is converted

at the current price index and added to the dollars identified with the beginning balance. See also last in. urst out (liw). DOMAIN on NiiTWORKS such as the iNTERNirr, agn>up of connected

computers, which may contain subdomains. On the Internet, domains a r c

denoted by athree-letter suffix. Some of the most common are

edn—educational institution; gov—government site, other than .siaietunded universities; com—commercial site; »i/7—military site; tier—

network site; and org —nonprofit or private organization. In addition, most countries, states, provinces, and regions have tloiiidin names. ISPs that offer domain name hosting may offer "virtual domains." The

domainnameisactuallyanaliasfortheiPaddress,whichisexpressed in numbers. Tlie perUxJ in adomain name is pronounced "dot," with the result that maid, of gixids or services that are for sale. Market exposure is provided through such media as radio and television, newspapers, and billboards.

EXPOSURE DRAFT in accounting, preliminary release of astatement by the ki.sancial accol'ntinc standards noAKi) (l Asn). which offers the text of the proposed statement for comment. The official state¬ ment. which may be modified as are.suli of constrtictive criticism of

theexposuredriifi.willbeissuedaftertheexposuredrafthasbeencir¬ culated for several months.

EXPRESS

1. to set forth an aorkhment in words, written or spoken, that unam¬ biguously signify intent.

2. a.s distinguished from impmki). the term refers to something that is not left to inference from conduct or circumstances.

3. transportation service that makes fewer stops than local service. EXPRESS AUTHORITY althoritv given explicitly either orally or in

writing; authority plainly given to another and not presumed from circ u m s i a n c e s -

EXPRF.SS CONTRACT contract with clear wriitcn criod specified in acomract.

Taxation: additional period of time to tile an income tax return. EXTENSION OK TIME FOR KD-ING additional period during which

atax return may be filed without penalty. An automatic six-month

exien.sinn of time to file an individual tax return (Form 1040) is

obtained by filing Form 4868 by April 15. The extension will give the

taxpayer extra time to gel the tax return to the IRS, but it docs not extend the time to pay any tax due. The taxpayer vi'ill owe interest on

any amounts not paid by the April deadline, plus alate payment

E X T E N U AT I N G C I R C U M S TA N C E S

254

penally if less than 90% of the total tax has been paid by that dale. Form 4868 may be obtained by phone (l-SOO-829-3676) or online at

hlrp://wivw.irs.gov/formspuhs/index.himi, tax software packages also include the form, as well as e-filing options. An extension of more

than six months will not be granted if the taxpayer is in the United States. Acorporation may obtain an automatic extension of six months

for filing areturn (Form 1120 or tI20S) by filing Form 7004 by the due date of the lax return.

EXTENUATING CIRCUMSTANCES unusual conditions preventing apolicy or project from being carried out correctly on time. The indi¬ vidual has little or no control over the situation. For example, asup¬ plier might be unable to deliver merchandise on time because of a railroad strike.

EXTERNAL AUDIT analysis of the acceptability of acompany’s finan¬ cial records provided by an outside firm, generally aCPA firm. See also accountant's opinion; internal audit. E X T E R N . A L C H A N G E C O M PA R E D T O I N D U C E D C H A N G E

induced change exists when changes in markets, inputs, etc., cause producers to make changes in their production processes; external change comes from outside the production system, including con¬ sumer tastes or innovadons that permit new, more efficient methods of produedon.

EXTERNAL DISECONOMIES actions dial impose costs on those not transacting business with the person or firm taking the action. An example is air pollution caused by afactory that affects those living in

the vicinity. These costs are not accounted for in the interaction of sup¬

ply and demand and cause asocially inefficient allocation of resources. Also referred to as externauties. EXTERNAL DOCUMENTS documents needed for the

company

recordkeeping that have somehow been handled by outside individu¬ als. Vendor invoices and canceled checks are examples. The auditor can place much more reliance on external documents than internal

documents because of the greater independence and verifiability asso¬ ciated with them.

EXTERNAL ECONOMIES actions that provide benefits to those unin-

voived in transactions with the entity taking the action. An example is agolf course that produces amenities to those who live close by even though they may not be members or customers of the course. The pro¬ ducer of the benefits is not compensated and has no economic incen¬ tive to continue producing them.

EXTERNAL FUNDS funds brought in from outside the corporation, perhaps in the form of abank loan, proceeds from abond offering, or

an infusion of cash from venture capitalists. See also rtiernal FINANCING.

V

E X T R A P O L AT I O N

255

EXTERNALITIES see SPii.LOVER, external diseconomies.

EXTERNAL REPORT organizational report intended for outside cir¬ culation. External reports do not contain sensitive organizational information unless it is necessary to achieve aparticular purpose. EXTRACTIVE INDUSTRY industry that involves mining, such as to

obtain copper or other valuable minerals found in the ground. EXTRA DIVIDEND dividend paid to shareholders in addition to the

regular dividend. Such apayment is made after aparticularly prof¬ itable year in order to reward shareholders and engender loyalty. EXTRA EXPENSE INSURANCE insurance designed to protect busi¬

nesses in the event of an unforeseen emergency requiring additional expenses, allowing them to continue operations. For example, in the event of afire, the business may need equipment to continue opera¬ tions until the main facility and related equipment arc restored. EXTRANET private network utilizing Internet technology to .securely share pun of abusinc.ss's information or operations with suppliers, vendors, partners, customers, or other businesses. EXTRAORDINARY ASSUMPTION an assumption within an ARPRAlSAt. that is so essential that the value opinion would by erro¬ neous if the assumption proved to be false. Compare hvi'OTHETICAl CONDITION.

EXTRAORDINARY DIVIDENDS dividends of unusual form and

amount, paid at unscheduled times from accumulated surplus. EXTRAORDINARY ITEM nonrecurring occurrence that must be

explained to shareholders in an annual or quarterly report. Some examples are write-off of adivision, acquisition of another company, sale of alarge amount of real estate, or uncovering of employee fraud that negatively affects the company’s financial condition. EXTRAPOLATION prediction of values by astatistical model oulside of or beyond the range of the data used to estimate the model. Areal estate developer predicting office absorption in the year 2015, based regression model of actual data from 2000 through 2010. would on

a

be extrapolating.

V

F A A

256

F FAA reDbRAL AVIATION ADMINISTRATION.

FABRICATOR employee who converts materials inio units, pans, or

items; assembler: manufacturer of goods or maierials. Acustom fabricaior manufactures good.s to ordcr. FACADE ouiside front wall of abuilding. FA C E s e e f a c e i n t e r e s t r a t e ; f a c e v a l u e .

FACE AMOUNT (FACE OF I’OLICY) sum of insurance provided by apolicy at death or maturity. FA C E A M O U N T O F B O N D s e e f a c e v a l u e .

FACEBOOK arecent and very popular social networking site ( w w w. f a c e b o o k . c o m l .

FACE INTEREST RATE percentage interest that is shown on the bond or the loan document. The effkct'ivk rate is amore meaningful yield figure. FACE VALUE value indicated in the wording of an in.strument. For example, the /ace value of abank check is the amount the check is written for. The interest rate of abond applie.s to the face value, not the MARKET value. Facc value is also called par value or nominal value.

FACILITIES MANAGEMENT the process of operating corporate- or government-owned property occupied and used for the corporation's or government's own purposes.

FACILITY unit constructed or work area reserved for aspecific func¬ tion. For example, the cafeteria is afaciliry uniquely designed for the purpose of providing an attractive and sanitary area for serving food to its patrons-

F.ACSIMILE copy, especially of written business documents or pictures: copy sent by electronic means. See also facsimile tr.ansmission. FA C S I M I L E T R A N S M I S S I O N ( FA X ) u s e o f e l e c t r o n i c s t o s e n d

printed materials. Apicture of the material is coded by an electronic .scanning device, sent over phone or electronic wire, and reproduced at its destination.

FACT FINDER neutml party who studies the issues in adispute and makes arecommendalioii for afair scillemenl.

FACTION informal group of people operaiing within an organization and often opposing ahuger group. Similar to clique, afaction is fomied through voluntary membership by people who share common goals. FACTOR agent employed to sell goods or merchandise consigned or delivered to him by or for his principal for acompensation commonly

FA I L . FA I L U R E

257

called faaoragi’, DISCOUNT, or commission. Afactor may buy and sell in either his own name or the principal's name. See also tACrOKi N o ; PA c r o R . s .

FAC TOR ANALYSIS mathematical procedure used to reduce alarge amount of data into aslniciurc that can be more easily studied. Factor

analysis summarises infomnition contained in alarge number of vari¬ ables and condenses it into asmaller number of factors containing sariabics that arc interrelated. For example, in astudy about agroup

of women, their characteristics of height, weight, hobbies, activities, and interests might be summari/ed. using factor analysis, as size (height and weight) and lifestyles (the combination of hobbies, activi¬ ties. and interests). In so doing, five variables have been condensed into two separaic/dcroc.v. FACTORIAL

I. in statistics, design of experiment to investigate anumber of variABLKS or lAriOR.s. Fiwiorial design minimizes the number of

observations required to test numerous variables- Every observa¬ tion yields information on each variable. 2. in mathematics, product of all whole numbers up to the number con.sidercd. For example, eight factorial, abbreviated 8!. is 8x7x 6x5x4x3x2x 1, or 40,320.

FAC'I'ORING type of financial service whereby afirm sells or transfers title to its ACCOUNTS REClilVAUl.i; to ufactoring company, which then acts as RRINCIP.M., not as agent. The receivables are sold with or with¬ out kkcour.sk. Factors also accommodate clients with overadvances.

that is, loans in anticipation of sales, which pennit inventory building prior to pealt selling periods. luictoring has traditionally been most closely associated with the garment industry but is used in other indus¬ tries as well. F A C T O R S

1. economic resources that go into the production of agood. Economic factors include (a) capital, (b) human resources or labor, and (c) property resources Including land. Entrepreneurial ability is considered by some ;i fourth factor since it organizes the other three

factors plus innovation while bearing acapital risk; also called/dclors of production. 2. merchants who work on commission.

3. agents who sell gtKxls entrusted to their possession; see kaCTORINo. 4. business intennediarios.

FACTORY OVKKHKAI) insurance, electricity, janitorial services, and other expenses of afactory thtit are allocated to goods manufactured when using an ahsorition costing system; all manufacturing expenses except i)iKi;a materials and diriiCi uvbor. FAIL, FAILURE not meeting minimal requirements, as to fail atest; wear out, as apart in ti nuicliine failed', to not perform as expected.

V

FA I LTO D K L i V E R

258

FAIL TO DICI^IVER situalion where the brokcf-dcaler on ihc sell side of acontract has not delivered securities to the broker-dealer on the

buy side. Afait to deliver is usually the result of abroker not receiv¬ ing delivery from its selling customer. See also hAit. to RECttVE. FAIL TO RECEIVE situation where the broker-dealer on the buy side of acontract has not received delivery of securities from the brokerdealer on the sell side. As longas a/atV to receive exists, the buyer will not make payment for the securities. See also rail TO deliver.

FAILURE ANAIASIS examination performed on afunction, project, or interrelation.ship that failed to fulfill its objective. Failure analysis is an attempt to determine why agoal was not achieved in order to eorreet the problem for the future.

FAILL'RE-TO-FILE PENALTY assessed on atax return not ftled by the due date (including extensions), based on the tax not paid by the

original due date. The penalty is usually 5% for each month, or part of amonth, that the return is late, up to amaximum of 25%. Fraud and aauracy-relaied penalties are 15% per month up to 75%.

FAIR ACCESS TO INSURANCE REQUIREMENTS (FAIR) PL AN type of insurance coverage offered to inner-city business owners o

r

homeowners who cannot purchase property insurance through c o n ventional means. Application is made through an agent who represents an insurance company participating in the FAIR plan. If the property is accepttiblc to the company, insurance will be prttvicicd. FAIR COMPETITION see UNFAIR COmpetitjon.

FAIR CREDIT BILLING ACT (FCBA) federal law designed to facili¬ tate the handling of credit complaints and eliminate abusive credit billing practices. It applies to OPEN-f-ND credjt accounts, such as credit cards and revolving cha;^ accounts. For example, the law requires that

complaini.s about credit bills be acknowledged within 30 days. FAIR CREDIT REPORTING ACT federal law giving persons the right to see their credit records at credit reporting bureaus. Individuals may challenge and correct negative aspects of their records if it can be proven ihtil there tuc mistakes. FAIR HOUSING LAW afederal law that forbids oi.scrimination on the

basis of race, color, sex. religion, handicap, familial .status, or national origin in the selling orienting of homes and apanmems..9cf stkkring. FAIR LABOR STANDARDS ACT (FLSAI federal law enacted in 1938, selling minimum wages per hour and maximum hours of work.

It also provides that employees are paid one and ahalf times their reg¬

ular hourly wage {lime and ahalf) for work beyond 40 hours in aweek. FAIR .MARKF.T RENT amount aproperly would command if it now available for lea.se.

w e r e

259

FALLOUT

OF

BED

FAIR MARKET VALUE price ai which an asset or service passes from awilling seller to awilling buyer. It is assumed that both buyer and seller are rational and have areasonable knowledge of relevant facts. See tilso MARKirr vai.ue.

FAIRNESS OPINION professional judgment offered for afee by an APPRAISER or INVESTMENT DANKER On the faimcss of the price being

offered in amerger, takeover, or leveraged buyout. For example, if management is trying to lake over acompany in aleveraged buyout, it will need afairnexs opinion from an independent source to verify that the price being offered is adequate and in the best interests of shareholders.

FAIR RATE OF RETURN level of profit that apublic utii.ity is allowed to earn as determined by federal and/or state regulators. Public utility commissions set the /air rate of reiurn based on the util¬ ity's needs to maintain service to its customers, pay adequate divi¬ dends to shareholders and interest to bondholders, and maintain and

expand plant and equipment.

FAIR TRADE term used in retailing that refers to an agreement between amanufacturer and retailers that the manufacturer's product be sold at or above an agreed-upon price. In many states, fair-trade agreements were incorporated into and enforceable by slate fair trade acts or fair la»’s. However, in 1975, Congress passed the Consumer Goods Pricing Act. which prohibits the use of resale price maintenance laws in interstate commerce. This Act has worked to effectively eliminate fair-trade arrangemenls. F.AIR USE in copyright law. quotation or reproduction of asmall portion of copyrighted material (with proper acknowledgment), which does

not require the permission of the copyright holder. The amount varies in proportion to the length of the original, the governing theory being that the use should not decrease the market for the original. FAIR VALUE aterm adopted by the rnancial accounting standards BOARD (FASB) and used to mea.sure the value of a.sseis and liabiliiies at

their value in exchange in an orderly transaction between market par¬ ticipants. This may differ from market vai.ue or fair market vai.iti when the accountant or auditor believes that the conditions for fair value (orderly transac(ion) are not presently observed by market value or fair market value. FALLBACK

OPTION

I. in management, reserve organizational position as afallback in the event another employment position fails. 2. allcmalivc plan devised by management in the event the primary option falters.

FALL OUT OF BED (of ustock's price) drop sharply, usually in response to negative corporate developments. For example, astock

FALSE

ADVERTISING

2(M

may fall oui o/ijedif aTAKHOVER deal fails apart or if profits in the lat¬ est period fall far short of expectations.

FALSE ADVERTISING describing goods, services, or real property in amisleading fashion. FALSIFY to change something that is tree. It may be statements, repre¬

sentations, or acts made to deceive others through distortion, .such as an unauthorised altering of the contents of acontract. FAMILIAL STATUS characteristic determined by aperson’s household type, such as marriage and existing or prospective children. Referred to in the fair housing law and i-air cri-dit reporting act; prohibits

denying rights to people under 18 who live with aparent or legal guardian. Pregnant women are specifically covered. FAMILY AND MEDICAL LE.AVE ACT (FMLA) federal law. admin¬ istered by the U.S. Department of Labor, that requires employers who have 50 or more employees to provide employees with leave for cer¬ tain medical and family-related reasons. FAMILY BRANDING marketing strategy where the same brand name

is given to anumber of products in order to encourage recognition. It eases the introduction of new products, increases market acceptance, and lowers marketing costs.

FA>DLY INCOME POLICY insurance policy that provides extra income during the period when children are growing up. This life insurance contract combines ordinary life and decreasing term insur¬

ance. The beneficiary receives income payment.s to the end of aspe¬ cific period if the insured dies prior to the end of the period. If still living at the end of the specified period, the policyholder receives the face amount of the policy.

FAMILY LIFE CYCLE various stages in family life resulting in dilTercm buying patterns. It takes into account changes in family structure and behavior accompanying progression from birth to death. Some stages are single, newly married without children, and married with

children. At each stage, the person plays adilTerent social role and buys symbols of that particular role at the time. For example, the buy¬ ing pattern with little children is to buy toys. FAMILY LI.MITED PARTNER.SHIP (FLP) aLIMITED PARTNERSHIP

whose interests are owned by members of the same family. By this arrangement, gift and estate taxes may be reduced. However, owners will not enjoy the freedom of complete ownership or free transferabil¬

ity of interest provided by other ownership vehicles. See minority D I S C O U N T.

FAMILY OF FUNDS group of mutual funds managed by the same investment management company. Each fund typically has adifferent

FA S H I O N

261

objective; one may be agrowth-oriented slock fund, whereas another may be abond fund or amoney market fund. Shareholders in one of the funds can usually switch their money into any of the family’s other funds, sometimes at no chaige. FANNIK .MAE see i-'EDtiRAL nai ionai. mortoagi; asscx'iation.

FAQ frequently asked queslion(s). ANH.wsoROl,'i‘ user’s question may be said to be ”ii(n) FAQ.” and he may be referred to ”thc FAQ,” anewsgroup post, l-TF file, or Web site where such questions are answered. FARE charge for transporting apassenger. See also coach hare. F A R M

1, agricultural operation. 2. technique whereby asalesperson cultivates aspecific geographic area.

The definition for federal tax purposes includes livestock, dairy, fish, poultry, fur-bearing animals, truck farms, orchards, plantations, ranches, nurseries, ranges, and structures such as greenhouses used

primarily for the raising of agricultural or horticultural commodities. FARMIsK MAC see federal ACRiCUt.iUKAi. stORTGAta; (ORTORation.

FARMERS HOME ADMINISTRATION (FmllA) former agency of

the U.S. Department of Agriculture that administered assistance pro¬

grams for purchasers of homes and farms in small towns and rurtil ureas.

In 1994, the USDA w-as reorgani/ted, and the functions of the

FmHA were transferred to the harm servici- agency.

FARM .SERVICE AGENCY an agency of the federal government that

makes mortgage loans on rural property to farmers and to individuals who provide services to farmers and ranchers. Loans arc made at bciow-markei interest rates. Borrowers arc required to purchase stock in their ItKal land bank association, which serves as additional secu¬ rity for the loan.

FARM SIJIU’LL'.S unsold agricultural gtwds.The government will often

purchase certain farm surplus products in order to maintain aprof¬ itable price level for the farmers. The storage and use of farm surplus products is acontroversial political problem. FASB

see

unancial

accounting

standards

hoard.

FASCISM doctrine; collection of concepts; and dictatorship by govern¬ ment of acountry, often involving hostile nationalistic attitudes, racism, and private economic ownership under rigid government con¬ trol. Afascisi regime is often militarily belligerent. FASHION style of conduct or dress being followed by individuals. The marketing person attempts to develop piYxluels that meet the cuirenl tastes and inclinations of consumers to enhance sales.

FA S T T R A C K I N G

262

FAST TRACKING choosing certain workers for rapid advancement. Management may identify particular workers as fast truckers because

of certain outstanding characteristics and put them in midcareer train¬ ing programs while the remaining workers are essentially bypassed. FAUX PAS social blunder made by an individual. It may be an improper action or ii mistake of speech. FAVORAIM.K TRADE BALANCE situation where the value of a

nation's exports is in excess of the value of its imports. See also bai.ANCH 01- I’AYMtiNTS, BALANCE OF TRADE.

FAVORITES Microsoft's term for documents or URLS Ihtit have bceti marked for easy retrieval. F.AX see HACSiMitJ- transmission. FDA see food and DRUG admi.mstration. FDIC see federal deposit insurance corporation.

FEASIBILITY STUDY delenninaiion of the likclihotxJ that aproposed product or development will fulfill the objectives of aparticular

investor. For example, afeasibility study for uproposed housing sub¬ division should: (1) estimate the demand for housing units in the a r e a ;

(2) estimate the ABSORPnoN rate for the project; (2) discuss legal and other considerations; (4) forecast cash flows; and (S) approximate investment returns likely to be produced. Afeasibility study goes beyond a.marki-tability study, which concerns only product sales. FEATHERBEDDING work rules requiring payment to employees for work not done or not needed. One variation is for aunion to presen’e existing jobs by prohibiting the use of new technology.

FEATHER ONE’S NEST make acomfortable place, as by making pro¬ vision for retirement. Nowadays, often has the connotation of misap¬ propriating fund.s entrusted to one's care.

FED. THE see federal reserve board.

FEDERAL AGENCY ISSUE or FEDERAL AGENCY SECURITY

debt instrument issued by an agency of the federal gtivemment, such as the Federal National Mortgage A.ssociation, the Federal Farm

Credit Bank, or the Tennessee Valley Authority (TVA). Though n o t general obligations of the U.S. Treasury, .such securities are sponsored by the govonimcnt and therefore have high credit ratings.

FEDERAL AGRICULTURAL MORTGAGE CORPORATION fed¬

eral agency established in 1988 to provide asecondary market for farm mortgage loans. Informally called Farmer Mac.

FEDERAL AVIATION ADMINISTRATION (FAA) agency of the U5. Department of Transportation, charged with regulating air corn-

263 FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) merce. promoting aviation safety, and overseeing the operation of airpom. including air traffic control. FEDEKAl. CRISIS INQUIRY COMMISSION (FCIC) aten-member panel created by President Barack Obama in 2009 to examine the causes, domestic and global, of the current financial and economic cri¬ sis in the United States. Hearings focused on topics such as avoiding

future catastrophe, complex financial derivatives, credit rating tigencies, excess risk and financial speculation, government-sponsored enterprises, the shadow banking system, subprime lending practices and seeuritiiation, and "too big to fail." The Commission concluded that this crisis was avoidable—the result of human actions, inactions,

and inisjudgments. Warnings were ignored. FEDERAL DEFICIT (SURPLUS) shortfall that results when the fed¬

eral government spends more in afiscal year than it receives in rev¬ enue. To cover the shortfall, the government borrows from the public by floating long and short-term debt. See also oramm-rudmanHOLLINGS A.MENDMENT. See Figure 3. FEDERAL DEFICIT

.ertvSPS G°9

Federal D e fi c i t

T a * ReceiPil 12 o

O

Time FIGURES

F E D E R A L D E P O S I T I N S U R A N C E C O R P O R AT I O N ( F D I C ) i n d e ¬

pendent federal agency, established in 1933, that insures deposits up to S2S0.000 in member commercial banks. It has its own reserves and

V

FEDERALENERGY REGULATORY COMMISSION (FERCl 264

can borrow from the U.S. Treasury, and sometimes aeis to prevent bank failures, for instance by facilitating bank mergers, FEDERAL ENERGY REGULA'IORY COMMISSION (FERCl an

independent agency that regulates the interstate transmission of elec¬ tricity. natural gas. and oil. b'ERC also reviews proposals to build liq¬ uefied natural gas (LNG) terminals and interstate natural gas pipelines and also licenses hydropower projects.

FEDERAL ESTATE AND GIFT TAX federal government tax imposed on gifts and the estate of ade< ki)ent according to the value of that estate. The first step in the compulation of the federal estate tax owed is to determine the value of the decedent's gross ESTAnt. The deter¬

mination can be made by adding the values of the following assets owned by the decedent at the time of death: 1. property owned outright. 2. gratuitous lifetime transfers but with the stipulation that the dece¬ dent retained the income or control over the income.

3. gratuitous lifetime transfers subject to the recipient's surviving the decedent.

4. gratuitous lifetime transfers subject to the decedent's retaining the right to revoke, amend, or alter the gift.

S. ANNttrriES purchased by the decedent that are payable for the life¬ time of the named survivor as well as the anmjitant.

6. property jointly held in such amanner that ttnothcr party receives the decedent's interest in that properly ttl the decedent's death because of that party’s survivorship. 7. life insurance in which the decedent retained incidents of

ownership. 8. life insurance that was payable to the decedent's estate. The second step in the eompuliition of the federal estate tax owed is to subtract allowable deductions (including hequesix to charities, bequests to the surviving spouse, funeral expenses, and other admin¬ istrative expenses) ftxim the gross esluic. This results in the taxable ESTATE. Adjustable taxable gifts are then added to the taxable estate,

resulting in the cnmpuwiiomi tax Ixvtc. The appropriate tax rate is then applied to the computational tax base, lesulling in the tentative federal estate tax (certain credits may still bo subtracted). FEDERAL EXPRESS iee lliot.x. FEDERAL FARM CREDIT BANK. I'EDKRAI. FARM CREDIT SYSTEM ,>ve I-ARM SERVICE AGENCY.

FEDERAL FLOOD INSURANCE coverage made available to resi¬ dents of acommunity on a.subsidized and nonsubsidized preminin rate basis once the governing body of the community qualifie.s that community for coverage under the national 1-t.ood insurance i’ro-

GRAM. Residents include business and nonbusincss operations with coverage written on su-uccures and their contents.

F E D E R A L I N T E R M E D I AT E C R E D I T B A N K

265 FEDERAL

FUNDS

I. funtlb dcpo«iied by commercial bank^ ai Federal Reserve Banks, iiicludini! funds in excess of bank KtSbRVK KtQLiRtMii.vrs. Banks may lend federal funds to each oilier on an overnight basis ai ihe ri;i)i;RAi. FUNDS rate to help the borrowing bank satisfy iis reserve require menis. 2, money used by ihe Federal Reserve to pay for purchases of gov¬ ernment securities. 3. funds used to settle transactions where there is no float.

FEDERAI. FUNDS RAT'E interest rate charged by banks with excess rc.serves at aFederal Reserve district bank to banks needing overnight loans to meet KtSfcRVE REquiRi:Mli.vrs. The federal funds rale is the most sensitive indicator of the direction of interest rates, since it is set

daily by the market. FEDERAL HOME LOAN BANK SYSTEM former system that sup¬ plied credit reserves for savings and h)an associations, cooperative

banks, and other mortgage lenders in amanner similar to the Federal Re.serve Bank’s role with commercial banks.

FEDERAL

HOME

LOAN

MORTfJAOE

C O R P O R AT I O N

IFHI.MC) publicly chartered agency, nicknamed Freddie Mac. a Govi rnmi:nt-sp«nsored enterprise «!SE) that buys qualifying resi¬ dential mortgages from lenders, packages them into new securities backed by those pooled mortgages, provides certain guarantees, and then resells the securities on the open market. On September 6.2008, it was placed under U.S. government conservalotship. with govern¬ ment ownership of 80?f of its stock, conducting business under the d i r e c t i o n o f t h e f e d e r a l h o u s i n g fi n a n c t ; a g e n c y ( f h f a ) .

FEDERAL HOUSING ADMINISTRATION (FHA) agency (founded in 1934) within the U.S. DcpaiTincnt of Housing and Urban

Dcvciiipmcnt that administers many loan, loan guarantee, and loan insurance programs designed to increa.se the availability of housing. F E D E R A L H O U S I N G F I N A N C E A G E N C Y ( F H FA ) U S g o v e r n ¬ ment agency created in 2(XIS under the Housing and Economic Recovery Act to replace the Federal Housing Finance Board and assume oversight of the reDFRAi. HoMi-. loan bank systilm that include.s the housing-related oovtKNXltLvi-sixisstmfcD knti;Rprisi-.s (GSE-S) Fannie Mae. Freddie Mac. and the Federal Home Loan Banks.

It was granted enhanced powers to establish standards, restrict asset growth, increase enforcement, and put entities into receivership. FEDERAL INSURANCE CONTRIBUTIONS ACT (FICA) the fed¬

eral law that provides for the imposition of the Social Security tax. F E D E R A L I N T F B t M E D I AT E C R E D I T B A N K o n e o f 1 2 b a n k s t h a t

make funds tivailable to production crcilii assiKiaiions. commercial

FEDERAL

LAND

BANK

266

banks, agricultural credit corporations, livestock loan companies, and other institutions extending credit to crop farmers and canle raisers. Each bank's stock is owned by farmers and ranchers. FEDERAL LAND BANK an agency that makes mortgage loans on rural properly to farmers and individuals who provide services to farmers and ranchers. Borrowers are required to purchase stock in their local land bank association that serves as additional security for the loan.

F E D E R A L N AT I O N A L M O RT f J A G E A S S O C I AT I O N ( F N M A )

publicly owned aoveR.MMENT-spONSORiiD enterprjse (gse) chartered in 1938 to purchase mongage.s from lenders and resell them to

investors. The agency, known by the nickname Fannie Mae. mostly packages mortgages backed by the sederal housing administration

(FHA) but also sells some nongovemmentally backed mortgages. On September 6,2008, it was placed under U.S. government conservator-

ship, with government ownership of 80% of its stock, conducting business under the direction of the fedhrai. mousing finance aohncv (l-HFA).

FEDERAL OPEN MARKET COMMITTEE (FOMC) key committee in the Federal Reserve System, which sets short-term monetary policy for the Fed. The committee comprises the seven governors of the Federal Rescn'c System, the president of the New York Federal RescA'e Bank, and the presidents of four other Federal Reserve Banks.

To lighten the money supply, which decreases the amount of money available in the banking system, the Fed sells government securities. FEDERAI, POWER COMMISSION (FPC) see federal energy regUI.A'H)RY COMMISSION (FERC). FEDERAL REGISTER daily publication by the U-S. govemmcnl lliai

prims llie regulations of the various governmental agencies (for exam¬ ple, the Treasury DepanmenI, Housing and Urban Development, and Environmental Protection Agency regulations will be published in llic Federal Register). FEDERAI. RESERVE B.ANK one of the 12 banks that, with their

branches, make up the federai. reservi; system. These banks are

located in Boston, New York, Philadelphia. Cleveland, Richmond. Atlanta, Chicago, St, Louis, Minneapolis, Kansas City, Dallas, and San Francisco. The role of each 1-cdcral Reserve Bank is to monitor

the commereiiil and savings banks in its region to ensure that they fol¬ low i-i;di-:rai. resfirve board regulations and to provide those banks with access to emergency funds from the discount window.

FFTIERAI. RE.SERVE BOARD (FRB) governing board of the fed¬ eral RfcSbRN'E SYSTEM- lls Seven members are appointed by the President of the United States, subject to Senate confirmation, and sen'c 14-year terms. The Board c-siablishes Federal Reserve System

P E D E R A LT R A D t C O M M I S S I O N ( F T C )

267

policies on such key mailers as rkskrvi; RKyuiRi-MiiNis and oihcr bank rcgnlalions, sets ihe niscoDM rate, tightens or loosens the availabil¬ ity of credit in tlic economy, and regulates the purchase of securities on margin. FEDERAL RESERVE DISTRICT see kh)KKAi. rk.servk rank.

FEDERAL RESERVE NOTES paper currency it-sued by the iederai. RK5F.RVE SY.STE.st (FED) and pui inti) circulation by the federai. Ri-.siiRVK

RANK.s. They are liabilities of the l-cderal Reserve banks and obliga¬ tions of the U.S. government. FEDERAL RESERVE OPEN MARKET COMMI TI EE .w fedfrai. OPE.N

MARKFTCOMMiriEE.

FEDERAL RESERVE SYSTEM (FED) system established by the Federai Reserve Act of I'JB to regulate the U.S. monetary and bank¬ ing system. The Federal Reserve System comprises 12 regional

Federal Reserve Banks, their 25 branches, and all nationtil and stale

banks that are part of the system. National hanks are stockholders of the FEDERAI. RF_SERVF. BANK in their region. The Federal Reserse System's main functions are to regulate the national money supply, set RESERVE RF.QLTRi;ME.vrs fof member banks, supenise the printing of

currency at the mint, act as cii-ARiNGHDUSE for the transfer of fund.s throughout the banking system, and examine member banks to make sure they meet various Federal Reserve System regulations. FEDERAL SAVINGS AND LOAN AS.SOCIATIONS federally char¬

tered institutions with aprimary responsibility to accept people’s sav¬ ings deposits and provide mortgage loans for residential housing. Their role and scope was broadened by the Depository Institutions

Deregulation and Monetary Control Act of 1980. Accounts are insured up to S250.0(X) by the FDIC. FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION

(FSLIC) agency of the federal government. I'ounded in 19,14 and dis¬ banded in 1989. that insured depositors in savings and I.dan assoct-

ations against loss of principai.. Since 1989 this function has been performed by the f>;derai. deposit insurance coridratidn (fdic), FEDERAL TAX UEN lien of the United States on all property and

rights to property of ataxpayer who fails to pay alax for wliieh he is liable to the federal government. FEDERAL TRADE CO-MMISSION (I■TC:) government agency cre¬

ated in 1915, under the Federal Trade Comniixsion Act of 1914, whose

purpose is to protect the system of free enterprise and competition in the interests of astrong economy. In the words of the Federal Trade Commission Act, Section 5, the FTC is responsible to "promote free

and fair competition in interstate commeroe in the interest ol the pub¬ lic through prevention of price-fixing agreements, boycotts, combina-

V

FEDERAL UNEMPLOYMENT TAX ACT (FUTA)

268

tions in restraint of trade, unfair methods of eorapciition, and unfair and deceptive acts and practices.”

FEDERAL UNEMPLOYMENT TAX ACT (FUTA) provides for fed¬ eral unemployment insurance and is paid by employers. The maxi¬ mum tax rate is 6.2% on the first $7,000 of wages through June 30, 2011: then the rate is reduced to 6%. The maximum tax rate can be

reduced by credits for slate unemployment taxes. FEDEX company (formerly Federal Express) that offers speedy pickup and delivery of letters and parcels. FED FUNDS see federal funds: federal funds rate.

FED W[RE high-speed, computerized communications network that connects all 12 Federal Reserve Banks, their 25 branches, the Federal

Reserve Board office in Washington. D.C., U.S. Treasury offices in Washington. D.C.. and Chicago, and the Washington. D.C.. office of the Commodity Credit Corporation: also spelled FedWire and Fedwire. The Fed wire has been called the centra! nervous system of money transfer in ihe United States. It enables banks to transfer reserve balances from one to another for immediate available credit and to transfer balances for business customers. F E E

1. in real property, estate of complete ownership that can be sold by the owner or devised to his heirs. Fee, fee simple, and fee simple

ABSOLUTE are often used synonymously. 2. cost of professional services, such as legal fee or recording fee. FEEDBACK

I. comments or reactions from users of aproduct or service. 2. rating and/or comment given to help determine whether the rated member is trustwonhy. Auction sites such as eBay and review sites such as Epinions depend on user feedback to function elTectively. 3. phenomenon that occurs when acontrol device uses information about the current slate of Ihe system to determine the next control

action. For example, when athermostat controls the temperature in ahouse, it needs to know the cunenl temperature in Ihe house before it decides whether to turn on Ihe furnace. Thus, information about the lempcraiure is “fed back” into the device that controls the temperalure.

4. an unwanted squeal that occurs when amicrophone picks up its own ouipul from speakers.

FEEDER FUND fund that is similar to afund of funds, except that vir¬ tually all the underlying investments arc held by ama.tlerfund, which

is responsible for managing them. Atypical hedge fund arrangement, called amaster feeder structure, has three cnlilies: amaster fund and

two feeder fiinds, Ihe sole investment of Ihe feeder funds being

a

n

269

RCO

SCORE

ownership iniercst in the masler fund. One feeder fund is for U5invesliirs and Ihe other is for non-U-S- investors. The master fund, usu¬

ally an offshore entity organized as alimited-liability company to pre¬ serve the lax treatment of both the U.S. and the non-U.S. investors,

consolidates all the trading activities into asingle portfolio, providing

operational efficiencies and ensuring that the performance of each feeder fund mirrors the other.

nCKDER IdNES local and regional airlines or railroads that bring traf¬ fic to national carriers. FEE SCMIM-E or FEE ABSOLUTE or FEE SIMPLE ABSOLUTE

absolute ownership of real propektv; owner is entitled to the entire property with unconditional power of disposition during his life, and upon his death the property descends to his designated heirs. The only power that can override fee simple ownership is that of einiiienl do'iiain {see conde.mnatios>.

FENG SHUI (pronounced fung sfiwo v) ancient Asian art of creating har¬ mony and balance within an environment. EF&IC i-LKNiTURt-:, HXTURKS. and hquii’mi-nt. FKO .vce I^USDS FROM OPERATIONS.

FUA MOR'I'GAOE LO.AN mortgage loan insured by the eedkrai. Mousiso ADMINISTRATION (niAl. Section 203(b) is the most popular program.

FHFA HOUSE PRICE INDEX (HPI) aiiOMi; price index compiled by the H-DERAi. HOUSING FINANCE AOENCY (fhfa). The index is based on

data taken from loans held by Ihe home mortgage government-spon¬ sored ESTERPRISES (GSEs). Values are available for each stale and met¬ ropolitan area in the country.

FIA'I' MONICY currency that is made legal lender by govemmem law or regulation. In the United Stales. Federal Reserve Notes arcylm money. Fiat money always has alegal value that exceeds its intrinsic value. FIBER OPTICS tiny cylindrical strands of glass that carry light rather than electrical energy. Fiber-optic cable is increasingly used for long¬ distance phone lines because it can carry large amounts of data, is not subject to crosstalk or electromagnetic noise, and cannot be tapped into without producing anoticeable drop in signal level. KIC'A see SCX'IAI, SECURITY ACT OF 1935.

FKX) SCORE ameasure of borrower crcdil risk commonly used by

creditors, including mortgage loan originators. The score, developed by Fair Isaac Corporation, is based on applicants’ credit history and how much they u.se credit. Expressed as anumber between 3(X) and 850. the score determines not only whether the loan is approved, but also what types of terms are offered by the lender. All three national

V

HDELITY BOND

270

CREDIT BUREAUS (Equifax, Expenan. and TransUnion) now report FICO scores.

FIDELITY BOND coverage that guarantees that the insurance company will pay the insured business or individual for money or other prop¬

erty lost because of dishonest acts of its bonded employees, either named or by positions; also called blunkel fidelity bond. The bond covers all dishonest acts, such as larceny, theft, embezelemeni,

forgery, misappropriation, wrongful abstraction, or willful misapplica¬ tion. whether employees act alone or as ateam.

FIDUCIARY person, company, or association holding assets in trust for aBENEFICIARY. The fiduciary is charged with the responsibility of investing the money wisely for the beneficiary's benefit. Some exam¬ ples of fiduciaries are executors of wills and estates, receivers in bankruptcy, trustues. and those who administer the assets of under¬

age or incompetent bcncllciaries. FIDUCIARY BOND .see judicial bond.

FIEI,D group of adjacent characters in acomputer word- or dataprocessing system. For example, in acompany payroll system the information about asingle individual can be stored as one record. Each record will be divided into several fields. One field will contain

the employee’s name, anolher field the Social Security number, athird field the pay rate, and so on.

FIELD STAFF company employees whose work is in the marketplace outside of the company office and who are thus said to work in the

Fieid. In retailing, the field staff are the manufacturer's represenia[ivc.s, also known as detail persons. F I F O . l e e fi r s t i n , h r s t O u t .

F'lFTEEN-YFiAR ,VIORT(iA(iE afixed-rate, level-payment mortgage loan with amaturity of fifteen years. Beginning in the 1980s,/r/reenyear mortgages became popular as away to reduce the amount of

interest paid over the life of the mortgage loan. Although the monthly payment is somewhat higher than that of acomparable thirty-year loan, the interest savings are sub.stantial. F I L E

1. to place malerial in agiven order for accessible retrieval. Items

may be arranged alphabetically, numerically, chronologically, geo¬ graphically, or by subject.

2. collection of stored information. The data in acomputer file is stored in .such away that the computer can read information from

the file or write information to the file. Personal computers can -Store files on magnetic tape, floppy disks, CDs, or hard disk. 3. to formally submit adocument, especially to an office, an agency, or aunit of the legit) system. For example, one files an income tax return.

271

FINANCIAL ACCOUNTING STANDARDS BOARD (FASB)

FILE SERVER acompuleron aLOCAL AKBA NETWORK lliai provides net¬ work users access to shared data and program Files, Often alarger,

faster computer than the users’ workstaTIONS, FILE TRANSFER the process of moving or transmitting acomputer file from one location to another, as between two programs or from one computer to another.

FILE TRANSFER PROTOCOL (FTP) an Internet protocol that per¬ mits transferring files between computers via the Internet. FILING STATUS for tax purposes, governs the form of return used, which may be one of the following; 1. Single Individual. 2. Married Individuals Filing Jointly and Surviving Spou.se.

3. Separate Returns, Married Persons. 4. Heads of Households.

FILL OR KILL (FOK) order to buy or sell aparticular security that, if not executed immediately, is canceled.

FILTERING D03\'N process whereby, over time, ahousing unit or neighborttood is occupied by progressively lower-income residents. For example, many older residences near the downtown of big cities were once occupied by the upper classes, but have filtered down to the relatively poor. At some point in the filtering process, many large houses may be converted into rented Mi'Lnt-AMiLY HOUSINC. FINAL AS.SEMBLY assembling all components into afinished product.

In an automobileJhial assembly plant the power train is installed in the

chassis together with the automobile b^y componeiils to make a completed automobile.

FINAL GOODS goods, such as consumer goods, that arc not currently used up in the production of other goods.

FINANCE CHARGE any charge for an extension of credit. iNTtiRLST and DISCOUNT points are two major types of finance charge,

FINANCE COMPANY company engaged in making loans to individu¬ als or businesses- Unlike abank, it docs not receive deposits but

rather obtains iLs financing from banks, institutions, and other monuy .MARKET sources. Generally, finance companies fall into three cate¬

gories: (1) consumer finance companies; (2) sales finance companies; and (3> commercial finance companies. Sec also CAiTivfc kinanck C O M PA N Y.

FINANCIAL ACCOUNTING accounting system that provides haLANCE SHEET and INCOME STATEMENT rc.sulls. See also MANACiERIAL ACCOL'NTINO-

F I N A N C I A L A C C O U N T I N G S TA N D A R D S H O A R D ( FA S H ) i n d e ¬

pendent board responsible for establishing and interjireting l ARIES.

Municipal bontLs: statement found in the bond resolutions of ml’MG-

IPAL RhvtNL'E DO.SDS showing the priorities by which municipal rev¬ enue will be applied. F L U C T U A T I O N

I. change in prices or interest niles. either up or down. Fluclucilion may refer to either slight or dramatic changes in the prices of slocks, bonds, or commodities.

2. ups and downs in the economy. FLUCTUATION LIMIT limit placed by the commodity exchanges on the daily ups and downs of futures prices. If acommodity reaches its limit, it may not trade any further that day. See also limit up, limit D O W N -

V

284

F LY- B Y- N I G H T

FLOWCHART

o

0

Read

credit report

I s

receivable

yes

past due?

Check for

payment

IS" /-*&

rro

Estimate credit

limit

1 /Seek manager's approval/

FIGURE 4

FLY-BY-Nl(rHT originally referred to aswindler who fled hurriedly I'rom abusiness situation after his modus oi’krandi (mo) had been dis¬

covered by the locals; now refers to ashady business, often operating

out of apost office box or accommodation address, that cannot be located when its merchandise or product proves unsatisfactory. Fi.Y-OUT MKNII asecondary menu that appears to the side when you click amenu item. FNM.A see keoeral nation/xl mortgage association. FOB see kree on board.

FOCUSED FACTORY form of production limited to avery small num¬ ber of products for aparticular target market. This requires asmaller

285

F O R C E D S AV I N G

iiivesimctuundallowsagreaterdegreeofexpertisetobedeveloped than amore diversified manufacturing operation.

KOCCSGROUPaformofmarketresearchinwhichagroupofpeople (typically 5-10) arc asked about their attitude toward aproduct, c o n -

cept, advertisement, idea, or packaging. Can provide feedback about new or proposed products. Arecent innovation is to conduct an online focus group. FOIA .VCf IRhi-OOM OF tNFOR.MATIO.V ACT.

FOl.DisR the term used by Apple for what in DOS was called aDiRtC-

TORY. Windows 95 and later versions adopted this terminology. Programs or files are stored in folders just as one would store docu¬ ments in folders in afile cabinet.

FOLLOW-UP LETTER sales loiter sent to someone who has made an

inquiry inviting the inquirer to make apurchase; part of the /nftcn gi>vemed by tax treatUsS between the coumiy of the invcsinicnl owner anil the country where the investment is located. FORKKIN TAX CREDIT credit allowed against U.S. income taxes for

foreign taxes paid. The credit can be used only to lower U.S. taxes on im oinc earned overseas. Aforeign tax credit limitation is computed

by multiplying the U.S. tax liiibiliiy prior to the credit by the ratio of foreign taxable income to total taxable income (U.S. and foreign). FOREIGN TAX DEDUCTION individuals may deduct foreign income taxes paid or accrued, or may apply the taxe.s as acredit against U.S. income i;ix (see forejgn tax CRliDtr). F O R E I G N T R A D E M U LT I P L I E R i n e c o n o m i c s , a m e a s u r e o f t h e

increase in acountry's GDP due to the efficiencies of foreign trade. FOREIGN TRADE ZONE separate, enclosed place near aport where

giKids may be brought for storage, inspection, packaging, or other processes; also called free trade zone. No duties are assessed while the goods are in the foreign trade /tone.

KOREN.SIC ACCOUNTANT person who applies accounting principles, theories, and discipline to facts and hypotheses at issue in alegal dis¬ pute. The forensic accountant molds the skills of an investigator and accountant to look behind the numbers and the tlnancial statements,

For example, aforensic accountant may be used to detect the ploys used by people to hide their earnings and assets during adivoree. FOREX nr FX foreign exchange market. Worldwide dcccniraliicd cur¬ rency trailing market. The fore.r is the trading platform for determin¬ ing the relative values of different national eurrencies. FORFEITAHLE with reference to ai’i-nsion or aPROFiT-siiAkiNt; m.AN.

benefits in which aparticipant has no ow nership rights until length-ofscrvice or perfonnance requirements for viiSTlNU have been met. FORFEI TPENALTY see tNVEST^1E^T PKNAi.ty.

FORFEI’I'URK pennanenl loss of propi-.rty for failure to comply with the law; the divestitlre of the title of propeny, without compensa¬ tion. for aDEFAULT or an offense.

FORGERY preparing or altering writings or paintings with the intention of prejudicing the rights of others. FORM model of alegal dncumciil eom;iiniilg the phrases and words of art needed to make the document loehiiic;dly conect for procedural purposes.

FORM 8-K form apublic company files with the Securities and Exchange Commission when an event deemed material requires pub¬ lic disclosure. For example, asudden and drastic lawsuit contingency or achange in auditors.

FORM

10-K

288

FORM 10-K dciailcd annual filing required by Ihe Securities and

Exchange Commission of every issuer of aregislered security, every exchange-listed company, and any company with 500 or more share¬ holders or $I million or more in gross assets. The 10-K is more detailed, but otherwise similar, to afirm’s annual REfOKT.

FORM lO-Q quarterly report required by the Securities and Exchange Commission of companies with listed securities. It is less comprehen¬ sive than the k)rm IO-k annual report and does not require aCPA audit.

FORM 1040,1040A, 1O40KZ individual U.S. income tax return; gener¬ ally required to be filed by April 15 to report income for the previous year. Form 1040 is the long form, which must be used by taxpayers who itemire deductions or have high incomes. Form I040A is limited to those who have less than $100,000 of taxable income and limited income sources and do not itemize deductions. Form I040EZ is the

easiest to complete but may he used only by single people or married

people filing jointly, claiming only themselves as dependenLs. with income only from wages, salaries, and tips, and no more than $1,500 of dividends and taxable interest income.

FORM 1065 U.S. lux form used by pahtnhk.ships and joint ventures. FORM 109^ U.S. tax form used by payer to report interest, dividends,

royalties, capital gains, miscellaneous income, and other distributions. Acopy is sent to the payee; another copy is sent to the IRS.

FORM 1120. FORM 1120-A U.S. corporate income tax return, gener¬ ally required to be filed by March 15 of each year. F O R M A T

In general: arrangement of data; method of presentation of data. Computers: method of arranging inl'ormaiion that is to be stored or displayed. Formal can refer to: (I) how information is stored on acom¬ puter disk and (2) making the computer record apattern of reference

marks on adisk. Abrand-new disk must always be fornuilled before it can be used. Formatting aused disk erases any information previously recorded on it. In KJtdRAN, the fornuit xlalcmenl specifies the form in which data items, especially numbers, arc to be read or written.

FORMER BUYER customer who has not made any additional pur¬ chases within aspecified period of lime, usually ayear. Former buy¬ ers are generally belter prospects for additional sales than nonbuyers because they have already shown awillingness and ability to buy. Lists of former direct-mail buyers decline in value over time because many of the customers will have moved to anew address.

FORMULA INVESTING inveslmonl technique based on apredeter¬ mined timing or asset allocation mtxJel that eliminates emotional decisions.

F O R WA R D I N G C O M PA N Y

2«9

FORM UTILITY enliuncing the marketability of aproduct by changing its physical characteristics. For cxam[)le. boxed detergent can be pro¬

duced in liquid form, which mtiy be more advantageous for certain consumer requirements. See also Ft.Aa: t^ntaTY; posskssion lim.iTv; T I S 1 R L T I L C T Y.

KOR-PROFi rCORPORATION corporation expressly devoted to the purpose of earning aprofit. Conirasl with NOsreoFm .s'or K)K PROHt. FORTRAN f^irmula rrmislation) computer programming language devel-

o|)cd by IBM in the late 1950s. It was the first language allowing progrtimmers to describe calculations by means of malliematiciil formulas. FORTUITOUS LOSS loss occurring by accident or chance, not by any¬

one's intention. Insurance policies provide coverage against losses that occur only on achance basis, w'here the insured cannot control the loss; thus the insured should not be able to burn down his or her own home and collect. Insurattcc is not provided against accilainly such as wear and tear. Life insurance will not pay adeath benefit if the insured

commits suicide within the first twi> years that the policy is In force. Even though death is acertainly, the insured cannot buy apolicy with the intention of suicide within the first two years. FORTUNE 500 annual listing by Foriune magazine of the 5(X) largest

U.S. industrial (miimtfacturing)corporiitions.Eorr«ne in addition pub¬ lishes the Fortune Service 500. which ranks the ,500 largest U.S. non¬

manufacturing companies. Forhes magazine also publishes annual rankings of the 500 biggest U.S. publicly owned corporations. FORUM an ost.iM; discussion group on aparticular subject that is hosted by aBBS. aniivssgrol’p. amailing list, or another oNi.tNE ser-

vicii. Many organizations provide Web forum.s for support of their products or discussion among mentbers. For example, in forums hosted by computer hariiwarc and sitftwarc companies, proiluct users can ask questions and get answers or just exchange views.

FOR\VARD in shipping, to send to another destination. Apackage addressed to afonner tiddress is forwarded or relumed. See also for¬ warding

C O . M P A N Y.

I'OKWARI) BUYING retail practice of purchasing more materials than immediately needed in order to take advantage of special discounts or aTRADE AU-OWANCi;, or 10 increase profits.

FORWARD CONTRACT actual purchase or sale of aspecific quantity of acommodity, govemmcnl security, foreign currency, or other finan¬ cial instrument at aprice specified now, with delivery and settlement at aspecified future dale. See also r.iu'KB.s contracd. option. FORWARDING COMPANY business that accepts freight from busi¬

nesses or the general public anti fiiiiis an appropriate transportation carrier; also called freifshl forwarder.

F O R WA R D I N T E G R AT I O N

290

F O R W A R D I N T E G R AT I O N s e e i n t e g r a t i o n , f o r w a r d .

FORWARD-LOOKING STATEMENTS siaiemenis in annual repons and olher Tmancial communications that arc based on management’s expectations, estimates, projections, and assumption.s, and are made

pursuant to safe harbor provisions of the private securities litigation reform act of 1995, as amended. Such .statements are accompanied by caveats saying thiii actual future results and trends may differ materi¬ ally from what is forecast. F O R WA R D P / E s e e p r i c e - e a r n i n c s ( P / E ) r a t i o .

FORWARD PRICING method of pricing used by open-end investment companies. The share price is always determined by the .net asset VALUE of the outstanding shares, and all incoming buy and sell orders are based on the next net asset valuation of fund shares. For example, when amutual fund receives money from an investor, it calculates the number of shares the investor acquires based on their next computa¬ tion of net asset value, which occurs several limes each day. FORWARD STOCK merchandise carried in the selling areas of aretail store, bui not accessible to the patrons. Examples are perfume, jew¬ elry, and cameras, which are kept in pnUccled showcases. FOR YOUR INFORMATION (FYI) In general: prefix to amemorandum that indicates that no action is required on the contents.

Finance: prefi.x to asecurity price quote by amarket maker that indi¬ cates the quote is not afirm offer to trade at that price. FOUL BILL OF LADING bill of lading staling that goods were dam¬ aged or shipped short.

401(K) PLAN plan that allows an employee to contribute pretax earnings to acompany pool, which is invested in .stocks, bonds, or money mar¬ ket instruments; also known as asalary reduction plan. The contri¬

butions as well as earnings on them are only taxed when withdrawn, Annual contributions are limited to $16,500 in 2011 .indexed for infla¬

tion. plus up to $5,500 in 2011 as the annual catch-lt contribution for qualified persons. F'OL'R Ps four marketing ingredienLs: pmJm l. price, place, and promolion. Abusinessperson must decide what product or service to pro¬ duce. the price to charge, how products are to be distributed to the

marketplace, and methods to use for promoting the product or sendee. See aho marketing mix.

FOURTH MARKET direct trading of Itirgc blocks of .securities between institutional investors to save brokerage commissions.

FRACTIONAL INTEREST ownership of some but not all of the rights in REAL estate. Examples are EASEMENT, hunting rights, and lease¬ h o l d .

N .

291

F R A U D U L E N T M I S R E P R E S E N TAT I O N

FRACTIONAI, RESERVE BANKING aregulation in the banking industry whereby banks (and nihor similar institutions) keep resers’es ihiU arc less than their total dcptisits. FRACTIONAL SHARE unit of stock less than one full share. For

example, if ashareholder owns 50 shares and the company declares a 5% .S'TOCK DiviDfiNU, the owner gets 2.5 shares as adividend. The stockholder may round the fraction up by purchasing the necessary part of ashare or receive cash for the fractional share.

FRACJMKNTATION asituation where many files are broken up into small fragments scattered over the surface of ahard disk- Acomputer can keep track of where the pieces arc. but finding and linking them slows its operations. Most operating systems have utilities to defragmem drives when they become tiM> fragmented. Fragmentation occurs over time as files are erased and ptsrtions of new files are tucked into the resulting empty spots. Also refers to the effect of the multiplicity of securities market makers due to electronic trading systems. FRANCHISE I .

license granted by acompany (the franchisor) to an individual or

firm (the franchisee) to operate aretail, food, or drug outlet where the franchisee agrees to use the franchisor’s name; products; ser¬

vices; promotions: selling, distribution, and display methods; and other company support. McDonald’s, Midas, and Holiday Inn are all examples of franchise nperatiuns. 2.

right to market acompany’s goods or services in aspecific terri¬ tory, which right has been granted by the company to an individual, group of individuals, marketing group, retailer, or wholesaler.

3. specific territory or outlet involved in such aright. 4. right of an advertiser to exercise an option to sponsor atelevision or radio show, as well as the granting of such aright by the broad¬ cast medium (as ”lo exercise afranchise” or“to grant afranchisc"). S. right granted by alocal or state government to acable television operator to offer cable television service in acommunity. FRANCIU.se tax state tax. usually regressive, that is, the mtc decreases as the tax base increases, imposed on astate-chanered cor¬

poration for the right to do business under its corporate name. ER,\NK exemption of certain mail from postage charges, often provided for members of Congress. FRAUD intentional deception resulting in injury to another. Fraud usu¬ ally consists of amisrepresentation, concealment, or nondisclosure of amaterial fact, or at least misleading conduct, devices, or contriv ance.

FRAUD AND FLIPPING illegal practice of purchase atid immediate resale, often to defraud an innocent lender. See also flipping. F R A U D U L E . N T M I S R E P R E S E N TAT I O N d i s h o n e s t s t a t e m e n t t o

induce an insurance company to write coverage on an applicant. If the

FREDDIE MAC

292

company knew ihe truth it would not accept the applicant. Fraudulent misrepresentation gives aproperty and casualty company grounds to terminate apolicy at any time. FREDDIE MAC .vce HiDHRAL home loan mortgao- corporation.

FREE ALONGSIDE SHIP (FAS) seller accepts responsibility for the shipment; for example, from factory to pier. The buyer assumes risk and expenses from there.

FREE AND CLEAR unencumbered. In property law. title is/ree cmil clear if it is not encumbered by any liens or restrictions. One conveys land free and clear if he transfers agood title or marketable titi.i;.

FREE AND OPEN MARKET market in which price is determined by

Ihe free, unregulated inlerehangc of supply and demand. The opposite is aconlmlU’cl market, where supply, demand, and price are artificially set. FREE CASH FLOW the amount of cash acompany has after expenses, debt serviee, eapital expenditures, and dividends. Free cash flow, which is measured at least annually, suggests the financial comfort

level of the company as agoing concern. The higher the free cash How, the stronger the company's value. See f.bitda. FREEDOM OF INFORMATION ACT (FOIA) federal law requiring

that, with specified exemptions, documents and materials generated or held by federal agencies be made available to the public and estab¬ lishing guidelines for their disclosure. Exemptions include issues relating to national .security. FREE ENTERPRISE conduct of business without direct government interference; conducting business primarily according to the laws of

supply and demand; risking capital for the purpose of making aprofit. FUEE GOODS things that arc valued but are readily available naturally

to satisfy demand without the need for rationing. Consequently, they have no market price. An example is sunshine, freely available to all who can access the outdoors. Contrasi with economic goods. FREEHOI-I) (ESTATE) estate in KEEor alife estate; an estate or inter¬

est in real properly for life or of uncertain duration. FREE LUNCH expression meaning something good available at no

cost. The full expression is "there's no such thing as afree lunch." FREE MARKET market in which there is little or no control or inter¬

ference by governmcnl or by any other powerful economic force or entity, such as amonopoly, cartel, or collgsive ougopoly.

FREE ON BOARD (FOB) iransportation term meaning that tlie invoice price includes delivery ai the seller's expense to aspecified point and no further. For example, "FOB our Newark warehouse" means that the buyer must pay all shipping and other chaiges associated with trans¬

porting the meivhandise from Ihe seller's warehouse in Newark to the

293

FREQUENCY

buyer’s receiving point. Title normally passes from seller to buyer at the FOB point by way of ariixofladim:. See n/spmi-E alosgsidu siiii'.

FREK l*ORT port where no duties arc imposed on ships that load or unload.

FREE-RKIN LEADERSHIP indirect supervision of subordinates, form of management supervision that allows others to function on their own

witiunn extensive direct su[iervision. People arc allowed to prove themselves ba.scd upon accomplishments rather than meeting specific supervisory criteria.

FREI'i RIDERS team members in an organization who benefit from but do not contribute adequately to the group's efforts bceause there arc no individual responsibility requirements imposed.

F'HEE TRADE international trade of gnul I'unclions such us marketing, finance, aiul person¬

nel .This type of orgiini/tition has ehiiraeieristics of both line and staff fuiicliuns.

FUND an amount of money that may be available either for general uses or purposes or that may be dedicated to aspecific use or purpose; to pay such an amount. See t-AMim' oh hvnds; HJNdisg; cuneral fund; iiiiDCE fund; indi-x fund; muti'al fund.

FUND ACCOUNTING system used by nonprofit organizations, paniculiirly governments. Since there is no profit motive, aiTOKnuihiliiy is

measured instead of profitability. The main purpose is stewardship of financial resources received and expended in compliance with legal

requirements. Financial reporting is directed at the public rather than investors.

FUNDAMENTAI. ANALYSIS analysis of the balance siibivT. incomf. STatf.mhm. and other basic economic and managerial data of compa¬ nies in order to evaluate their future stock price movements. In con¬ trast, TECHNICAL ANAi.YSis concewratcs on market factors like price and volume movements of stocks. FUNDED DEBT

I. debt that is due after one year and is formalized by the issuing of bonds or long-term notes. 2. bond issue who.se retirement is provided for by asinking fund.

FUNDED PENSION PLAN plan in which funds are eurrenily allocated to purchase retirement benefits. An employee is thus assured of receiv¬ ing retirement payments even if the employer is no longer in business at the lime the employee retires. FUNDED RETIREMENT PLAN see FUNDED pension pi.an. F U N D FA M I LY s e c f a m i l y o f i u ' n u s . F U N D I N G

1. refinancing adebt on or before its maturity. 2. pulling money into investments or another type of reserve fund to provide for future pension or welfare plans.

3. in corporate finance, the word fimding is preferred to financing when referring to bonds in contrast to stock. 4. providing funds to finance aproject, such as aresearch study. FUND OF FUNDS mutual fund that invests in other mutual funds. The

concept behind such funds is that they are able to move money between the best funds in the industry and thereby increase shareliolders' returns with more diversification than is offered by asingle fund.

FUND RAISING effort to .solicit contributions from individuals oroiga-

nizations for nonprofit organizations having educational, medical,

FUNDS FROM OPERATIONS (FFO)

298

religious, political, cliariiable, or other staled purposes. The most com¬ mon techniques of fund raising are omitcr mail advertising and tele¬ m a r k e t i n g .

FUNDS FROM OPERATIONS (FFO) ameasure of the profitability of aREAL ESTATE INVESTMENT TRUST (REIT). FFO begins with net income

as derived using generally accepted accounting principles (gaap). To ihai it adds depreciation deductions and deductions for amortiza¬

tion of deferred charges, which are noncash deduction.s. FFO does not consider extraordinary items and gains (losses) on the sale of real estate.

FUND SWITCHING moving money from one mutual fund to another within the same fund family. Purchases and sales of funds may be made to time the ups and downs of the stock and bond markets because investors’ financial needs have changed. o

r

FUNGIBLES bearer instruments, securities, or goods that are equiva¬

lent. substitutable, and interchangeable. Commodities such as soy¬ beans or wheat, common shares of the .same company, and dollar bills are examples oifungibles.

FURI..OUGH permission to take aleave of absence from an organiza¬ tion for aspecified period of time. Atraining/nr/oug/i is an example in which an employee is granted permission.

FURNITURE, FIXTURES, AND EQUIPMENT (FF&E) aterm fre¬

quently found in the ownership of ahotel or motel. This type of prop¬ erty wears out much more rapidly than other cotnponents of ahotel

o

r

motel, so an owner or prospective buyer needs to establish the condi¬

tion, cost, and frequency of replacement of FF&E. FI J T. A j ' e e h e d e r a i . u n e m p l o y m e n t t a x a c t.

FUTURE INTEREST interest in presently existing real property or per¬ sonal property, or in agift or trust, that will commence in use. posses¬

sion. or enjoyment in the future. Alegatee to receive an annual income

upon reaching the age of 21 has afuture interest that, when that age is reached, will ripen into apresent interest.

FUTURES CONTRACT agreement to buy or sell aspecific amount of acommodity OTfiiuindal insrrumenl at aparticular price on astipu¬ lated future date. Afutures contract obligates the buyer to purchase the underlying commodity and the seller to sell it, unless the contract is sold to another before settlement date. This contrasts with omoNS

trading, in which the option buyer may choose whether or not to exer¬ cise the option by the exercise date. See aha forward contract.

FUTURES MARKK’l’ commodity exchange where futures (Xintracts are traded.

FUTURES OPTION omoN on afutures contract.

V

299

F Y l

I'LlTURKS TRANSAC'ITON

I

i

e

d

o

h

.

FUTURK WORT H(OR VALUE) OF ONE same as cx)mpound A M O L - y r o K O s e .

FUTURE WORTH (OR VAl.UE) OF ONE PER PERIOD COMPOUND

AMOUNT

OH

ONI:

i'KR

same

as

PERIOD.

FUZZY I.OGIC in compuier AKnnaAi.i.sTi-LUGENCK, asystem ofeoitipuler insmjctions enabling the computer to deal with ambiguities. The instructions are not restricted to ‘‘either/or” choices. Fuzzv logic entu-

latcs the way humans think, so its decisions appear to he more natural. I'YI see HOR your ini'ormaiion.

V

G A A P

300

G GAAP see

genkrally

accepted

accountwg

i-rinciples.

(JAIN increase in value, measured by the dill'erence between the ADJUSTED TAX BASIS and the selling price. See

I N S TA L L

3 6 0

property conditions, such as wood-destroying insects or structurai soundness; and legal review of documents such as l.liASES or mortOAOES to determine whether they are as purported. There are also cus¬ toms inspections for imports and quality control inspections. INS’I'ALI, load and configure apiece of software on acomputer. INSTAU-MENT

In general: anything given or received as part of aseries of steps. See also REVOLVtNG CREDIT.

Finance: part of the same debt, payable in one of successive periods as agreed; payment made to reduce amortgage or other debt. INSTALI-MENT CONTRACT contract in which the obligation of one or

more of the parties, such as an obligation to pay money, deliver goods, or render services, is divided into aseries of successive performances. I N S TA I . L M E N T L A N D S A L E S C O N T R A C T s e e l a n d c o n t r a c t . I N v S TA L l . M E N T S A L E

In general: sale made with the agreement that the purchased goods or services will be paid for in fractional amounts over aspecified period of lime.

Real e.state: when aseller accepts amortgage for part of asale, the tax

on the gain from the sale is paid as the mortgage principal is collected. See also contract price; cro.s.s I’kopit ratio; imputed interest.

INSTALLMENT TO AMORT IZE ONE DOLLAR amathematically computed factor derived from compound interest functions that

offers the level periodic payment required to retire a$Iloan within a certain time frame. The periodic installment rate must exceed the peri¬ odic interest rale. See also AMORnzATiON; amortizat:on schedule. IN.STITUTIONAL ADVERTISING form nf image advertising

intended to change the public perception of acompany in relationship

to an issue such as the envimnincni, health, product safely, or some public is.suc. It is aji attempt to create apositive public awareness of a company and distinguish it from competitors. INSTITUTIONAL INVE.STOR organization that trades large volumes of securities. Some examples are mutual funds, banks, insurance com¬

panies. pension funds, labor union funds, corporate profit-sharing plans, and college endowment funds. INS1TTUTIONAL LENDER financial intermediary who invests in ioims and other securities on behalf of depo.sitors or customers. Lending and investment activities are regulated by law.s to limit risk.

Institutional lenders are aprime source of bond purchases and real estate loans. Many organizations, such as saving.S and loan associa¬

tions and COMMERCIAL BANKS, originate loans directly; others, such as insurance companies, arc active in the secondary market. INSTRUMENT

In general: tool to perform atask or ameasurement.

361

INSURANCEAGENT

l.a»: legal diKumeni ihat records an acl or agreomonl and provides the evidence of that acl or iigreement. Instruments include contracts, notes, and leases.

INSTRUMENTALITY' federal agency whose obligations, while not

direct obligations of the U.S. government, are spon.sored or guaranteed by the government and backed by the i-ui.L faitii and credit of the government. Well over 100 serie.s of notes, cerfiricates, and bonds have been issued by such instmmentalities a.s Pcdcral Intermediate Credit Banks. Federal Land Banks, Federal Home Loan Bank Board,

and Student Loan Marketing Association. INSUR/YBILITY circumstance in which an insurance company can issue life or health in.surance to ati applicant ba.scd on standards set by the company.

INSURABLE INTEREST relationship with aperson or thing that .sup¬ ports issuance of an insurance policy. Aperson having an inmruble interest can derive financial advantage from preservation of the sub¬ ject matter insured or sulTcr loss froin its destruction. An insurable interest in the life of another requires that the continued life of the insured be of real interest to the insuring party. Tlic connection may be financial (as when acrediwh insures the life of his debtor), or it may consist of familial or other ties of affeciion.

INSURABI.E RISK risk situation meeting an insurance company‘.s stan¬ dards in that it: (1) is measurable; (2) is accidental; (.3) meets astandard

classification; and (4) lias apremium proportional to apossible loss. INSURABLE TITLE tiilk that can be insured by atitle insurance

company. In some contracts for the sale of real estate the buyer must receive insurable title or he is not obligated to purchase the property. See 4ll.u> MARKIiTABLE Tli I.E.

INSURABI.E VALUE the cost of total replacement of destructible

improvements to aproperty; may be based on replacement cost rather than market value.

INSURANCE system whereby individuals and companies concerned

about potential hazards pay premiums to an insurance company, which reimburses (in whole or p;irt) them in the event of loss. The insurer profits by investing the premiums it receives. Some common forms of insurance cover business risks, automobiles, homes, boats, worker's

compensation, and health. Life insunmee guarantees payment to the beneficiaries when the insured person dies. In abroad economic sense,

insurance Iransfers risk from individuals to alarger group, which is better able to pay for losses. INSURANCE AGENT representative of an insurance company who

sells the firm's policies, independent agents sell the policies of many companies. Agents must be licensed to sell insurance in the states where they solicit customers.

INSURANCE

BROKER

362

(NSURANCE BROKER independent broker who sciirthes for the best insurance coverage at the lowest cost for the client, hisitrance brokers

do not work for insurance companies but for the buyers of insurance products. They are constantly comparing the merits of competing insurance policies to find the best policy for their customers. INSURANCE, BUSINESS see businfssowners poi.icy (bop); open form;

owners

and

contractors

protective

l i a b i l i t y.

INSURANCE) CLAIM rcijuest for payment from an insurance c:omPANY by the insured. I-or example, ahomeowner files aclaim after suffering damage from afire, theft, or other loss. Survivors submit a life insurance claim when the insured dies.

INSURANCE COMPANY (INSURER) organization that underwrites

insurance policies. Tlicre are two principal types of insurance compa¬ nies; MUTUAL and stock. Amutual company is owned by il.s policy¬ owners, who elect aboard of directors that is responsible for its operation. Aslock company is owned by its stockholders. In amutual

company, profits lake the fotm of policy dividends, or refunds of p;u1 of premium.s paid, which are distributed to policyowners. Profits in a Slock company take the form of stockholders’ dividends, which are distributed to stockholders.

INSURANCE CONTRACT legally binding unilateral agreement between an insured and an insurance company. In exchange for pre¬ mium payment(s) the company covers stipulated perils.

INSURANCE COVERAGE) total amount and type of insurance carried. See also business interruption lnsurance; kire insurance; hazard in.surance; UAmLirv insurance.

INSURANCE) DIVIDE)N1) money paid, usually once ayear, to cash value liie insurance policyholders with participating policies. Dividend rales are based on the insurance company’s mortality expe¬ rience, admini.strativeexpenses, and invcslmem returns. Policyholders may choose to lake these dividends in cash or may purchase additional life insurance. INSURANCE LIMIT see annual agcreoate limit,

INSURANCE POLICY insurance contract specifying what ri.sks are insured ami what premium.s must be paid to keep the policy in force. The policy is the written document that both insured and insurance COMPANY refer to in determining whether or not aclaim is covered.

INSURANCE) PREMIUMS amounts paid to an insurance company to cover potential hazard.s. Most insurance premiums are tax deductible to abusiness, except life insurance premiums when the company is the beneficiary. Most insurance premiums are not deductible by an indi¬ vidual, except that medical insurance premiums may be considered an itemized medical expense or self-employed individuals may deduct aportion.

363

INSURING AGREEMENT

INSURANCE, E*ROPERT\’ CO\ ER/VGK coverage for direci or indi¬ rect property lu&s. which can be anuly/cd under the following headings: I. Hcrit—a particular peril may be included or excluded. 2. /Vnpmv—a policy may cover only specified or sc/icdu/erf property such as an automobile.

3. Person—\ht person covered mu.sl bo specifically identified as lire named insured in apolicy. 4. /Jmv/f/oii —policies arc usually written for one year; apcrsonttl automobile policy is usually for six months. 5. /jmtts—limits are .stated as aface amount in apolicy. 6. Localioii—a policy may cover perils that strike only the premises

of the insured, or it may provide off-premises coverage subject to a geographic restriction. 7. Wacord—the exclusions and suspension section states that if the insured increases acovered hazard (for example, if the instircd

slitrts processing explosives at home), the company can suspend or exclude the coverage, 8. />xv,v—insurance contracts cover cither direct or indirect (eriodieal.

Accounting: book, typically to record accounting transactions as they o c c u r. S e c a l s o g e n e r a l j o u r n a l ; s a i . i c s j o u r n a i . ; l e d g e r.

JOURNAL E'NTRY recording of atransaction in an accounting journal, such as the general journal. The journal entry has equal debit and

credit amounts, and it usually includes aone-sentence explanation of the purpose of the transaction. JOURNALIZE in accounting, to enter into ajournal, such as the ai-NERAt.

journal.

JOURNAL VOUCHER piece of paper explaining the need for and lead¬ ing to ajournal entry.

JOURNEYMAN skilled tradesperson who has completed aprescribed apprenticeship in aparticular craft. The status of journeyman indicates

dialanindividualhasmasteredallthespecificskillsof(hecraft.

JOYSTICK

384

JOYSTICK computer input device, especially helpful when playing computer games. It consists of ahandle that can be pointed in differ¬ ent directions. Because Ihe computer can sense which direction the joystick is pointed, it can be used to control the movements of objects displayed on the computer screen.

JPEG file format developed by the Joint Photographic Experts Group for storing bitmap images, including lossy compression (i.e., afile can be compressed to avery .small size if some blurring of detail is toler¬ able). JPEG file format is often used for high-quality photographic

images. Filenames usually end in .jpeg or jpg. JUDGMENT

1. determination of acourt of competent jurisdiction upon matters submitted to it.

2. payment for private property taken for public use. 3. use of one’s understanding and intuition to resolve aproblem. JUDGMENT CREDITOR creditor who has obtained against adebtor a JlJtxiMtiNT through which the creditor can obtain the sum due him. The effect of becoming ajudgment creditor is to create against other cred¬

itors (I certain priority right to have the debt satisfied out of the debtor's assets, and to extend Ihe life of the claim undci- the statutr O H L I M I TA ' I I O N S .

JUDGMENT DEBTOR person against whom there is alegal judcmem'

for repayment of adebt. The effect of becoming ajudgment debtor is that Ihc debtor’s property may be subject to creditors' claims.

JUDGMENT LIEN claim upon the properly of adebtor resulting from aJDiJOMtiNT. For example, Abel won’t pay his debt to Baker. After establishing the debt in court, Baker may be allowed by the court to put ajudgment lien on Abel's real estate. Baker becomes the judg¬ ment CREDITOR, while Abel is the judgment debtor.

JUDGMENT PROOF people from whom acreditor cannot collect money, even when there is acourt order staling there is adebt. Such people may be insolvent or their wages or assets protected by stale law. JUDGMENT SAMPLE determination by an auditor, based on personal

experience and familiarity with the elienl. of the number of items, as well as the particular items, to be examined in apopulation. This func¬ tion allows the accountant to maintain objectivity and thoroughness in

testing the sampled items for accuracy. JUDICIAL FORECLOSURE or JUDICIAL SALF- having adefaulted debtor’s property sold where Ihe court ratifies the price paid. For

example, XYZ Mortgage Company is owed $50,(X1() on afirst mort¬ gage by Mr. Baker. At juilk ial foreclosure. XYZ Mortgage Company bids $30JX)0 for the properly, which is more than anyone else bids.

They then claim the property anti are awarded a$20,(100 dehciency JUDGMENT against Mr. Baker.

385

JURISDICTION

J U M B O C E R T I F I C A T K O F D E P O S I T c c r t i fi c a i e w i t h a i n i n i n u i m

donomination of Sl(K).(X)0. Jumbo CDs arc usually bought and sold by large inslituliuns such as banks, pension funds, money market funds, and insunmee compiuiies and generally carry ahigher interest rate than smaller-denotninaiion CDs.

JUMBO MORTGAGE aloan for an amount exceeding the statutory limit placed on the size of loans that nifc mac and fannje mai; can

purcha.se. Such lotins must be maintained in the lender's portfolio or sold to private investors rather than Fannie or Freddie. These loans are

often sought for purchase of luxury homes. See aim nonconi'orming t.OAN.

JUNIOR ISSUE issue of debt or equity that is subordinate in claiin to another issue in terms of dividends, interest, principal, or security in the event of liquidation. See also junior si-cURnr.

JUNIOR LIEN UEN that will be paid after earlier liens have been paid. Sea also junior MORttlAGE; SUBORDINATtON.

JUNIOR MORTGAGE mortgage whose claim again.st the pro)>crty will be satisfied only after prior mortgage.s htivc been repaid. See also . S I X ' O N I ) M O R T O A G K ; W R A PA R O U N D M O R T G A t i h .

JUNIOR PARTNER partner in afirm who is limited as to both profits and management panieipalion.

JUNIOR SECURITY security with lower priority claim on assets and income than asenior security. For example, apreferred ,st(K'k is junior to adehenturi;, but adebenture, being an unsecured bond, is Junior to aMORTGAtili iiond; com.mon sixx'k is junior to all conionile securities.

,IUNK BOND bond with aspeculative credit rating of BB or lower by Standard &Poor's aitd Moody’s rating systems. Junk bonds are issued in LES'ERAGED BUYOi."rs and other TAKEOSTiRs. by companies without long track records of sales and earnings, or by those with questionable credit strength.

,IUNK FAX unsolicited pax messages often distributed by mass mar¬ keters. Junk fax messages can be anuisance since they occupy the machine when other messages may be pending, use fax paper, and cait be confused with other fax messages. See also lACStMlLK trans.mi.ssion. JUNK MAIL unsolicited mail often distributed by ma.ss marketers. This mail usually is sent third class mail to reduce mailing co.sl. Junk mail can be anuisance in that it creates waste, can bo confused with higher-

priority mail, and i.s time-consuming to sort through. JURISDICTION power, right, or authority to interpret and apply lax laws or decisions. For example, the U.S. Court of Appeals has exclu¬ sive juri.sdiciion to review decisions of the U.S. tax court and the

JURISPRUDENCE

386

U.S. Disiricc Courts, and the U.S. Court of Appeals of the Federal

Circuit has jurisdiction over decisions from the U.S- Court of Federal Claims, .JURISPRUDENCE

I. science of law. It includes the srady of the structure of legal systems, such as EQUITY, and of the principles underlying those systems. 2. collective term denoting the course of judicial decision. 3. sometimes asynonym for law.

JURY group composed of the peers of the parties or across section of the community, summoned and sworn to decide on the facts in issue at atrial.

JUST COMPENSATION full indemnity for the loss or damage sus¬ tained by the owner of property taken under the power of emcnekt DOMAIN. The measure generally used is the fair market value of the

property at the time of taking. JUSTIFIABLE

1. facts that will excuse the doing of something or another party's acts. If the seller of acar fails to make delivery of it, the buyer's

failure to pay will be juslifiahle. 2. some act that is otherwise criminal. For example, the courts would

probably regard it justifiable should ashopkeeper kill an attacker armed with adeadly weapon, and the shopkeeper may be excused

from crimmal responsibility. JUSTIFICATION text alignment in which both left and right edges arc smooth, achieved by varying the space between words (and sometimes between characters) to make the lines of equal length. JUSTIFIED PRICE fair market price an informed buyer will pay for an asset, whether it be astock, abond, acommodity, or real estate. See a l s o FA I R . M A R K E T VA L U E .

JUST-IN-TIME INVENTORY’ CONTROL (JIT) method of close

coordination with suppliers maximizing the relationship between pro¬ duction and sales levels with inventory, reducing carrying costs. Often JIT is linked with acomputerized point-of-sale system and inventory levels arc maintained through an automated reordering system con¬ nected to suppliers, so that stockouts are minimized.

387

KICKBACK

K KANGAROO BONDS bonds denominated in Australian dollars and

sold in Australia by foreign firms, KB see kilobyte.

KEl.O VS. CITY OF NEW LONDON see new ijdndon, coNNECncur. DECISION-

KEOGH PLAN also known as H.R. 10 Plan for self-employed individ¬ uals. See aho 401(k) plan; Simft.i; ira; si-MPLIRed e.mployee pension Pt.AN.

KE^'-AREA EVALUATION evaluation of management in eight key areas. Management theorist Peter Drueker suggests that an organiza¬ tion needs to have result-oriented objectives in at least eight key areas: market standing, productivity, pmfitabilily. physical and financial resources, innovation, manager pciformance and development, worker perfoniiancc and attitudes, and public and social responsibility. KEYBOARD the primary computer input device used to input alphanu¬ meric data.

KEY CURRENCIES major currencies in the global economy. Key cur¬ rencies include the U.S. dollar, the euro, the British pound sterling, the Swiss franc, the Japanese yen. and the Canadian dollar.

KEYNESIAN ECONOMICS body of economic thought originated hy the British economist and government adviser, John Maynard Keynes (1883-1946). He held essentially that insufficient demand causes unemployment and that excessive demand results in inflation; govern¬ ment should therefore manipul.ite the level of aggregate demand by adjusting levels of govemmeni expenditure and taxation. For example, to avoid deprc.ssion Keyne.s advocated increased government spending and EASY MONEY, resulting in more investment, higher employment, and increased consumer spending. K E Y P E R S O N L I F E A N D H E A LT H I N S U R A N C E s e e B U S I N E . S S L I F E A N D H E A LT H I N S U R A N C E ; L I F E A N D H E A LT H I N . S U R A N C E , B U S I N E S S EXIVSttBELS.

KEYPUNCH type of data entry that involves punching holes into 80column computer cards in acode (Hollerith) that can be machine read

by acomputer. Keypunch has been replaeed by electronic keyboard technology. See punched Card. KICKBACK

Finance: practice whereby sales finance companies reward dealers who discount installment purchase paper through them with cash payments.

V

388

KICKER

Go'crnment and private contracts: payment made secretly by a

seller to someone instnimental in awaiting acontract or making a sale—an illegal payoff.

Labor relations: illegal practice whereby employers require the return of :i portion of wages eslablished by law or union contract, in exchange for employment. KICKKR added feature of adebt obligation, usually designed to

enhance marketability by offering the prospect of equity participation. For instance, abond may be convertible to slock. Other examples are

rights and warrants. Some mortgage loans also include kickers in the form of ownership participation or in the form of apercentage of gross rental receipts. Kickers are also called sweeieners. KIDDIK TAX tax liability for children under age 14 on net unearned

income (for example, interest and dividend income) over $1,900 in 2010 (subject to indexing) at their custodial parents’ highest marginal lax rale.

KILLING significant reward for an elTorl of investment; for example, lo make akilling in the stock market. Also to stop an undertaking, such as killing aproject.

KILOHYTE (K or KB) in computers, approximately l,0(K) (2'^, or 1,024) BYTES of intbrmation.

KINDLE portable reading device introduced by Amazon in 2007. The LCD screen resembles paper and is not backlit. Books and periodicals can be downloaded to the Kincllc wirelessly, and the device can store an entire library of books, making it especially convenient for frequent

travelers. One advantage is the ability to search for specific text in a book. The Nook, available from Barnes &Noble, is one of several competitors. KIOSK an independent stand from which merchandise is sold, often

placed in the common area of aregional shopping center. K I T I N G

Banking: (I) depositing and drawing checks between accounts :il two or more banks and thereby taking advantage of the float; (2) fraudu¬

lently altering the figures on acheck to increase its face value. See CHECK

KITING.

Securities: driving stock prices to high levels through manipulative

trading methods, such as the creation of artificial trading activity by the buyer and the seller working together and using the .same funds.

KNEE-JERK automatic, involuntary; areference to the involuntary coniraclion of the leg when the knee is lapped with adoctor's mallet.

Aknee-jerk reticiion is arespon.se without thought, conditioned by one's prevailing philosophy, such as "knee-jerk liberalism."

389

KUDOS

KNIGHTS OF LAllOR originally afralcmal order of tailors, estab¬ lished in Philadelphia in approximately 1869 by Uriah Smith Stevens. The Noble Order of the Knights of Labor ijuiekty grew to anational union having, in the mid-l880s. more than 700,000 members from

every occupation, riio Knights of Labor collapsed in 1893 after a national public reaction against labor agitators. KNOCK-OFF alow-priced imitation of anamc-hrand product.

KNOW-HOW ability to perform aparticular function; knowing hovs’ to do something. For example, one has the know-how to fly an airplane. KNOWLEDGE-BASICI) PAY coinpeiisalion predicated upon an employee’s level of skill and educational attainment. Knowlcdgebased pay can be an incentive for employees to acquire additional training and education, thus upgrading overall work force skills.

KNOWLEDGE MANAGEMENT orderly retention and analysis of data for trends and other useful insights.

KNOW-YOUR-CUSTOMER RULE ethical concept in the socurilies industry holding that when recommending afinancial transaction a broker should have reasonable grounds for believing the recommen¬ dation suits the eu.stomer’s financial .situation and needs. Customers

opening accounts at brokerage firms must supply financial informa¬ tion that satisfies the know-your-cuslomer requirement for routine purposes.

KONDRATIEFF CYCLE or KONDRAI’IEKF WAVE ilieory of the Soviet economist Nikolai Koiidraiieff. in the 1920s. that the

economics of the Western capitalist world are prone to major U|>-aiiddown "supereycle.s" lasting 50 to 60 years. K-l see .SCHEDl'Lt: K-1.

KRUGERRAND gold bullion coin minted by the Republic of South Africa and containing one troy ounce of gold. The Krugemiml is afre¬ quently traded gold coin. KUDOS recognition given by an entity for achievements. Credit can be

given in various forms, such as abonus, medal, or trophy.

V

390

LABELING LAWS

L LABELING LAWS federal and stale statutes that requite safe packag¬

ing and warning labels on hazardous materials, .such as poisons and

other dangerou.s substances; also called packaging laws. LABOR

I. to exert the effort necessary to accomplish aparticular work-related function.

2. physical or mental work performed for remuneration.

3. group or class of people who work for others performing particular jobs in organizations. LABOR AGREEMENT accommodation reached between management

and labor over the terms of employment. In labor relations, labor

agreements result in alabor contract establishing the terms and condi¬ tions of the work environment.

LABOR DISPUTE controversy between management and labor over the terms and conditions of the workplace. Labor disputes can include

any aspect of the work environment, including working conditions, wages, job descriptions, and fringe benefits. L,\BOR FEDERATION overall umbrella labor organization having

many affiliated local labor unions and providing extensive support ser¬ vices. The national AFL-CIO is acentral trade union federation in the

United Stales having numerous affiliates. LABOR FORCE number of people over 16 years of age who are employed or seeking employment, as calculated by iheU.S. Bureau of Labor Statistics. By the end of 2010, there were approximately 153.7 million men and women in the U.S. civilian labor force, of whom

approximately 9.4% were unemployed. LABOR FORCE PARTICIPATION R.ATE the labor force as aper¬

centage of the population over 16 years of age. LABOR-INTENSIVE activity in which labor costs are more important than capital costs. Deep-shaft coal mining and computer programming arc labor-intensive.

LABOR-MANAGEMENT RELATIONS ACT the TAFT-HARn.LY act of 1947. which amended the WAONER ACT of 1935.The law's provisions; (11 outlawed the Ci.OSED siioi’; (2) instiiiiied an 80-day cooling-off

period for strikes threatening the national health or safety; (3) prohibited unions from using union money for national elections; (4) allowed suits for BREACH OF co.sTRACT against unions; and (5) defined unfair labor PRACTICES of unions.

LABOR-MANAGEMENT REPORTING AND DISCLOSURE ACT (LMRDA) OF 1959 .see LANDKUM-GRiFFtN AO'.

391

L A I S S E Z - FA I R E L E A D E R S H I P

LABOR MOBILITY ahiliiy of workers to change cmploymeni easily. Highly mobile workers are found in occupaiions that are in great

demand.

LABOR PIRACY act of altracling workers away from aflnn through inducements.LaborpiracyoftentKcursasanotherfirmmakesextremely

aiiracliveemploymentofterstoemployeeswhoareingreatdemand.

LABOR POOL source of iraincHl personnel from which prospcctis ework¬ ers iirc recruited. For example, college graduates from business schools represent an attractive labor pool for recruiting management trainees.

LABOR THEORY OF VALUE an effort to define the true value of a

gtxid according to the amount of labor required to produce it. Atenet

of Marxist economics, the theory disregards any [xtsitivc contribution of capital to the production process.

L,\BOR UNION association of workers for the purpose, in whole or in part, of bargaining, on behalf of workers, with employers about the terms and conditions of employment.

LACHES doctrine providing aparty adefense when long-neglected rights are sought to be enforced against him. Laches signifies an undue lap.se of lime in enforcing aright of action, and negligence in failing to iicl more promptly,

LADDERING purchasing bonds that mature at various intervals. This

provides the investor with greater regularity of income and provide.s some protection from interest rale fluctuations. See also staggeri.sg M AT U R i n E S .

LADING in transportation, cargo that is shipped. LAFFER CURVE curve, named for U.S. economist Arthur Laffer, that relates maiginal tax rates to total tax revenue. At first, increases in the marginal lax rate raise total lax revenue, hut eventually, atax rate is reached beyond which total tax revenues decrease. See Figure 5. LAGGING INDICATOR.S iX'OSOMiC indicatur.s that change after a change in the economy has occurred. Lagging iiuliciiiors are obseA'ed as ameans of confirming trends. See also coisciDtsT indicator.^; U-ADlNCi

I N D I C ATO R S .

LAISSEZ-FAIRE doctrine that interference of government in business and economic affairs should be minimal. Adam Smith's The Wealth of Nations (1776) described laissez-faire economics in terms of an invi.s-

im.i; HAND that would provide for the maximum good for all. if busi¬ nessmen were free to pursue profitable opponunitics as they saw them.

LAISSEZ-FAIRE LEADERSHIJ’ unstructured leadership where a manager gives subordinates direct decision-making responsibilities. While (his is (he weakest form of management style, it is consistent with employee E.MHywfcR.sifcNT.

392

L A N

LAFFER CURVE

§ 9

$ C C K

EVELOPMENT process of improving raw land to support construction. The process may include planning, acquisition of gov¬

ernment permiis, subdivision, construction of access roads, installa¬ tion of utilities, landscaping, and drainage. See also development. LAND LEASE see ground lease. LANDLOCKED

I. condition of alot that has no access to apublic thoroughfare except

through an adjacent lot. Sec also ingress and egress. 2. country with no access to the sea.

393

LANHAM ACT

I.ANDLORD one who rents property to iinothcr. a/e.t.tor. Aproperty owner who surrenders the right to use property for aspecific lime in exchange for the receipt of rent. Tlie landlord retains title to the propeny. but the rights of the tenant, or k-ssee. are spelled out in ;i lease. LANDMARK

Real e.stale: fixed object serving a.s abi>undary mark for atract of land. See also monu.siknt.

I.ANDMARK DKCJSION case that .sets an imponant precedent. L,\ND OI'FICE UUSINESS booming trade; perhaps derived from the activity of U.S. government land offices established to give away land to Western settlers.

I.ANDRU.M-GRIKFIN ACT Labor-Management Reporting and Disclosure Act pa.ssed in 1959 to eliminate union corruption. The Landruni-GritTin Act contains a“bill of rights” for union members, including procedures to be followed in union elections, ability to s u e

unions, and riglii to have acopy of the coi.lective BAROAiNtNC

agree¬

ment. It also forbids hot caigo clauses and specific types of picketing. I.ANT) SALE LEASKIIACK see sale a.sd leaseb.ack.

l-ANDSCAPE paper or screen orientation (for viewing or printing) in which the hori/ontal dimension is greater titan the vertical. Compare w i t h P O R T R A I T.

LAND. TENEMENIS. AND HERIiDITAMENTS phrase used in early English law to express all sorts of real estate.

I.ANT) TRUST PRirsi agreement pertaining to real PROPt-.KTV. Under the iigrecmcnt, the property is managed by atrlstor on behalf of the B E N E H C J A R Y.

LAND-USE INTENSITY measure of the extent to which aland parcel is developed in conformity with zoning ordinances. See also density.

LAND-USE PLANNING activity, generally conducted by alocal govcnimcnt, that provides public and private land-use recommendations

consistent with community policies, his generally used to guide deci¬ sions on ZONING.

LAND-USE REGULATION government ordinances, codes, and per¬ mit requirements intended to make the private use of land and natural resources conform to policy standards. Common regulations include

building codes; curb-cut permit systems; historic preservation laws;

housing codes; subdivision regulations; Irec-cutling law.s; and zonlsg. LAND-USE SUCCESSION change in the predominant u.se of aneigh¬ borhood or area over time.

LANIIAM ACT popular name for the Federal Trade-Mark Act of 1946,

which became elTeelive in 1947; properly called the Lanham Trade-

LAPPING

394

Mark Act. The Lanham Act governs the registration of tradkmarks, trade names, and other identifying marks used in interstate commerce

and protects registered trademarks from interference or infringement. LAPPING concealing ashortage by delaying the recording of cash

receipts. For example, cash received from customer Xis withheld by the cashier, and ii subsequent ca.sh receipt from customer Yis entered a s

acredit to X's account. Customer Y’s account will not be credited

until acollection is received from customer Z. If the money taken by the cashier is not replaced, there is an overstatement in total accounts receivable. However, by carefully shifting the overstatement from one customer to another the bookkeeper averts customer complaints when the monthly statements are received. LAPSE

I. in property and casualty insurance, termination of apolicy because of failure to pay arenewal premium. 2. in life insurance, termination of apolicy because of failure to pay a

premium and lack of sufficient cash value to make apremium loan. I.APTOP(COMPUTER) see noiebook computer,

LARGE-CAP STOCK with alarge market capitalization. Large-cap stocks typically have at least $5 billion in outstanding MARKET value. Numerous MUTUAL funds specialize in large-cap stocks, and many liave the words "Large Cap" in their names.

LASER PRINTER computer printer using alaser beam that generates

an image, then transfers it to paper electrostatically. Laser-printer out¬ put may be produced very fast, with quality that approaches that of typesetting. LASH (Lighter Aboard SHip) system in which fully laden barges

(lighters) may be loaded aboard alarger vessel for transport. The host

vessel or mothership is specially designed or modified with adoor at the waterline to facilitate loading and unloading the barges. Since the LASH vessels have onboard cranes and the barges are floated away from the ship, they do not require special docks or terminals. LAST IN. FIRST OUT (UFO) amethod of inventory whereby the most recent ilem.s acquired arc considered the first ones sold. Items in inventory at the end of the year are treated as though they had been in the opening inventory, plus or minus acquisilion.s during the year as needed to make up the correct total. LIFO offers alower amount of income during aperiod of rising inventory price.s. Contrast with FIFO. I.AST SALE most recent trade in apanicular security. Not to be coafused with the final transaction in atrading session, called the closing sale.

LATE CHARGE fee charged by alender when the bonower fails to make timely payment.

V

395

L AY O F F

LATENT DEFECT defect ihai is hidden from knowledge as well as fromsightandonethatwouldnolbediscoveredevenbyihcexercise of ordinary and reasonable care. One who sells ahouse with knowl¬

edge of alaicnl defect must disclose (he defect to the buyer or the buyer may later claim misrepresentation.

LATITUDEabilitytoexercisejudgmentwithinarangeofauthoritywith¬

out outside interference. For example, asupervisor has the latimde to recommend employees for promotions based upon his judgment.

LAUNCH

I. start or load acomputer operating system or program.

2. advertise and release anew product.

LAUNDER make illegally acquired cash look as if it were acquired legally. The usual practice is to transfer the money through foreign banks, thereby concealing its source.

I.AVISH OR EXIRAVAGANT EXPENSE expen.se that is not reason¬

able based on the facts and circumstances. These arc not lax deductible.

L AW

1.legislativepronouncementofrulestoguideone'sactionsinsociety. 2. total of those rules of conduct put in force by legislative authority or court decisions, or established by local custom.

l.AWFfjL MONEY see legal tenpkr.

LAW Of DIMINISHING RETURNS "rule" of economic.s that states

that beyond acenain production level, pnxluctivity increases at a decreasing rate. See also di.minishjs'C rbi urns.

Law OF' INCRFIASING COSTS corollary of Ihc

L AW 0 1 = D t . M LV I S H I . V C

RETt;R,‘s,s. As the productivity of afactor of production decreases due

to increasing production, the cost of successive units produced must incrca.se.

LAWOFLARGENUMBERSmaihemaliculpremi.seslatingthatthe

greater the number of exposures; (I) the more accurate the prediction; (2) llie less the deviation of the actual losses from the expected losses

(X-Xapproacheszero);and(3)thegrenicrthecredibilityofthepre¬ diction (credibility approaches one). This concept forms the basis for the slaii.slical expectation of loss upon which premium rales for insur¬ ance policies arc calculated.

LAWOFSUPPLYANDDEMANDeconomicpropositionthat,inany

free market, the relationship between supply and demand determines price and the quantity produced. Achange in either will lead to changes in price and/or amount produced in order to achieve kquilibRlL'M in the market.

L.AYOFFremove,icmpsirarilyorpemianently.anemployeefromapay¬

roll because of an economic slowdown or aprtxluelion cutback, not because of poor performance or an infraction of company rules.

396

U C

L/C see LfcTTER of CREorr.

LCD /iquid rr>sial display, athin, flat, tow-power display used in note¬ book coitipuiers. pdas, calculators, watches, cameras, and similar devices.Liquidcrystalsarechemicalswhoseresponsetopolarized light can be controlled by an electric field. Apolarizing filter is built

into the LCD; through this filter, the liquid crystal compound looks

light or dark depending on its electrical stale. LCD screens may be cither color or monochrome; color screens aie usually backlit.

LDC (l,KSS-l)KVELOPED COUNTRY) aterm used to describe coun¬

tries in apoor and primitive economic condition. LEAD-BASED PAINT considered ahazardous material. It is potentially

poisonous,anditsexistenceinpropertyistobedisclosed.Itspresence

is often difficult to determine because applications of lead-based paint m a y have been covered over by more recent applications of paint that is free of lead. LEADER

I. stock or group of stocks at the forefront of iin upsurge or adown¬ turn in amarket.

2. product lhal has alarge market share. See also Los.s leader.

I.EADER PRICING reduction in the price of ahigh-demand item to get

people to come into aretail store or to encourage adirect-mail pur¬ chase that may inspire additional purchasc.s; also called loss leader

pricing.Itisbelievedthatonceadecisiontopurchaseanitemismade, the customer's resistance to purchasing additional items at full price will be lower.

LEADERSHIP upper level of management lhal provides vision and direction for the company.

LEADING INDICATORS economic statistics that often change direc¬ tion before the general economy changes. Stock market indexes considered leailing i/ulicalors. as stock indexes often decline before a r e

the economy declines and improve before the gcneml economy recov¬ ers from arecession. Leading economic indicators therefore help pre¬

dict the future economy. Contrast with coincideett tNDtCATORS. L A O O I N G I N D I C ATO R S .

LEAD TIME lag time between the placement of an order and its actual receipt. Lead lime can be reduced by implementing nJST-lN-TlME INVENIXJRV aiNTROL (JIT).

LEAKAGE loss of business lhal was expected, a-s, for example, when

guestsofahotelcatbreakfastatarestaurantacrossthestreetin.siead of in the hotel dining room or coffee shop.

LEARNING CURVE afigurative graph of mastery of askill plotted

against the time spent learning it. Software that is difficult to master is

3>»7

LEASEHOLD INSURANCE

said lo have a.ueep leiirning aine. indicating tfia( ihe effort to learn is strenuous.

I.I'.ASK contract graining use of real estate, equipment, or other fixed assets for aspecified time in e.xchange for payment, usually in the forni of rent. The owner of Ihe leased property i.s called the lessor, the

user the lessee. See al.sii capital lease; financiai. lease; operating i.Ease; sale and leaseback. See Figure 6. LEASE Lease Landlord

Te n a n t Rent

Title to

Right to

property

possess property FIGURE 6

l-EASE BONUS amount paid lo induce alessor to execute amineral lease.

LEASED FEE the landlord's ownership interest of aproperty that is

under lease. Its value is based on the anticipated income from uent, and the reversionary properly value upon lease expiration. LE,\SEHOLD estate in retil property of ai.kssee. created by a u - A s n ; generally an estate of fixed duration, but may also describe te.sa.scy AT WILL, amonih-io-month tenancy, etc. The value of aleasehold

depends on whether the rent is below market and on the length of the remaining lease term.

I.EASKHOLD COSTS costs of purchasing and maintaining alease. These costs are capiiali/.cd as part of the basis of the property. LKA.SEHOLD IMPROVEMENTS fixtures, attached lo real estate that

are generally acquired or installed by the tena.nt. Upon expiration of the liASK (he tenant can generally remove them, provided such action docs not damage the propeny or conflict wiih the lease. For example, the cabinets, light fixtures, and window treatments of aretail store in a

leased building are leasehold improvemetus. See TENANT KIXTliRi;s. LEASEHOLD INSURANCE coverage for aicmim (the lessee) with a favorable lease (enabling the lessee to rent premises for less than the rental market value). If the lease is canceled by the lessor bccau.se a

n

LEASEHOLD MORTGAGE

39S

insured peri! (such as fire) strikes, the lessee is indemnified for the loss incurred. The premise is that the lessee will have to forgo earnings derived from having an advantageous lease, and sliould be indemni¬ fied for this incurred loss,

LEASEHOLD MORTGAGE lien on ihe tenant's interest in real

estate; generally subordinate to other liens on the property. LEASEHOLD VALUE value of atenant's interest in real estate, espe¬

cially under along-term lease at below-market rental rates. LEASE WITH OPTION TO PURCHASE iJ-ASh that gives the lessee

(tenant) the right to purchase the property at an agreed-upon price under certain conditions. II alease bears characteristics similar to a

financing device, the arrangement will be treated as Financing, not a lease. An option to purchase at fair market value would appear to be alease; by contrast, an option at abargain price would indicate equity build-up through the "rent" and would be an indication of apurchase with afinancing lease.

LEAST-COST PRODUCTION RULE in economics, the principle that

maximizing profit requires that each dollar spent on each unit of input produces at least the same dollar value of output, LEAVE OF ABSENCE approved absence period from work without

loss of seniority or other job-related perquisites. Aleave of absence is often granted to employees for particular purposes, such as attending an educational program or performing aspecial research project. LEI) 1/ight-cmitting diode) electronic display that lights up when the proper current is passed ihi-ough it. LEDGER book; in accounting transactions, hook of accounts. Coninisi with JOURNAL, in which the transactions are initially reeorded. LEFT-CLICK dick the left or primary button on acomputer mouse.

LEGACY disposilion by will of personal property. See also bequest. LEGACY COST the co.st of retiree pension, health insurance, and other

benefils to an employer; employment costs that continue after an employee retires. LEGAL AGE age at which aperson can enter into binding contracts or

agree to other legal acts without the consent of another adult. In most

states the legal age. also called the age of majority, is 18 years. See MINOR.

LEGAL DESCRIPTION legally accepiabic idcnlificacion of real ESTATE by one of Ihe following; the government rectangular survey; metes and bounds; recorded plat (lot and block number).

LEGAL ENTITY person or organizadon that has the legal standing to enter into acoutracl and may be sued for failure to perform as agreed !V

399

LEGAL REPRESENTATIVE

in iht comraci,Achild under legal age is not alegal oniiiy.Acorpora¬ tion is alegal entity since it is aperson in the e\ cs of the law.

LEGALICSE the jargon of ailorneys, wliicli often seems redumianc or unclear to the layperson. LEGAL EXCHANGE INFOR.MATION SERVICE (LEXISl online database for legal research; its rcsource.s include Ihe Federal Tax library, which contains the full text of the Internal Revenue Code, well as regulations, revenue rulings, and court decisions of interest to a

s

tax pnietitioners.

LEGALEXPENSEINSURANCESprepaidlegalinsurancecoverage plan sold on agroup basis. It entitles agroup member to aschedule of bencfils. at astipulated premium, for adoptions, probates, divorces

and other legal services. This emerging employee benefit has had wide acceptance in some localities but limited acceptance elsewhere. After

scheduled bencfils have been exhausted, subsequent legal fees arc

usuallybasedontheattorney'scustomaryrate.Forexample,aprepaid

legal insurance plan may provide only three legal consultations ayear. LEGAL INVESTMENT investment pennissibic for investors with FiDuctARY responsibilities. ISVest.men-i-crade bonds, as rated by Standard &Poor's or Moody'.s. u.sually qualify as legal investments. Guidelines designed to protect invc.stors are set by the slate in which the fiduciary opcrale.s. See r lawful. LEGAL REPRESENTATIVE one who oversees the legal affairs of another person or taxpayer (e.g., executor or adminlstrator of an esiate).

LEGAL RIGHT

400

I,P;GAL RK;HT interest that the law will protect.

LEGAL-SIZE aU.S. paper size standard, 8!^ by 14 inches. LEGAL TIsNDER kind of money lawfully acceptable for payment of u

debt. All coins and paper money of the United States as well as Federal Reserve notes and circulating notes of Federal Reserve Banks and national banking associations are legal lender.

LEGAL TITLE acollection of rights of ownership that are defined or r e c o

gnized by law or that could be successfully defended in acourt of

law.

LEGAL WRONG invasion of alkgal kight.

LEGATEE one who receives property by wit.t.. See also di-visee.

LEGGING-IN entering into aHEDOtNC contract after becoming the debtor or creditor under adebt instrument. Any gain or loss from

legging-in is deferred until the qualifying debt instrument matures or is disposed of in the future.

LEGGING-OUT disposing of one or more unmacured elements of a

qualifiedHEDGINGtransaction,Anygainorlossfrt>mlegging-ciuiis

deferred until the qualifying deiit instrument matures or is disposed

of in the future.

LEGISLATION action with respect to acts, bills, and resolutions or similar items by Congress, astate legislature, local governing body,

public referendum, or constitutional amendment. Legi.daiion docs not include acts or rulings of executive, judicial, or administrative bodies.

LEMON product or invesiraenl producing ptxir performance. Acar that continually needs repairs is alemon, and consumers arc guaranteed a

full refund in several states under so-called lemon Uiw.s. Apromising

stock that fails to live up to expectations is also called alemon. LENDER individual or firm that extends money to aborrower with the

expectation of being repaid, usually with interest. Lenders create debt

in the form of loans, and in the event of corporate i.iqutdation. they are paid off before stockholders receive distributions. LENDER LIABILITY the responsibility of abank, S&L, or credit

union to apotential borrower to whom it has made aloan commit¬

ment. Should the lender fail to provide the loanaspromised.it may be responsible for damages suffered by the potential bomrwer. These can be substantial amounts, especially if the borrower's business failed because of acash shortage. LESS-DEVELOPED COUNTR'V see devei.oping countries.

LESSEE one who holds an ESTATE by virtue of alease; tenant of a LANDLORD.

V

L E V E L P L AY I N G F I E L D

401

LESSOR one who gronis alease lo another, thereby transferring to him exclusive temporary right of possession of certain property, subject only lo rights expressly retained by the owner; same as landlokp. I,ESS THAN CAKI.OAI) (LCD amount of freight that is insufficient to command the lower shipping rates that apply to full carloads. I.ICT LEASE, i.e.. grant the use of realit for acompensation- Note, how¬ ever. that the term docs not always connote the act of leasing but may refer to the granting of ai.icense.

DslTERFOOT part of letterhead information printed at the bottom of asheet of letter paper. l.KTITCR OF CREDI T(IVC) instrument or document issued by abank,

guaranteeing the payment of acustomer's drafts up to astated amount fora specified period. It substitutes the bank's credit for the buyer's and eliminates the seller's risk. It is used extensively in imemaiional trade. i.f;tter

of

intent

(Lod

1. any letter cxprcs.sing an intention to lake (or not to take) an action, sometimes subject to other action being taken. 2. preliminary agreement between two companies that intend to merge.

.4. promise by axiltual fund shareholder to invest aspecified sum of money monthly for about ayear. I.ETTFIR RULINT! see ads'anCE buung.

LETTER-SIZE aU.S. paper size standard, 8K by 11 inches. LET'TF-U STOCK category of stock that derives its name from an

inscription on the face of the SIOCK certiI'ICate. indicating that the shares have not been registered with the Securities and Exchange Commission and, therefore, cannot be sold to the general public. I.EVF.L DEBT SERVICF) provision in amunicipal charter stipulating that payments on municipal debt be appritximately equal every year.

This makes it easier lo project the amount of lax revenue needed to meet obligations. LEVEL OUT standard unit of measure achieved after considerable

experience; highly predictable sequence of actions. In afactory it is imjxmant to have aleveled-oui production run so that there arc few crises caused by cither inventory or petsonnel shortages. L E V E L - PAY M E . N r I N C O M E S T R E A M , v t f a n n u i t y.

LEVEL-PAYMENT MORTGAGE mortgage that requires the same

Itaymenl each month or other period, for |!Ul-l. amortization. See also DIRKCr-REDUCTION

.MORTGAGE;

F L AT.

LEVEL PLAYLN'G FIELD government policy of reducing the differ¬ ences between the least and most favored industries or between the

United Stales and foreign competitors.

LEVEL PREMIUM

402

LEVEL PRE\nUM premium chat remains unchanged over lime, regardless of any change in the nature of the risk. LEVERAGE

Ingeneral:useofborrowedfundstoincrcitsepurchasingpowerand, ideally, to increase profitability of an investment busine.ss.

Operations;extenttowhichacompany’scostsofoperatingarefixed

(rent, insurance, executive salaries) as opposed to variable (materials, direct labor).

Finance: debt in relation to equity in afirm’s capital structure. The m o r e

long-term debt there is, the greater the financial leverage.

Shurcliolders benefit from financial leverage to the extent that return

on the borrowed money exceeds the interest costs so that the market value of their shares rises.

Personnel: use of additional employees or contractors to complete a task sooner than one person could. LEVERAGED BUYOUT (LBO) takeover of acompany, using bor¬ rowed funds. Most often, the target company’s assets serve as security for the loans taken out by the acquiring firm or investors, who repay the loans out of cash flow of the acquired company.

LEVERAGED COMPANY company with debt in addition to equity in its CAPITAL STRuerruRE. In its popular connotation, the term is applied

10 companies that are highly leveraged. Although the judgment is rel¬

ative. industrial companies with more than onc-lhird of their capital¬ ization in the form of debt are considered highly leveraged. I.EVERAGED ESOP an kmpi.oyee stock ownership plan (esop) that

borrows money and purchases employer slock directly from the c o m p a n y.

LEVERAGED LEASE lease that involves alender in addition to the lessor and lessee. The lender, usually abank or insurance company,

puts up apercentage of the cash required to purcha.se the asset, gener¬ ally more than half. The balance is put up by the lessor, who is both the equity panicipanl and the borrower. L E V Y

1. 10 raise or collect. 2. to seize.

3. to assess, as to levy atax.

4. seizure or levying, as of land or other property or rights, through lawful process or by force. LEXIS see legal exchange ineormation service. LIABILITY

I. money owed.

2. obligation to do or refrain from doing something. 3. duly that eventually must be performed. See also current liabili¬ ties; LONG-TERM LIABII.ITIES; PERSONAL LIABIUTY.

N

403

L I A B I L I T Y, P R O F E S S I O N A L

LIAlMl.nA’. CIVIL alleged lort.s or breaches of coniraci. but not

crimes. Action is brought by one individual against another at the liti¬ gant's own expense, within the statute of limitations. Tlte losing pany must pay any judgment plus court expenses, casualty insuranci; pro¬

vides coverage for an insured in acivil liability suit for alleged negli¬ gent act.s or omissions, even if the .suit is without foundation. LIABILITY, CRIMINAL wrong against the government or society as a whole. An individual representing the State (usually the district attor¬ ney) brings an action on behalf of the State against an individual(s) or entity who has broken acriminal (noncivil) law. Insurance is not designed to cover criminal liability: to so do would encourage crimi¬ nal ^havior. L I A B I L I T Y. C U R R E N T s e e c u r r l n t l i a b i u t v ,

LIABILITY INSURANCE protection from claims arising from injuries or damage to other people or property. Liability protection is very important for motor vehicle, home, and business owners. Business lia¬ bility insurance premiums are deductible. LIABILITY INSURANCE. PRE.MiSES AND OPERATIONS part of abusiness liability policy that covers an insltied for bodily injury or property damage liability to members of the public while they are on business premises.

LIABILITY, LEGAL obligations and responsibilities subject to evalua¬ tion, interpretation, and cnforceinenl in acourt of iaw. Ca.sualty insur¬ ance provides coverage for an insured against acivil legal liability suit, not criminal legal liability, intentional torts, or liability for breach of contract.

LIABILITY. MARKET SHARK legal extension of (he prsxluct liabil¬ ity concept where acompany is mandated to assume legal liability for aproduct despite the fad that it did not produce the actual product that caused the action. For example, all the pharmaceutical companies that produce acertain drug may be found to have legal liability for the side ofl'cets of the drug since affected consumers arc not aware of who the actual manufacturer was. Legal liability is therefore divided among the companies proportional to tbeir respective market shares. LIABILITY. PROFESSIONAL liability created when an individual holds himself out to the general public as having expertise greater than the ordinary layman in aparticular area. Today, suits arc frequently brought alleging that aprofessional, such a.s aphysician, attorney, or CPA, has committed negligonl act.s or omissions in performing the purchased service. For some professions, .such as medical specialties, it has become impossible to purchase profes.sinnal liability insurance at areasonable price. Preminm.s have become prohibitive because of the frequency and severity of both reasonable and unreasonable pro¬ fessional liability suits. See tilso (stAl.VHACnCK,

V

404

LIABLE

LIABLE responsible or obligated. See also txcULPAiORY; nonrbcoursk. LIAR LOAN see no-documentation ixian.

LIBEL tort consisting of afalse, malicious, unprivileged publication aiming to defame aliving person or to m;ir the memory of one dead. Printed or written material, signs or pictures that tend to expose aper¬

sontopublicscorn,hatred,contemptorridiculemaybeconsidered libelous. See also slander. L I B O R s e e L O N D O N i n t e r b a n k o ff e r e d r a t e .

LIBRARY RATE special postage rate for mailmg books and other edu¬ cational materials between libraries and colleges. Packages must be marked library rale.

1.IBSON SHOPS DOCTRINE Supreme Court limitation on the sur¬

vival of net operating loss carryover after astatutory merger, which is based on the continuity of enterprise theory.

LICENSE grant of permission needed to legalize doing aparticular

thing,exercisingacertainprivilege,orpursuingaparticularbusiness

occupation. Licenses may be grantctl by private persons or by gov¬ ernmental authority. In property law. alicense is apersonal privilege o r

o r

permissionwithrespecttosomeuseofland,andisrevocableatthe

will of the landowner. The privilege attaches only to the party holding

it and not to the land itself, since, unlike an easement, alicense does

not represent an estate or interest in the land. LICENSE BOND instrument that guarantees compliance with various

city, county, and slate laws that govern the issuance of aparticular license to conduct business.

LICENSED APPRAISER generally an appraiser who meets certain state requirements, but lacks the experience or expertise of acertified appraiser. See also certired residential appraiser; certified gen¬ eral

appralser.

LICENSEE one to whom alicense has been granted; in properly, one

whose presence on the premises is not invited, but tolerated. Thus, a licensee is neither acustomer, nor aservant, nor atrespasser, and does

not stand in any contractual relation with the owner of the premises, but is permitted to go upon the property of another merely for his own interest, convenience, or gratification.

LICENSE l.AWS laws that govern the activities of occupations that

require licensing, such as accountants, lawyers, physicians. nurse.s, barbers, and insurance and real estate brokers.

LICENSING EXAMINATION test given to aprospective ucensee to determine his ability to represent the public.

LIEN chaige against property making it security for the payment of a debt, judgment, mortgage, or taxes. It is atype nf encumbrance. A

405

LIFE INSURANCE

SPECIFIC Lii-N is againsi certain property only. Ageni;kal lien is against all the property owned by the debtor. LIENHOLDF^R one who holds, or benefits from, alien.

LIEN-THEORY STATES stales whose law.s give alien on property to secure debt; contrasted with title-theory states in which the lender

becomes the title owner. In either case the borrower has the right to use

and enjoy the property in the absence of default. In the event of default. lenders may foreclose. LIFE AND HEALTH INSURANCE, UUSINESS EXPOSURES loss

of akey person due to deaih, di.sahiliiy, sickness, resignation, incar¬ ceration. or retirement. Because of the expertise of such an individual,

Ihere could be aloss of income, market share, research and develop¬

ment advantage, and line of credit by the firm. Also, there are extra expenses associated with training areplacement for akey person. Coverage for many of these exposures is available under key person life and heuilh insurance. See also buy-and-sell AGREiiMBNT.

l.IFE ANNUITY annuity that makes aguariinleed fixed payment for the rest of the life of the annuitant. After the annuitant dies, the beneficia¬ ries receive no further payments.

LIFE BENEFICIARY parly entitled to the u.se of or income from prop¬ erly during his or her lifetime; see remainder person.

LIFE CYCLE movement of afirm or it.s product through stages of development, growth, expansion, maturity, saturation, and decline.

Not all products go through .such alife cycle. For example, paper clips, nails, knives, drinking glasses, and wotxlcn pencils do not seem to exhibit such alife cycle. Most new products do. Some current exam¬ ples include high-tech items such as computers. DVDs, and cathoderay lube TVs. See also product life cycle.

LIFE ESTATE estate whose duration is limited by the life of the per¬ son holding it or by that of some other person. It is afreehold interest in land.

LIFE EXPECTANCY ago to which an average person can be expected to live, as calculated by an actuary. Insurance companies base their projections of benefit payouts on actuarial studies of such factors as sex, heredity, and health habits and base their rates on actuarial analysis.

LIFE INSURANCE insurance policy that pays adeath benefit to ben¬ eficiaries if the INSURED dies. In return for this protection, the insured pays apremii.m, usually annually. Term insurance pays off upon the insured’s death but provides no buildup of cash value in the policy. Term premiums are cheaper than premiums for ca.!h-mlue policies such as wtioi.e life, variable life, and universai. liie, which pay death benefits and also provide for buildup of cash value in the policy.

■V

LIFE INSURANCE, RENEWABLE TERM

4(16

LIFE INSURANCE, RENEWABLE TERM coverage tliai is renewable at the option of the insured, who is noi required to take amed¬ ical examination. Regardless of physical condition, the insured must be allowed to renew the policy, and the premium cannot be increased

to reflect any adverse physical condition. However, the premium of each renewal increases to reflect the Lire expectancy of the individ¬

ual at that particular age. LIFE INSURANCE SETTLEMENT see insurance settlement.

LIFESTYLE BUSINESS small business that reflects the general lifestyle of the individual entrepreneur. Lifestyle businesses are not high-growth enterprises. The principal objective is to earn asufficient

income. For example, an artist may have asign-painting business, or awriter may have aresumd-writing business.

LIFE TENANT one who is allowed to use properly for life or the life¬ time of another designated person. LIFETIME EXEMPTION see unihed estate and gift tax.

LIFETIME GIFTS effective vehicle of transfer in estate planning. Gifis eliminate all probate and administration expenses on ihe property transferred.

LIFETIME LEARNING CREDIT tax credit usable in any year by any student of any age. The credit is worth up to $2IXX) (20% of the firsi

SIOJXK) paid in tuition and fees). Only one Lifetime Learning credit may be claimed, regardless of the number of smdenis in the family. The Lifetime Learning credit is applicable to any kind of study, including adult education courses or asingle course to improve job skills. In 2010, married couples filing jointly gel the full credit on ADJUSTED GROSS INCOME up 10 $100,000, phasing out at $I20IX)0. Singles gel the full credit with incomes up to $50,000, phasing out at $60DO). IRS Form 8863 is used to claim the Lifetime Learning credit; the IRS will cross-check claims with data it gets from schools. See also AMERICAN OPPORTLT^ITY TAX CREDIT.

LIFETIME SECURITY form of employee job security guaranteeing pro¬ tection against layoffs during economic slowdowns or plant closings. LIFO see last in. rrst out.

LIGHTERAGE charge for unloading uship, using barges to assist in the unloading process. LIKE-KIND EXCHANGE see tax-free exchange.

LIKE-KIND PROPERTY tax term defining property having ihc same nature or character, without reference to grade or quality. One kind or class of properly may not be exchanged tax free for property of adif¬ ferent kind or class (for example, real estate may be exchanged for real estate, an automobile for another automobile, but not real estate for an

automobile). See also tax-eree exchange, section iHt i.

407

L I M I T E D ( S P E C I A L ) PA R T N E R

L I M I I A T I O N S . S T A T l i T K O F. « e s t a t u t e o f l i m c t a t i o n s . L I M I TAT I O N \ ' E A R s e e s t a t t h e O F L I M I TAT I O N S .

L I M I T E D C O M PA N Y f o n n o f b u s i n e s s m o s t c o m m o n i n G r c a l

Britain, where registration under the Companies Act is comparable to incorporation under slate law in the United States. It is abbreviated Ltd. or PLC.

LIMITED DLSTRIIIUTION distribution of aproduct only to specific

geographic locations or to specific stores or aspecific area within a geographic location. LIMITED LIAItILITV the restriction of one's potential losses to the amount itivcstcd; ah.scnce of personal liability. Limiied liahiUiy is pro¬ vided to stockholders of acorporation and limiied partners of aI.IM-

II hi) pARrNi-K.siiiP. Those parties cannot lose more Ilian they contribute to the corporation or partnership unless they agree to become person¬ ally liable. For example, if aperson buys $1,000 worth of slock in a corporation, he or she cannot lose more than that amount. However, many lenders require personal guarantees from major stockholders before lending to small or closely held corporations. LIMTl'KI) I.IAIllI.lTV COMPANY (LLC) organization form in some states that may be treated as apartnership for federal tax purposes and has limited liability protection for the owners at the slate level.Thc entity may be subject to the state franchise lax as acorporation. The two forms available in most stales are Limiied Uabiliry Corporations iLLCs) and Limiied Liahilily Partnerships (LLPs), in which the indi¬ vidual partners are protected from the liabilities of the other pannersThese entities are considered partnkrsmips for both feder.il and state tax purposes.

LIMITED OCCUPANCY AGREEMENT in real e.siaie. agreement

allowing aprospective buyer to obtain POSSiasiON under atemporary arrangement, usually prior to closing.

LIMITED PARTNERSHIPenlity in which one or more persons, wilh unlimilcd liability, called cuneral partners, manage the partnership, while one or more other persons contribute only capital. This luller group of partners, called limited partners, have no right to participate in the management and operation of the business and assume no lia¬ bility beyond the capital eonirihutcd. Alimiied partnership is often used for real cslaic ownership because of favorable tax treatment

allowing pass-through of losses and avoiding double taxation of income. However, if alimiied partnership has more charaelerislics of

acorporation iluin of apartnership, it will be construed as an associ¬ ation taxable as acorporation. LIMITED (SPECIAL) PARTNER within alimited partnersiiip, apart

owner whose liability is limited to the amount invested and whose role in husine.ss manugemeni is restricted.

LIMITED

WARRANTY

408

LIMITED WARRANTY warranty that imposes cenain limiiaiions

and is therefore not afull warranty. For example, an automaker may issue awarranty that covers parts, but not labor, fora particular period. LIMI'I' ORDER order to buy or sell asecurity at aspecific price or bet¬ ter. The broker will execute the trade only within the price restriction. LIMIT UP, LIMIT DOWN maximum price movement allowed for a commodity futures contract during one trading day. In the face of

aparticularly dramatic development, afutures price may move limit up or limit down for several consecutive days. L I N E

1. persons concerned with actual production or, depending on the organization, distribution. Aforeman and aplant mantigcr arc line personnel. See also line management; staff.

2. type of goods produced or carried; product line. LINEAL FOOT ameasure of one foot, in astraight line, along the ground.

LINE AND STAFF ORGANIZATION delineation of organizational authority between management personnel (staff) having overall plan¬

ning iind direction responsibilities and operational personnel (line) having direct job performance responsibilities. Staff is advisory to the line function. LINEAR PROGRAMMING (LP) amathematical model for decisions

with alarge number of alternatives. LP is typically used to either max¬ imize profit or minimize costs in amanufacturing process with vary¬ ing levels of inputs. LINF' AUTHORITY authority exercised over line personnel in an orga¬ nization.

LINK CONTROL

1. organizational control exercised over line functions in an organiza¬ tion. See also line function.

2. operating procedures and control signals by which atelecommuni¬ cations system is controlled. LINF' EXTENSION adding of another variety of aproduct to an already established brand line of products. For example, when acoffee manu¬ facturer adds decaffeinated coffee to the same brand line of coffee

products already on the market (such as regular coffee and instant cof¬ fee), aline extension has been made. See also brand exten.SIOn; dif¬ ferentiation

S T R A T E G Y.

LINE FUNCTION activity contributing directly to the output of an organization. In aservice organization the line functions may be oper¬ ations and sales.

409

LIQUIDATING (or LIQUIDATION) VALUE

LINE MANAGEMENT adminisiratioii of ilie line functions of an orga¬ nization: administration of all activities that contribute directly to an organization's output.

LINE OF CREDIT agreement whereby afinancial institution promises to lend up to acertain amount without the need to tile another appli¬ cation. The borrower is expected to reduce the debt after having reached the full amount of credit. See also BANK line.

LINE ORGANIZATION organizational structure of activities con¬

tributing directly to the organization’s output; arrangement of line functions in an organization.

LINE PRINTER high-speed printer for computer output. Aline printer can print an entire line of output at one time. Fast line printers are capable of printing at rates of up to 1,400 lines per minute. Omirasi with LASER PRINTER.

LINK ahighlighted word, phrase, or graphic within ahypertext docu¬ ment (on acomputer or on the INTERNET) that, when clicked, will take the user to another location within the document or to another docu¬

ment altogether- web SITES contain many links to other pages at the site as well as to other, related sites.

Linkedin social networking site designed for business professionals to use for work contacts and communication.

LINUX freely distributed UNix-compatiblc operating system for PCs and anumber of other proccssore. in the United Slates, the name Linux is atrademark registered to Linus Torvalds, its creator, and is generally understood as Linus's UNIX-

LIQUID ASSET cash or easily conscrtible into cash. Some examples are money market fund shares. U.S. Treasury bills, and bank deposits. In acorporation's financial statements, liquid assets are cash, mar¬ ketable securities, and accounts receivable.

LIQUIDATE to settle; to determine the amount due and extinguish the indebtedness. Although the term more properly signifies the adjust¬ ment or setilemem of debts, to liquidate often means to pay. See also L I Q U I D AT I O N -

LIQUIDATED DAMAGES stipulated comraclual amount that the par¬ ties agree is areasonable estimation of the da.maoes owed to one in the event of abreach by the other.

LIQUIDATED DEBT debt undisputed as to its existence or amount. LIQUIDATING (or LIQUID.AITONi VALUE projected price fur an asset of acompany that is going out of business, for instance, areal estate holding or office equipment. Liquidating value is dUiinguished from GOING-CONCERN VALUE, which may be higher because of what accountants term organization value or GOODwii.i..

V

L I Q U I D AT I O N

410

LIQUIDATION procedure in which shareholders surrender all o! their

shares in acorporation and receive, after all creditors are paid, their pro rata share of any remaining assets and accumulated earnings and profits. Liquidation is deemed to occur when acorporation cca.ses to be agoing concern and its activities are merely for the purpose of winding up its affairs, paying its debts, and distributing any remaining balance to its shareholders.

LIQUIDATION DIVIDEND dividend resulting from winding up affairs of abusiness, settling with its debtors and creditors, and

appropriating and distributing to its shareholders aresidue proportion¬ ate to the profit and loss. LIQUIDITY

I. ability of an individual or company to convert assets into cash or cash equivalents without significant loss. Investments in money market funds and listed stocks are much more liquid than invest¬ ments in real estate, for instance.

1. characteristic of asecurity or commodity with enough units out¬ standing to allow large transactions without asubstantial drop in price. Astock, bond, or commodity that has agreat many shares outstanding therefore has liquidity.

LIQUIDITY PREFERENCE element of Keynesian economic theory. The relative preference of investors to hold money (liquidity) rather than bonds or other investments is akey determinant of the level of economic activity. It is related to the level of interest rates and RETURN ON INVESTMENT (Roi) widlin the economy. LIQUIDITY RATIO ratio of balance sheet items, which measures a

firm’s ability to meet maturing short-term obligations. See uLso cash r a t i o ; C t I R R E N T R AT I O ; N E T Q U I C K A S S E T S ; Q U I C K R AT I O .

LIQUIDITY T'UAP economic situation where adding liquidity by increasing the money supply and lowering target interest rate.s fails to stimulate borrowing and lending, consumption, and fixed investment.

Liquidity rnip.t can sometimes be escaped by resorting to FISCAL POl.ICY or by using helicopter money, that is. by distributing money directly to people (as though dropping it from ahelicopter) and thus bypassing abanking system that tends under strained circumstances to hoard ca.sh rather than lend it.

LIS PENDENS pending lawsuit: refers to the maxim (hat pending the SUIT, nothing should be changed. For example, one who acquired an interest in property from aparty to utigation with respect to such property takes lhat interest subject to the decree or judgment in such litigation and is bound by it. L I S T

Real estate: place for sale in the hands of areal esuue BROKiilt. See also LISTING.

L I T I G A N T

4 11

Securities: enter nstock to be traded on astock exchange. See ulso Lisn-D SBCURJTV; OVKR TUB COVNTfcR.

LISTED Ol’TION put or call option that an exchange has authorized for trading; properly called an exchange-traded option. LISTED PROPERTY in taxation, automobiles, computers, and cellular phones that arc subject to the 50% business use test. If liued property is used predominantly for business, the statutory percentage deprecia¬ tion method is available. If used less than 50% of the time for busi¬

ness, the cost is depreciated by the STTtAiGHT-LiNE method. Passenger automobiic.s have additional recovery limitations imposed upon depre¬ dation deductions.

LISTED SECURITY slock or bond traded on an exchange, the two

largest of which ciated with collecting, analyzing, and reporting marketing resi-arcii infomiaiioii. MARKETING MIX combination of the four conlrollablo variables of Product, Price, Place, and Promotion that are c.sscntiiil to define and

fulfill atarget market. See iilsii t-ouR Ps. MARKETING PLAN plan that dciaifs acompany's marketing effort;

also called action program, marketing strategy. The marketing plan may be laid out for an individual product or for the entire company and all its products.

MARKETING RESEARCH gathering and analysis of information about the moving of goods or services from producer to consumer. Marketing research covers three wide areas: market analy.'tis, which yields information about the marketplace; protinct research, which yields information about the characteristics and desires for the prod¬ uct; and consumer research, which yields information about the needs and motivations of the consumer.

MARKETING STRATEGY plan for promoting products and services, MARKET LETTER newsletter provided to brokerage firm customers or written by an independent market analy.st. registered as an invest¬ ment adviser with the Securities and Exchange Commission, who sells the letter to subscribers.

MARKET MAKERS dealers in the securities exchange who buy and sell securities for their own account to maintain an orderly market in the specific securities they manage. The basic role of the market maker is to maintain liquidity in Ihc securities industry for buyers and sellers. See also sPKCtAU.ST.

MARKET ORDER order to buy or sell asecurity at the best available price at that moment. MARKET PARTICIPANT INTERVIEW discussion to elicit stpinions of those who actively buy. sell, or rent aproduct, lypically uses a smaller sample of more knowledgeable people than arandom sample or

S L RVi - y.

MARKET

P E N E T R AT I O N

1. marketing strategy used by amanufacturer to increase the sales of aproduct within an existing market through the employment of more aggressive marketing tactics. 2. degree to which aparticular product is purchiised in aparticular market. MARKET

PRICE

In general: recent price agreed upon by buyers and sellers of aprod¬ uct or service, as determined by supply and demand. Finance: last reported price at which asecurity was sold.

MARKET PROFILE

434

MARKET PROFILE the demographic characieristics of potential buy¬ ers lor ii product or pixiduct line. MARKET RENT RENT aeomparabie unit would command if offered in

the competitive market. See also CONTRACT RENT, ECONOMIC rent. MARKET RESEARCH exploration of the .size, characteristics, and

potential of amarket to find out. usually before developing anew product or service, what people want and need. Market research is an important step in marketing; it stretches from the original conception

of aproduct to its ultimate delivery to the consumer. MARKET RISK see systemic kisk.

MARKET SCREENING method of scanning desirable markeK based on environmental factors that preclude undesirable markets. MARKET SEGMENT one of two or more subgroups within alaigei market. Different .MARKETING Mix strategies can be developed to reach

each of the target maiket segments. MARKET SEGMENTATION process of dividing the market accord¬ ing to similarities that exist among the various subgroups within the market. The similarities may be common characteristics, or common needs and desires.

MARKET SHARE percentage of industry sales of aparticular company or product. MARKET SOCIALISM an economy based on .socialism that attempts

to allocate resources according to market prices. The government owns the means of production and directs invc.stment but allow.s products to be distributed according to consumer demand and product supply. MARKET SYSTEM economic system that relies upon markets to allo¬ cate resources and determine prices. See also market economy.

MARKET TEST exposure of goods or services to asmall sample of the entire market to test various marketing strategies. Some areas of the country are considered belter barometers of demand than other.s. because the tastes of aparticular iuea for certain products seem to resemble those of the whole country. MARKET TIMING decisions on when to buy or sell securities, in light of economic factors such as the strength of the economy and the direc¬ tion of interest rates, or technical indications such as the direction of

stock prices and the volume of trading. MARKET VALUE the most probable price that aprupeny would bring in im open-market transaction, in cash or terms equivalent to cash, both buyer and seller acting voluntarily, without duress, and behaving prudently, knowledgeably, and in their own best interest.

V

M A R R I E D TA X PAY E R

435

MARKET VALUE CLAUSE provision of property insurance that establishes the amount for which an insured must be reimbursed for

damuyed or destroyed property according to the price awilling buyer would pay for the property purchased from awilling seller, as opposed to the actual cash value of the damaged or destroyed properly. See ulsc MARKET

VA L U E

VS.

ACTUAL

CASH

VA L U E .

MARKET VALUE VS. ACTUAL CASH VALUE value of property as established by the price awilling buyer vvould pay for property pur¬ chased from awilling seller, compared with the replacement cost of damaged or destroyed property minus depreciation and obsolescence. MARK TO (THE) MARKET

I. assess the value of asecurities portfolio to ensure that a.MAKOtN ACCOUNT is in compliance with maintenance requirements.

2. MirrUAt. RIND valuation of current portfolio to current market prices to obtain the daily net asset value reported to shareholders. MARKUP

Marketing: I. .VfC ORO.SS PROKIT.

2. determination of aretail selling price, based on some percentage increa.se in the wholesale cost; also called margin. For example, a markup on an item wholesaling at S100 would be S20, result¬

ing in aretail .selling price of SI20. I’rinling: written instructions for the lypc.sciieroncopy—for in.stance, underlining words to indicate they should be set in italies. MARRIAGE PENALT'Y various provisions of the tax law that require married people to pay more taxes in some situations than if they were single. The penally is most pronounced for high-lax bracket couples canting equal amounts of income. Although married taxpayers may file separate returns, the imal lax result will nitt be the same as if they were unmarried and may be more than the result from the joint return. MARRIED FILING JOINTLY filing status option for taxpayers who iuc married to each other and agree to reimrt their combined income and deductions. For agiven level of income, filing jointly typically results in alower tax than filing separately. However, see .marriage PKNAt.TY. MARRIED FILING SEPARATEl.V filing status option for taxpayers who are married to each other but wish to bo responsible for only their individual tax returns. In non-community property states, each tax¬ payer would report only his or her own income and deductions. In community properly states, each taxpayer would report his or her own income and deductions from separate properly and half of the income and deductions from coMMUNiry raoPEKry.

MARRIED TAXPAYER taxpayer who was married on the last day of the tax year. Taxpayers who marry before the end of the tax year can file ajoint tax return and be taxed as though they had been married for the entire year. Legally married taxpayers who have not obtained a

MARXISM

436

I'inul decree of divorce or separale maintenance by the last day of the tax year arc considered to have been married for the entire tiix yciir. MARXISM political, social, and economic theories of Karl Marx.

Applied Marxism, in an economy, results in cither acommunist econ¬ omy or aheavily stKialist economy.

MASLOW’S niKRARCHY OF NEEDS hierarchy of five human motivational needs arranged by ascending order of importance, devel¬

oped by Abraham Maslow. The five ascending needs are (1) physio¬ logical. (2) safely. (3) social, (4) c.sieem, and (5) sclf-actualization. Only unsatisfied needs are motivators. Once aneed is satisfied, the next leve! emerges as amotivator. MASSACHUSE'ITS TRUST business reuST that coni'ers limited liabil¬

ity on the holders of trust certificates; also called common law mm. It is avoluntary association of investors who transfer contributed cash or other property to trustees with legal authority to manage the business. MASS .APPEAL nondirecied marketing approach designed to appeal to all possible users of aproduct. MASS COMMUNICATION using widely circulating media .such a.s

new.spapers. magazines, television, and radio to inform the general public.

MASS CUSTOMIZATION mass produ’CTION methods used to produce customized goods and services. MASS MEDIA brtuid spectrum of radio and television broadcast sta¬ tions iind network.s. newspapers, tnagazines, and outdoor displays designed to appeal to the general public. See aho media. MASS PRODUCTION manufacturing or processing of uniform prod¬ ucts in laige quanlilies using inicrchangeable pans and machinery. Mass production is either awholly automated pnKess or ascries of short, repetitive procedures. MASTER LEASE controlling lkask; contrast with sublease. One can¬ not grant agreater interest in real estate than one ha.s; so if amaster lease is for afive-year term, asublease cannot legally exceed five years. See also i’roprietary lease.

MASTER LIMITED PARTNERSHIP agreement certified in apublic office, creating an unincorporated business and specifying one master partner to be in control of the partnership for the benefit of himself and other limited partners for aparticular purpose. M A S T E R O F B U S I N E S S A D M I N I S T R AT I O N ( M B A ) g r a d u a t e

degree offered by many universities in which the student generally spends two years learning the common body of knowledge in business and aspecialty such as accounting, busines.s analyses, finance, man¬ agement, marketing, or real estate.

437

M AT E R I A L PA R T I C I PAT I O N

MASTER PLAN

General: overall siraiegy. Real estate: document that describes, in n;irr;ii)vc and with maps, an overall development concept of ucity or planned-use developmcnl. Tax: IRS-appro\cd mode! form ofguAUHfci> plan in which the fund¬ ing medium’s identity is specified. MASTER POLICY single contract coverage on ugroup basis issued to an employer. Group members receive certificates as evidence of mem¬ bership summari;;ing benefits provided. See also orolp health insur¬ ance; GROUP I.IEE INSURANCE.

MASTER-SERVANl' RULE assumption that an emplojer is liable for negligent ads or omissions of employees that result in bodily injury und/or properly damage to third parties if those ads arc in the course of employment. .MASTHEAD

I. name of anewspaper displayed at the top of the first page. 2. in anewspaper or magazine, printed section, usually located on the editorial page, that details the title and addre.ss of the publication, the owner and/or publisher, the staff, and the advertising and sub¬ scription rales.

MATCHING PRINCIPLE (COSTS WITH REVENUES) accounting concept of pairing revenues with the costs that were incurred to gen¬ erate the revenues. For example, wages and materials bought to conslnicl arental property are depreciated over liie period the biiiltling generates income, not during the construction period. M AT E R I A L

I. goods used in the manufacturing process. See d/jo direct .material. 2. important, as amaterial fad in atrial, amaterial amount of money. MATERIAL FACT fact that is germane to aparticular situation; one

that panicipants in the situation, such us atrial, may reasonably be expected to consider.

MATERIALITY in accounting reports, concept that only important dis¬ closures are required. ACPA performing an audit for aphone com¬ pany does not need to count the last dime deposited in apay phone Just

before the fi.scal year ends, because of lack of maierialiiy. MATERIAL MAN person who supplies materials used in the construc¬ tion or repair of abuilding or other property. If unpaid, amaterial man may file ameoianic’s lien. M AT E R I A L

PA R ’ I ' I C I PAT I O N

Tax: year-round active involvement in the operations of abusiness activity on aregular, continuous, and substantial basis. Three main

factors to consider in determining the pre.scncc of mawrial pankifKition are: (I) Is the activity the la.xpaycr’s principal trade or business?

>

MATERIAL REQUIREMENTS PLANNING (MRP)

438

(2) How close is the taxpayer to the business? (3) Docs the taxpayer

have knowledge and experience in the enterprise? Limited partners: limited partnership interests are considered inher¬ ently passive; they lack malerialparridpation. MATERIAL REQUIREMENTS PLANNING (MRP) see JUST-tNTIME INVENTORY CONTROL (JIT).

MATERIALS HANDLING moving, packaging, and storing of materi¬ als in every form, ranging from raw materials to finished goods. It

includes the shipping, receiving, and processing of incoming items and outgoing products, returns to suppliers, and disposal of scrap. M AT E R I A L S M A N A G E M E N T a d m i n i s t r a t i o n o f a l l a c t i v i t i e s c o n ¬

cerned with the ordering, storage, and movement of materials. This includes the storage of raw materials and parts and the manning of

production operation centers. MATRIX mathematical term describing arectangular array of elements

(numerical data, parameters or variables). Each element within a matrix has aunique position, defined by the row and column. MATRIX ORGANIZATION superimposing agroup or interdiscipli¬

nary team of project specialists, such as scientific and engineering per■sonnel.on afunctional organizational design. In amatrix organization members have dual allegiance, to aparticular assignment or project and to their organizational department. MATURE ECONOMY economy of anation whose population has sta¬ bilized or is declining, and whoso economic growth is no longer robust. Such an economy is characterized by adecrease in spending on roads or factories and arelative increase in consumer spending. M A T U R I T Y

111 general: dale at which legal rights in something ripen. In the con¬

text of coMMERCiAi. PAPER (negotiable instruments), it is the lime when the paper becomes due and demandable, that is, the date when an action can enforce payment. Personnel; character and emotional development of an employee. MATURITY DATE time at which abond, life insurance death proceeds,

or endowmeni.s are paid, either at the death of an insured or at the end of the endowment period. M A X I M U M C A PA C I T Y s e e C A PA C r r Y. MB

see

meoabytc.

M-CATS municipal certifjcatii oi- accrual on treasury securities, that is, azero coupon bond issued by amunicipality. MEALS AND ENTERT,\INMENT EXPENSE expense for meals and entertainment that qualifies fora tax deduction. Undercurrent lax law. employers may deduct 50% of meals and enienainmeni expenses that ■v

M E D I A N

439

have abona iidk business purpose. For example, abusiness meal must include adiscussion producing adirect business benefit. MEAN, ARITHMETIC statistic calculated as the sum of all values in

the sample divided by the number of observations. See also mean, GECMETRIC-

MKAN, GEOMETRIC statistic calculated by taking the ntli nxtt of all

values in asample multiplied together. The geometric mean is used most often in change and index calculations, such as the percentage change in housing values from one year to the next. See also mean. ARtTHMETTIC.

MEAN RETURN in security analysis, expected value, or iivcragc, of all the likely returns of investments comprising aportfolio; in capital bud¬

geting, mean value of the probability distribution of possible returns. MECHANIC'S LIEN uen against buildings or other struclufcs. allowed by some states to contractors, laborers, and suppliers of materials used in their construction or repair. The lien remains in effect until these peo¬

ple have been paid in full and may, in the event of aliquidation before they have been paid, give them priority over other creditors. MECHANIZATION accomplishment of tasks with machines, mechan¬ ical equipment, or aids. Mechanization docs not provide for sdf-correcting feedhack, whereas automation docs, -MEDALLION STAMP PROGRAM aprogram approved by the Securities Transfer Association that enables participating financial insti¬ tutions to guarantee signatures. The Medallion programs ensure that the

individual signing the certificate or stock pttwer is in fact the registered owner as it appears on the slock certificate or slock power. Any U.S. financial institution that belongs to aMeJaUion Siamp Pmuram can

provide Medallion guarantees. Such institutions include banks, savings and loans, credit unions, and U.S. stock brokerage firms. M E D I A

1. plural of medium. 2. channels of communication that serve many diverse functions,

such as offering avariety of eniertainmem with either mass or spe¬ cialized appeal, communicating news and information, or display¬ ing advertising messages. MEDIA BUYER individual responsible for the purchase of time and

space for the delivery of advertising messages in the media. Amedia buyer may be an employee of an advertising agency who specializes in such purchasesMEDIAN middle value, midpoint, in arange of values; half the numbers in the list are above it and half below it. The median value is used to

obtain arepresentation of ;i data set without tiisionion due to large deviations that could occur with an average.

MEDIA PLAN

440

MEDIA PLAN specification of the mrdia to be used in an advertising plan. Amedia plan will state the media objectives and explain the media strategy to be followed within aspecific time frame and budget. MEDIATION proce.ss of bringing conflicting parlies together u.sing a third party. The third party has no authority to force asettlement, unlike arbitration.

MEDIA WEIGHT volume of audience delivered by an advertising cam¬ paign in terms of the number of commercials and adverlisomenis,

number of insertions, time parameters, and budget; the total audience delivery.

MEDICAID jointly administered federal and .stale government health insurance provided under Title XIX of the 196.'' amendment of the Social Security Act. Medicaid provides health insurance assistance for

people who have low income and limited asset.s. It is usually run by state welfare or human service agencies. Aperson may qualify for both MEDICARE and Medicaid or for only one of the programs.

MEDICAL CARE amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body, for transportation for and essentia) to such medical care, and medical insurance premiums.

MEDICAL EXAMINATION physical checkup often required of appli¬ cants for life and/or health insurance to ascertain if they meet acom¬ pany’s underwriting standards or should be classified as substandard or uninsurable. MEDICAL EXPENSE DEDUCTION allowable ITEMIZED deduction

by individuals for unreimbursed payments for medical care, prescrip¬ tion drugs, and medical insurance premiums. Limited to the amount that exceeds 7.5% of the taxpayer's adiusted gross income (aoi).

MEDICARE federal health insurance provided under Title XVlll of the Social Security Act. Medicare is abasic health insurance program that covers people who are 65 or older, people of any age with permanent kid¬ ney failure, and those under 65 who have been receiving Social Security disability benefits for the past 24 months. One of five programs under the Social Security System in which hospiial and medical insurance cover¬ age is provided to those who are covered. Medicare is run by the Health Care Financing Adminisiradon. Hie Social Security Administration lakes applications for Medicare, assists beneficiaries in claiming Medicare payments, and provides infoimaiioii about the program. M E D I C A R E H O S P I TA L I N S U R A N C E a l s o r e f e r r e d t o a s M e d i c a r e

Part A. Amonthly premium is not required in order lo receive this cov¬ erage if the worker or spouse is entitled to benefits under either the

Social Security or Railroad Retiremenl System, or has worked asuffi¬ cient dme in federal, stale, or local govemmeni employment to be insured. Medicare hospital insurance helps pay for medically necesV

441

MEGABYTE (MB)

siiry services I'uriiished by Meilicnre-certified hospitals, skilled nursitij; facilities, home health agencies, and hospices. MEDICARE MEDICAL INSURANCE also referred to as Medicare

Pan B. Pan Bis optional, but amonthly premium is required in order to receive this coverage. It is offered to all beneficiaries when they

enroll in Pan A. Mcdictire medical insurance helps to pay for physi¬ cian services and many other niciliciil services and supplies that are not covered by Medicare Pan A. MEDICARE TAX the hospital insurance ponion of (he lax a.sscsscd on compensation and .self-employment earnings under the raoKRAL I N S U R A N C E C O N T R I B U T I O N S A C T. T h e M e d i c a r e l a x i s 2 . 9 % o f a l l e a r n ¬

ings. An employer is required to wiihhold half of the tax (1.45%) from employees' wages and also to make amatching contribution of the other half of Ihe (ax. Self-employed individuals include the 2.9% lax with their quarterly estlmaTEI) INCOME TAX PAY.MtsTS. MEDIGAPiype of health insurance policy de.signcd to cos er the areas of noncoverage under Medicare. Examples of noncoverage areas targeted

by Medigap policies arc the deduetiblcs under the Medicare insunince policy, coinsurance timounis specified in the Medicare insurance pol¬ icy. medical charges that exceed Medicare’s approved amounts, iind various medical services and supplies not paid for by Medicare. . M E D I U M I. see MEDIA.

2. method, instrument, or material used by an artist in the creation of awork, such as pen and ink. oil, watercolor, or photography. MEDIUM OK EXCHANGE commodity or product that is generally

accepted in amarket as astandard of value and as ameasure of value and wealth. The most common medium of exchange is money; how¬ ever, in some primitive markets other commodities (cattle, precious metals, etc.) may be used. MEDIUM-TERM BOND bond with amaturity of 2to 10 years. See also LSTERMf-iJlATE TERM; LONG BOND: SHORT TI^RM.

MEETING OK THE MINDS mutual assent to lernis by parties to a CONTRACT. Atraditional rule of contract law is that the agreement, to be legally enforceable, must be accurately expressed within the terms

of the contract the parties create, for therein lies the required meeting of the minds.

MEGA- metric prefix denoting multiplication by 10® or I.CXX),(K)0. In measuring Ihe capacity of computer disks and RAM. equivalent to x229or I.04S.576.

MEGABYTE (MU) in computers, 2^°, or approximately one million, BYTES of information. The capacity of micrrxmmputcr hard disks is usually measured in megabytes, as are high density eloppy disks.

M E LT D O W N

442

MELTDOWN aslate of complete computer network overload that grinds all traffic to ahalt.

MEMBER BANK member of the federal reserve system including all nationally chartered banks and the state-chartered banks that arc accepted for membership. MEMBER FIRM or MEMBER CORPORATION brokerage firm that has at least one membership on amajor stock exchange, even though, by exchange rules, the membership is in the name of an employee and not of the firm itself. MEMORANDUM 1. informal record.

2. brief note, in writing, of some transaction. 3. outline of an intended instrument.

4. instrument written in concise summary.

MEMORY electronic device within acomputer, where information is stored while being actively worked on; formerly called core. The memory requirements of acomputer are dictated by the software that is CO be run on it. Microcomputer memory is usually 16 to 128 MEGABYTES. See also RAM.

MENIAL work pertaining to servants: work that is demeaning or insult¬ ing to the person performing it.

MENTAL HEALTH INSURANCE health insurance policy providing for psychiatric and psychological care and counseling. Mnny policies also cover treatment for substance abuse counseling and treatment. Most mental health insurance policies have adeductible payment clause.

MENTOR experienced manager or employee who guides and advises new employees and managers about the dynamics of an organization and its procedures. MENU macomputer application, alist of available comntands or choices.

The area below the TtrLE bar in an application window is usually the menu bar. Menu items vary from one application to another but (in Windows) generally include I'ile. Edit. View. Tools, atid Help. Each of these items has apull-down or drop-down menu listing choices in that category. For example, the File menu generally lists New, Open, Close. Save, Save As, Print, and so on. See also fly-out menu; pop-up menu. MERC nickname for the Chicago mercantile exchange (cme). The

exchange Inides many types of futures, futures oprroN.s, and foreign currency futures contracts. See also securities and COMMODtriKS EXCHANGES.

MERCANTILE system of commerce operated by merchants. MERCANTILE AGENCY organization that supplies biisine.sses with credit ratings and reports on other firms that are or might become cus-

V

443

MKRCHANDISING DIRECTOR

lomers.Tlic largest of the agencies. Dun &Bradsireci, provides credit information on companies of all descriptions, along with awide range of other credit and financial reporting services. MERCANTII.E LAW bratich of law. often called co.MMi-RaAL law, that deals with rules and institutions of commercial transactions; derived from f«M' merchant.

MERCANTII.E ROBBERY INSURANCE coverage for actual or attempted robberv' of money, securities, or other prttperty. MERCANTILISM

I. seventeenth and eighteenth century economic policy under which trading nations generated wealth and power by exporting manufac¬ tured goods in exchange for gold. 2. in modem times, second-rate status of nations having aheavy

dependence on imported manufactured goods. MERCHANDISE goods and commodities sold at the retail level.

Merchandising is the buying, presenting, and selling of merchandise. This includes all the related activities of advertising, displaying, and promoting merchandise to the retail custitmcr. MERCHANDISE ALLOWANCE sum of money given or allowed for merchandise that has been returned because of cither poor quality or overstocking.

MERCHANDISE BROKER agent acting for merchandise buyers and sellers who is paid acommission or fee for negoiittting sales of spe¬ cific lots of goods. Amerchandise broker puts the merchandise buyer and seller together for the purposes of asale without taking possession of the actual merchandise.

MERCHANDISE CONTROL process of collecting and evaluating data on all aspects of each retail merchandise category, including sales, cosi.s. shrinkage, profits, and turnover. Control is achieved through the maintenance of an inventory book where all data arc evaluated, MERCHANDISING

I. "The planning involved in marketing the right merchandise or ser¬

vice at the right place, at the right time, in the right quantities, and at the right price.” (American Marketing Association)

2. promotional sales iictivities of an advertiser’s sales force, retailers, wholesalers, or dealers, including advertising, point-of-purchase displays, guarantee seals, special sales, and in-store promotions, M E R C H A N D I S I N G A L L O WA N C E s e e p r o m o r i o s A L A t . t a D WA N C U .

MERCHANDISING DIRECTOR individual resptmsihic for directing the merchandise sales effort for amanufacturer, retailer, wholesaler,

distributor, dealer, or advertising agency. See also MKRCtiANDlsiNCi.

V

MERCHANT

444

MERCHANT one in the business of purchasing and selling goods with the expectation of earning aprofit- Commonly refers to aperson who buys goods at awholesale price level for sale at retail; aretailer or a trader. Under the umhokm commI'KOal codb (ucc), the definition of mercham may include some businesses not engaged in retail trade, such as car dealers, producers of remanufactured engines, manufac¬ turers of mobile homes, and. with respect to the leasing of an apart¬ ment. landlords. Amerchant is considered knowledgeable of the goods he trades in. M E R C f L \ N TA B I , E I. salable.

2. reasonably fit for the purpose for which an article is manufactured and sold.

3. having at least average quality, compared to similar products. M E R C H A N TA B L E T I T L E s e e M A R K E TA B L E T I T L E . MERCHANT

BANK

1. financial institution that engages in invesimeni banking, counsel¬ ing. negotiating in mergers and acquisitions, and avariety of other services.

2. bank that has entered into an agreement with amerchant to accept

deposits generated by bank crcdil/chargc card transactions, MERCOSUR/MERCOSUL Southern Common Market (Spanish: Mercado Comm del Sur. Portuguese: Mercado Coinum do Sul), estab¬

lished by afree trade agreement among Argentina, Brazil, Paraguay, and Ur.igti;iy. M E R G E

1. combine two or more lists or files by combining duplicate records into single records. Merging is normally done in conjunction with apuiging process that eliminates duplicate or undesirable names. 2. financially combine two companies so that only one of the compa¬ nies survives as alegal entity. MERGENT, INC. pan of Xinhua Finance, which acquired Mexxly's publications group in 1998; provides global business and financial information on publicly traded companies and fixed-income securi¬

ties. Producl.s include Mergent Online. Mergem BondSource. the Dividend Achiever Index series. Mergent Manuals and Handbooks, and other products. Four exchange-traded funds are based on Dividend Achiever Index methodologies. MERGER classified as utype Areorganization, in which one corpora¬

tion absorbs the corporate structure of another, resulting in liquidation of the acquired enterprise. If no B(X)T is received, the reorganization may be tux free. MERIT INCREASE increase in wages achieved through superior per¬ formance on the job; also called merit pay: merit raise. Merit

M E T R O P O L I TA N A R E A

445

increases are commonly specified as being negotiable in acomr.ici between aunion tmd managcincnt. MERIT

R AT I N G

I. employee rating achieved through aperiodic employee evaluation system, often used as the basis for pay increases and/or promotion. 2. rating achieved on astandard civil-service type merit examination, signifying the level of achievement on the exam. MESSAGE HOARD Web page, Nt-wscROUP, or dialup computer system where users can post messages and reply to messages posted by oth¬ ers. Messages arc usually public and visible to all u.scrs. METADATA duui iibotii Jala. In the context of computer files, it includes information siicli as the dates the file was created, mtxiified, or accessed,

the author’s name and company, the computer it was created on, iind so on. Hidden data, such as file properties, comments, or revision markings

in aword processing document, can cause considerable embarrassment (and even legal repercussions) if not removed before the file is shared. File security settings and application add-ins such as Microsoft's Remove Hidden Data ttxtl can be used to sanitize documents before

making them available electronically via e-mail or on the Web. METERED MAIL letters and package.s stamped by apostage .mi-ti-r rather than astamp. METER RATE, METERAGE charge asse.ssed according to the

amount shown on ameter, as contrasted with aspecified price. The user pays for the amount or consumption shown on the meter. Utility usage is commonly metered, although the price is not determined by the meter itself.

METES AND HOUNDS terriloritil limits of properly expressed by mea¬

suring distances and angles from designated landmarks and in relation to adjoining proponies. METHODS-TIME MEASUREMENT (MTM) standardizing the time

needed to complete atask by determining the average production lime interval. This is apan of the scionlific management school or the effi¬

ciency management approach to work standardization. METRICATION process of convening an existing system of weights and measures lo the metric system of weights and measures. Sec also MtrrRic

SYSii-M.

METRIC SYSTEM decimal system of weights and measures in which the gram, meter, and liter are the basic units of weight, length, and capacity, respectively. See also mktrication.

METROPOLITAN AREA generally the developed region economi¬ cally attached to alarge central city. See aho consolidated mi- iroP O L I TA N S TAT I S T I C A L A R E A ; M i T T K O l H t L l TA N S TAT I S T I C A L A R E A ! P K I . M A RY M K l t i O P O L I TA N

S TA l

ISTICAL

AREA.

M E T R O P O L I TA N D I V I S I O N

446

METROPOLITAN DIVISION county or group of counties within a large metroioutan STATtSTiCAu area that functions as adistinct eco¬ nomic area.

M E T R O P O I - I TA N S TAT I S I I C A L A R E A a c o r e - b a s e d s t a t i s t i c a i

AREA associated with at least one urbanized area that has apopulation

of at least 50,000. The Metropolitan Staiistica! Area comprises the central county or counties containing the core, plus adjacent outlying

counties having ahigh degree of social and economic integration with the central county as measured through commuting. MEZZANINE FINANCING debt that is subordinate in priority to ii company’s senior debt, yci ahead of junior debt. MFD see multietinctio.n device.

MICROCAP stocks in very small companies with market capitaliza¬ tions of $250 million or less.

MICROCOMPUTER computer whose central processing unit (cpu) consists of asingle integrated circuit known as the microprocessor.

Ordinarily amicrocompuicr is used by only one person at alime. All home or personal computers (PCs) are microcomputers. MICROECONOMICS study of the behavior of basic economic units such as companies, industries, or households. Research on the compa¬ nies in the airline industry would be amicroeconomic concern, for in.stance. See oho macroiX'onomics.

MICROMOTION STUDY analysis of a.series of very short motions succeeding each other so rapidly that the eye confuses them. Micromotion study can be used for the reconstruction of an action through an analysis of its micromoiions. M I C R O P O L I TA N S TAT I S T I C A L A R E A t i c o r e - b a s e d s t a t i s t i c a i .

AREA associated with at least one urban cluster that has apopulation of at lca.si lOjOOO but less than 501X10. The Micropolitan Statistical Area

comprises the central county or counties containing the core, plus adjacent outlying counties having ahigh degree of social and eco¬

nomic integration with the central county as measured through com¬ muting. MICROPROI.'ESSOR integrated circuil containing the entire centoai.

I'ROcessing unit (CPU) of acompuier, all on one chip, so that only the memory and input-output devices need lo be added.

MICROSOFT ihe world's leading software-producing company, head¬ quartered in Redmond. Washington, and founded by William Oates and Paul Allen in 1975. Among its early products were BASIC and MS-DOS (marketed lo IBM for use in its computers as PC-DOS). For further information see hllp://www.microsofl.com. MICROSOFT WORD see word.

447

M I L L A O E R AT E

MID-CAP stock with amiddle-level markut (.'apitalization. Midcap

Slocks lypically have between $1 billion and S5 billion in outstanding market value. Many mutual funds specializing in mid-cap slocks will use the word “Mid-cap" in their names. MIDCAREF.R plateau point in amiddle manager ’s career when

advancement opportunities appear to be blocked by severe obstacles iind little challenge is left in the current position. Amidcareer jiiatcau is best alleviated by midcareer advancement programs of education and training. MIDDLE MANAGE.MENT managers with full management responsi¬

bilities reporting to higher level managers. In many organi/atinns midtile managers are called tlepiirtmcntal managers, plant mtinagers, assistant managers, and so on.

MID-MONTH CONVENTION in taxation, with respect to dcpreciaiing residential and nonresidcniial real property, convention whereby property is deemed placed in serv ice or disposed of at the midpoint of

the calendar month in which it was placed in .service or disposed of. MIDNIGHT DEyVDLINE completion requirement ending at midnight, which marks the end of acalendar day (such as April 15 for personal tax returns).

MIGRANT WORKER worker moving from one region of the country

to another to find employment. Migrant workers are used extensively for crop harvesting, mandating that they follow the harvest seasons. ■MIL or MILL one tenth of acent. The term is used in expressing tax

rales on aper-doilar basis. For example, atax rate of 60 mills means that taxes are 6cents per dollar of assessi-u vai.uation. M I L E A G E ( TA X ) s e e s t a n o a k u M i t - K A O h M h n i o t ) .

MILITARY-INDUSTRIAL COMPLEX relationship between the mil¬

itary and industry. It was first described by President Eisenhower in his farewell address, where he warned of the irresponsible power of the military-industrial complex.

MILKING taking full advantage of asituation fora company's or one's own personal gain. An example is abusiness person who is milking a customer for all he is worth.

MILKING STRATEGY shon-range marketing strategy planned to take

the laigesi possible profit from an item in the shortest amouni of time without regard to the item’s long-range possibilities for sales. MILLAGFi R/\TE lax rate applied to property. Etach mill represents $1 of tax assessment per SI .(XX) of assessed property value. For example, the millage rale for property taxes in the Bumplon school district is 20 mills. Ahome with asses.sed value of $l00d)00 pays S2,(KXI ayear in properly taxes to the district.

MILLIONAIRE

448

MILLIONAIRE individual whose not worth exceeds $1 million. M I L L I O N A I R E O N PA P E R i n d i v i d u a l w h o s e a s s e t s e x c e e d S I m i l ¬

lion but arc not in the form of cash. For example, the assets could be in the form of securities or real estate. MIME see mui.tipurpose internet mail extension.^.

MINER,AL LEASE an agreement that provides the lessee the right to excavate and sell minerals on the property of the lessor or to remove

and sell petroleum and natural gas Ihtm the pool underlying the prop¬ erty of the lessor. In return, the les.sor receives aroyally payment based on the value of the minerals removed.

MINERAL RIGHTS privilege of gaining income from the sale of oil, gas. and other valuable resources found on or below land. Mineral

rights can be sold or leased separately from the land ownership. MINIMAX PRINCIPLE decision criterion based on reducing to the lowest level the difference between the possible outcomes and the best possible outcome re.sulimg from the decision, The minimax prin¬ ciple is used to select rcsult(s) with the least amount of regret in case of failure.

MINIMLIVI COST in economics, the cost objective of the firm at vary¬

ing levels of output, expressed by the firm's cost function. MINIMUM LEASE PAYMENTS regular rental payments excluding EXECUTORY costs to he made by the lessee to the lessor in aCapital LEASE. The lessee report.s an asset and liability at the discounted value of the future minimum lease payments. MINIMUM LOT AREA smallest building lot area allowed in a.subdi¬ vision. generally specified by azoning ordinance. MINIMUM PAYMENT minimum amount that aconsumer is required

to pay on arevolving charge account in order to keep the account in good .standing. If the minimum payment is not made, late payment penalties arc due. If the minimum is .still not paid within afew tnonihs. credit privileges will be revoked. If aconsumer pays just the minimum due. interest charges continue to accrue on all outstanding balances, including new purchases. MINIMUM PENSION LIABILITY condition that is recognised when

the accumulated benefit obligation is greater than the fair value of plan assets. However, no recognition is given in the opposite case. When an

accrued pension liability exists, only an additional liability for the dif¬ ference between the minimum liability and the accrued pension liabil¬ ity can be recortled.

MINIMUM MAGE lowest allowable hourly wage permitted by the government or aunion contract for an employee performing apartic¬ ular job.

449

MISMANAGEMENT

MINI-WAREHOUSE abuilding scpuraied inio relatively bmall, lockable individual units, typically with agarage door-style opening, that provides storage. Units arc typically rented month to month and are

sized from 5' x5' to 25' x25'. Atypical 10' x20' mim-\iarehouse can be rented for $1,50 per month to be used for the storage of excess busi¬ ness or household goods.

MINOR person under the age of majority specified by law (18 to 21 years, depending on the slate). Cenain contracts, entered into by a minor, arc voiDAtiLt- by the minor. Note that the other party is bound: only the minor may void them. For purposes of the kiddie lax. aminor is anyone under age 14.

MINORITY BUSINESS increasing number of businesses owned by females or African Americans. Their success is hampered by alack of financing and management experience. The federal government has

responded to their particular needs by earmarking apercentage of gov¬ ernment coniraci.s for minority businesses. .MINORITY DISCOUNT areduction from the MARKbT value of an

asset because the MI.SORITV inthrkst ownerfs) cannot direct the busines.s operations. See eamily LlMl'l hl) PARTNERSilll’, Comrast wiih CON1ROL

PREMIUM.

.MINORITY INTEREST or MINORITY INVESTMENT interest of

shareholders who. in the aggregate, own less than half the shares in a corporation. See also majority shareholder, MINT, MINTAGE, MINTING OE MONEY production, usually by govcrnmenl, of niitncy. Minliixe usually refers to the production of coins rather than paper money. MINUS

TICK

see

iwwntick.

MINUTES tnmscnplion or other wrillen record of ameeting. Corporations keep miniiies of iin|X)nanl meetings in their permancnl records. MISCELLANEOUS INCOME) revenue that is unrelated to and much

smaller than that from the main business operation. An example would be revenue from vending machines in an apanmeiii complex. MISCELLANEOUS ITEMIZED DEDUCTIONS job expenses and other miscellaneous expenses that are deductible by individual tax¬ payers but arc mil caiegorizable as medical expenses, taxes, interest, charitable contrihulions, casually and theft losses, or moving

expenses. Most miscellaneous itemized deductions are subject to a2% floor (a reduction of the total deduction by 2% of adjusted cross INCOME (AGD). MISDEMEANOR class of criminal offenses less .serious than felonies

and sanctioned by less severe penalties. MISMANAGEMENT poorly managed activities In an organization. A mismanaged operation fails to achieve its goals, is extremely wasteful.

MISREPRESENTATION

450

and is generally indicalive of administrative procedures that arc not well thought out and directed. M I S R E P R E S E N TAT I O N u n t r u e s t a t e m e n t , w h e t h e r u n i n t e n t i o n a l o r

deliberate. It may be aform of nondisclosure where there is aduty to disclose, or the planned creation of afalse appearance. Where there is misrepresentation of material fact, the person injured may sue for damages or rescind the contract. See also false ADVF.RTistNG; fraud. MISSIONARY SALESPERSON see det ail person.

MISSION STATEMENT definition of acorporation's vision and val¬

ues, often printed on plaques and wallet cards, posted on its web site, and otherwise publicized. The mission siatemenl typically emerges as part of the strategic planning process. See also credo. MISSTATEMENT OF AGE falsification of birth date by an applicant for alife or health insurance policy. If the company discovers that the wrong age wa-s given, the coverage will be adjusted to reflect the cor¬ rect age according to the premiums paid in. MISTAKE in hiw, act or omission arising from ignorance or miscon¬

ception. which may, depending upon its character or the circumstances surrounding it, justify rescission of acontract, or exoneration of a defendant from toct or criminal liability.

MISTAKE OF LAW ignorance of the legal consequences of one's con¬ duct, though one may be cognizant of the facts and substance of that conduct.

M I T I G AT I O N O F D A M A G E S

1. requirement that one injured by another's breach of an agreement or TORT employ reasonable diligence and care to avoid aggravating the injury or increasing the damaoeS2. defendant's request to the court for areduction in damages owed to the PLAINTIF7. arequest that the defendant justifies by evidence demonstrating that the plaintiff is not entitled to the full amount that might otherwise be awarded. M I X

I. in recording or broadcast, combination of different sound elements, such as music, direct voice, sound effects, announcer voice, or

singing voice, into asound track for radio and television commer¬ cials or programs or audio recordings. 2. in television broadcast, combination of programs in atelevision contract for aseries.

3. in retailing, combination of merchandise in aretail package or the entire viii'ieiy of inventory of aretailor, wholesaler, or distributor. 4. combination of products, including various sizes of the same prod¬ uct for aparticular brand in agiven store. 5. see marketing mix; product mix.

V

MODERN PORTFOLIO THEORY (MPT)

451

MIXED ECONOMIC SYSTEM. MIXED ECONOMY economy in

which botli market forces and government intervention tind direction are used to determine resource allocation and prices. The U-S- econ¬

omy is amixed economy; while it relies to agreat extent upon markcLs, government also regulates pans of the mostly private economy. MIXED SIGNAI.S unclear message; u.sually two contradicting messages. MEM sec MULTii.r.vi-i, marketing; see also pyramiding. MEP see masti-.r umited parinersiiip. M

O 1. jee MONEY ORDER.

2. see MODUS ophrandi, or operating method. MOIIIEE COMMERCE (M-COMMERCE) electronic commerce

transactions using wireless devices and Internet accc.ss instead of PCbased technology. MODE

1. manner of existing or acting; way. method, or form. An example is acompany that has aparticular mode of operation that employees are expected to follow. 2. Statistics: tlic tnost commonly occurring value in adata set. Normally tlie mode is presented in agraphical formsit illustrating the common occurrence. It is extremely useful when making

graphical presentations regarding data occurrences. MODEEING designing and manipulating amathemalic;d representation lh;il simulates an economic system or corporate financial application

so that the effect of changes can be studied and forecast. See also MODEL

U N I T.

MODEL UNIT representative product, such as ahome, apartment, or office space, used as part of usales campaign to demonstrate the design, structure, and appcar.ince of units in adevelopment. MODEM device that links computer systems via telephone lines cntibling computers in different locations to exchange information; short for mndulaior-dcmodulaior. Modems convert telephone

impulses to compulcr-inieiprciablc impulses. There must be amodem at each end of the communications link to either send or receive con¬

verted impulses. MODERNIZE alter aproperty by installing up-to-date equipment,

making contemporary cosmetic improvements, and deleting obsolete facilities.

MODERN PORTFOLIO THEORY (MKI )investment portfolio deci¬

sion approach that applies asystematic method of elevating rates of return while minimizing risk. The portfolio must include both risky and risk-free securities that run counter, in some degree, to each other.

V

M O D I F I E D A C C E L E R AT E D C O S T R E C O V E R Y S Y S T E M

452

M O D I F I E D A C C E L E R AT E D C O S T R E C O V E RY S Y S T E M (MACRS) amethod of deprkciation introduced in 1986. Assets ate

depreciated over longer lives than provided by the ACCELERATbD COST RKCOVERY SYSTEM (acrs). Personal property can be depreciated using DECLtNlNG-BALANCE MEntODS- Real property can be depreciated only

under the straioht-une method. MACRS also provided different conventions for calculating depreciation, determined by when assets were placed in service. See also oeneral depri-ciation system (gsu). MODIFIED ACCRUAL governmental accounting method. Revenue is recognized when it becomes available and measurable. MODIFIED ADJUSTED GROSS INCOME (MAGI) the amount of a taxpayer’s ADJU.s i'til) GROSS income (ACt) from federal Form 1040. with¬ out certain incume/dcduction.s that arc normally included/ deducted. All tax-exempt interest income i.s included. Modified adjusted gross income is used to determine whether aSocial Security recipient who has other

income is required to pay tax on Social Security income. MODULAR HOUSING dwei.lino units constructed from components prefabricated in afactory and erected on the site. See also manufac1VRED

housing.

MODUS OPERANDI (MO) manner of operation; the means of accom¬

plishing an act; especially, the characteristic meihod employed by a person in certain acts; the way one (who often is .sly in business deal¬ ings) operates. MOLD, BLACK see stachybotrys chartorum.

MOM AND POP STORE small retail store having limited capital, prin¬ cipally employing family members. MOMENTUM rale of acceleration of an economic, price, nr volume

movemeni. An economy with strong growth thtit is likely to continue is said to have alot of momentum.

- M O M E N T U M P L . AY ' E R t r a d e r i n t h e s t o c k o r c o m m o d i t i e s m a r k e t

who identifies atrend in the price movemeni of asecurity and rides ihe trend as long as it is profitable. M O N E TA R I S T e c o n o m i s t w h o b e l i e v e s t h a t t h e m o n e y s u p p l y i s t h e

key to the ups and down in the economy. Monetarists such as the late

Milton Friedman ihink lhai the money supply has far more impact on ihe economy’s future course than, say, the level of federal spending. Monetarists advocate slow but steady growth in the money supply. Contrast with Keynesian economics.

MONETARY pertaining to. or having to do with, money, money cre¬ ation. money supply, and government management of money, MONETARY BASE the most narrow definition of the money supply, equal to the amount of currency plus commercial bank reserves held

453

MONEY INCOME

by the centra!, bank (the Federal Reserve Bank in the United States). Designated u.s MO in monetary terminology. MONETARY’ ITEM asset or liability whose amounts arc fixed or deter¬ minable in dollars without reference to future prices of specific goods

or services. Their economic significance depends heavily upon the general purchasing power of money. The two types of monetary items are monemry assets and monetary liabililies. MONETARY POI.ICY the efforts of anation’s central bank aimed at

influencing infiatioii rates, economic growth, and interest rates by varying the siifiply of money. Contrast with l!lSt!Al. I’OLICY. M O N E TA RY R E S E RV E

1. government’s stockpile of foreign currency and precious metals,

used to back up its currency, also called inieniatitmal reserves. 2. Federal Reserve Board’s requirements that banks keep on hand cer¬ tain proportions of their deposits in ca-sh or near-cash equivalents. MONETARY STANDARD manner in which agovernment creates faith in the value and reliability of its currency.

MONETIZE THE DEB Tfinance the nationai. deiit by printing new money, causing inflation.

MONEY coinage, currency, and other commodities recogniited by mem¬ bers of an economy as being reliable stores of value and media of itxciiANOi;.

MONEY CENTER BANK one of the largest banks in one of the major financial centers of the world, among lliem New York. Chicago, San

Francisco. Los Angeles, London. Paris, and Tokyo. These banks have major national and international influence. MONEY DEMAND SCHEDULE the demand for money at varying

levels of ODP, composed of the asset dk.mand for money and the T R A N S A C T I O N S D E M A N D F O R M O S E Y.

.MONEY FUND REPORT A\’ERAGE average of all major money

MARKET FUND yields, published weekly for 7- and 30-day yields. The average is compiled by iMoneyNet. asubsidiary of Informa Financial

Information, which publishes the Momy Funii Report, an industryleading weekly newsletter since 1975.

MONEY ILLUSION when increase in money income is thought to

increase the overall purchasing power when, in fact, price increases of similar pro|xmion result in the purchasing power iictually remaining the same.

MONEY INCOME income measured only in money. It contrasts with RKAt- INCTIMK. which lakes into account chango.s in the purchasing

powi* of money due to inflation or defiation.

V

MONEY

MARKET

454

MONEY MARKET market for ihon-ierm debt insiruments. such as

negotiable certiflc^es of deposit. Eurodollar certificates of deposit, commercial paper, banker's acceptances, U.S. Treasury' bills, and dis¬ count notes of the FANNtls MAB. frkddik mac, and Federal Fann Credit System. MONEY MARKET FUND open-ended mutual fund that invests in

commercial paper, bankers' acceptances, repurchase agreements, gov¬ ernment securities, certificates of deposit, and other highly liquid and safe securities and pays money market rales of interest. The fund'.s net

asset value remains acon.stant $1 ashare—only the interest rate goes up or down. See also breaking tiik buck.

MONE^’ ORDER financial instrument that can be easily convened into ca.sh by the payee named on the money order. The money order lists both the PAYEE and the person who bought the instrument, known as the /Hiyor. Money orders are issued by banks, telegraph companies, post offices, and travelers’ check issuers to people presenting cash or other forms of acceptable payment. MONEY SUPPl.Y the total slock of money in the economy. Economisi.s identify several types of “money supply,” based on liquidity: Ml: the .sum of currency, demand deposits (checking. NOW accounts), travelers' checks, etc.

M2: M! plus savings and other highly liquid lime deposils, M3: M2 plus other veiy liquid instruments. MONITOR

In general: anything that keeps track of something else. Computers:

1. program that supervises the activity of other programs. 2. device similar to atelevision set that accepts video signals from

a

computer and displays intdrmalion on its screen.

MONOPOLIST firm or individual entrepreneur that is the sole producer of agood and so represents the entire market supply of that goixl. MONOIHILISTIC COMPETITION amarket situation in which the

products supplied are not perfect subslilules, thereby allowing the sup¬ pliers to exert some monopoly power. Each firm attempts to establish its brand as adistinctive and superior form of the product, which allows it 10 command ahigher price than other suppliers receive. MONOPOLY control of the protiuclion and distribution of aproduct or

.service by one funt or agroup of firms acting in concert. In its pure form, monopoly, which is characterized by an absence of competition, leads to high prices and ageneral lack of responsiveness to the needs and desires of consumers. The most llagranl monopolistic practices in

the United Stales were outlawed by aniitrusi laws. See also cartel; monopsony; natural monopoly; oi.ioopoly; perfect competition.

MORALE

455

MONOPOLY I’RCCI'; ixjuiUBRiUM price arrived at in amarket in wtiich

the supply is amonopoi.y. According to economic theory, the monopoly price is higher than the price that would prevail if competition existed. MONOPSONY market situation in which there is only asingle con¬

sumer of the good produced. MONTE CARLO .simulation method that uses random numbers to deter¬

mine events. Suppose that you know the probability that apanicular event will happen, but it is ttxi difficult to calculate the probability that acomplicated combination of events will occur. In the Monte Carlo method you use arandom number generator to caleulate the prohability of the event.

MONTHLY INVESTMENT PLAN plan whereby an investor puts it fixed dollar aiiioum into aparticular investment every month, thus

building aposition at advantageous prices by means of dollar cost AVERAGING.

MONTH-TO-MON’I'll TENANCY leasb agreement extendable or cancelable each monih.

MONTREAL EXCIIANGE/UOURSE DE MONTREAL Canada's

oldest stock exchange and second-largest (after Toronto) in dollar value of trading. STOCKS, bonds. nmiRE-S, and options are traded through aspecialist .system combined with automated systems. MONUMENT fixed object and point established by slkveyors to deter¬ mine land locations. See also landmark.

MOODY’S INVESTMENT GRADE rating assigned by moody's INVESTORS st;KVTCi; to certain municipal short-term debt securities, classified as MIG-1.2, 3. and 4to signify best, high, favorable, and

adequatequality,respectively.AllfouraretNVESTMENTgradeorbank quality.

MOODY'S INVESTORS SERVICE financial services company head¬

quartered in downtown Manhattan. Moody's is one of the three be.stknown bond-rating agencies in the country, the others being Fitch Ratings and Standard &Poor's.

MOONLIGHTING employees who work asecond job for additional i n c o m e ,

The term derives from the faei that many of these jobs are

night jobs-

MOOT POINT amatter that is still open to discussion or debatable, bul

usually with the eonnotalion that il is an academic question because it i s n o longer significant or because agreement is unlikely to be reached. Ml. M2, M3 JCSHEKT FIN.ANCING financing that does not add debt on abalance sheet and hence does not affect bonowing capacity as it would be determined by financial ratios. The most common example would be alease structured as an operating lease rather than aCAI'ITAI. l.liASE. GKNIiRAU.Y ACCKt^D ACCOUNTING PRINCIPLES (GAAP)

require that information be provided in financial siaiement.s about offbaionce-shecl financing involving credit, market, and liquidity risk. See also .sptciai.-i’i.rposk ENTITV.

OFF-BUDGET federal programs not counted toward budget limit.s due to provisions in current law. For example, Social Security and the

United Stales Postal Sers’ice arc off-hudgel based on their being selffunding. Also, supplemental appropriations, meaning funds needed to meet emergencies, such as dis-nster relief, are off-hiidgei. OFFER

1. manifestation of willingness to enter into an agreement.

2, promise, commilmciil to do or refrain from doing some specified thing ill the future.

3. ill the .securities trade, indication of price and volume available from open market sellers of slocks and bonds.

4. underwriting ill which abroker offers alarge quantity of aspe¬ cific issue at afixed price, called an offering. OFFER AND ACCEP'iANCE see agreeme.nt of sale; contract,

OFFEREE person who receives an offer from another. The offeree may accept or reject the offer.

OFFERER party who presents an offer. The offer may be rescinded by the offerer anytime before it is accepted. OFFERING see I’lm.ic opteri.ng. OFFERING CIRCUI.AR see prospectus.

V

488

O F F E R I N G D AT E

OFFERING DA'I'E dace on which adistribution of slocks or bonds will first be available for sale to the public.

OFFERING PRICE price per share at which anew or secondary distri¬ bution of securities is offered for sale to the public; also called PUBLIC OFFEiUNG price. OFFEROR .tee OVTl-RKR.

OFFICE 1HJII.DIN(> astructure used primarily for the conduct of busi¬ ness, such as administration, clerical services, and consullalion wilh clients and associates. Such buildings can be large or small, and may house one or more business concerns.

OFFICE MANAGEMENT organizing and administering the activities

that normally occur in any day-to-day business office environment. An office manager is one who has the administrative responsibilities of office management. OFFICE, MICROSOFT suite of application software for office use.

Bundling varies from one version to the next, but the Professional Edition typically includes Word, Excel. PowerPoint, Outlook. OneNoie, and Access. Special academic pricing is available for col¬

lege faculty and students, and suites with fewer applications are avail¬ able for "Home and Student" or "Home and Business” use. Beginning w i t h O f fi c e 2 0 1 0 , M i c r o s o f t o ff e r s O f fi c e S t a r t e r — r c d u c e d - f u n c i i o n -

ality versions of Word and Excel—available only preinstalled on new computers. These versions are free and do not expire, but Ihey are sup¬ ported by advertising that cannot be hidden. Microsoft's primary com¬ petition in the office arena is the free open source software from OpenOfficc.org. OFFICE

OF

I N T E R S TAT E

LAND

SALES

R E G I S T R AT I O N

(OII..SR) adivision of the Department of Housing and Urban

Development that oversees the sale of building lots or recreational lots across slate borders. OFnCE OF MANAGEMENT /AND BUDGET (OMB) at the federal

level, agency within the Office of the President responsible for:

(I) preparing and presenting to Congress the President's budget; (2) working with the Council of Economic Advisers and the Treasury

Dcpartmcnl in developing afiscal program; (3) reviewing the admin¬ istrative policies and performance of government agencies; (4) advis¬ ing the President on legislative matters. OFFICE PARK aplanned development specially designed for office Buu.DiNQS and supportive facilities, such as restaurants. Some office

parks arc designed to attract specific tenants, such as aresearch park or amedical services park. OFFICIAL EXCHANGE RATE exchange rate of acountry's currency

as set by the government of that country. Many countries, including the United States, do not have official exchange rales for their currcncie.s.

489

OFF THE BALANCE SHEET

OI' !! ICTAL RESERVES dcposils of gold, currency, ;md SDRs held at (he IMF by member countries.

OEELINE not connected. Aprinter is offline when it does not have active connection to the computer; Internet users can download mail and NKWSOROL'P messages and work offline, thtil is, not connected to a

n

their ISP.

OFF PEAK period of minimum usage, often used as abasis for usaee

charges. The telephone company has off-peak rales during the late night and holiday periods.

OFF-PRICE STORES retail stores offering merchandise at prices less than other retail stores. They acquire out-of-sca.son products and dis¬ tressed merchandise from other retailers, including bankruptcies, and from manufacturers htiving production overruns. Off-price stores c a n threaten retailers carrying name-brand merchandise at full retail prices. OFF-SALE DATE dale that newsstand returns are tabulated and leponcd back to the wholesaler or distributor. See also on-sale date. O F F S E T

Accounliiis: amount equaling or counterbalancing another amount on

the opposite side of the same ledger or the ledger of another ticcouni.

Banking; legal righi of abank to seize deposit funds to cover aloan in dcfaull, called n'g/i/ of offset. Printing: common priming method, in which an iniermediaic blanket

cylinder is used to transfer tm image from the image etinicr to the tar¬ get material (such as apiece of ptiper). Also called offset lithography. Securities, commodiiie.s. oplUiii.s: (l| closing transaction involving the purchase or sale of tin option having the same features as one

already held. (2) ItEDtiE, such as the .short sale of astock to protect a capital gain. OFFSHORE

1. term used in the United State.s for any Tmaneitil organization with headquarters outside the country. Mtiny hanks have offshore sub¬ sidiaries that engage in aetiviiies that arc either heavily regulated o

r

taxed or are not allowed under U.S. law.

2. oil and gas drilling ventures in (he sea.

OFFSHORE EXCHANGE RATE the market price of aregulated cur¬ rency outside itie legal jurisdiction of the regulating government. It could be described as alegal black market rate.

OF'F-.SITE COST' expenditure related to construction thtit is spent away

from the place of construction. In creating a.subdivision, offsite costs include the costs of extending n>ads, sewers, and water lines to the SITE. Site costs include landscaping tind other site improvements.

OF'ETHE BALANCE) .SHEET financial transaction where the properly involved does not appear on tlie baI-anci; siielt. For example, acom¬

OFF THE BOOKS

490

pany may lease rather than buy real estate or iranspwtacion equipment. Depending on the lease terms, aCPA may not require the a.sset and obligation for future lease payments to be on the balance sheet. OFF THE BOOK.S payments or barter of which no formal record is kept so that both parties can hide the transaction from taxation and/or other government regulation.

OFF TIME period of lime when not in service. Off lime for acomputer or machine is when it is not scheduled for use or needs maintenance,

alterations, or repairs. OFHEO PRICE [NDF.X ahome price index compiled by the Office of Federal Housing Finance Agency. The index is based on data taken from loans held by the home mortgage GSEs. Values are available for each state and metropolitan area in the country. Series is HPi after September 2008. OF RECORD refers to the recording of documents such as deeds or

MORTCAGES with the appropriate entity as well as to the testimony recorded its the official transcript of alegal case. The attorney of record is the official designate of aparty upon whom service of papers may be made.

OJE AND GAS LEASE agreement that gives the right to explore for oil, gas, and sometime.? other minerals and to extract them from the ground. OIL AND GAS LIMITED PARTNERSHIP partnership consisting of one or more umited (special) partners and one or more general PARTNERS that is structured to find, extract, and market commercial

quantities of oil and natural gas. OIL PATCH stales in the United States that produce and refine oil and gas. including Texas. Oklahoma, Louisiana. California, and Alaska. Economists refer to oil patch slates when assessing the strength or weakness of aregion of the country lied to movements in oil prices. OLE (pronounced ol/) see OBJECT linking and embedding. OKUN'S LAW empirical relationship between unemployment and cross DOMESTIC PRODUCT (GDP) developed by the economist and former fed Chairman Arthur Okun. The law slates that for every 1% increa.se in

unemployment, there will be a2% decrease in the national GDP. O L I G O P O LY

1. industry in which afew large sellers of similar products, such as automobilc.s, dominate the market.

2. condition of aspecific products market so dominated. An oligopo¬ listic industry is more concentrated than acompetitive one but less so than amonopolv. See also oligopsony.

OLIGOPSONY market in which afew large buyers control the purchase

of aproduct; in the tobacco industry there are about five major com¬ panies that purchase from numerous growers.

491

O N L I N E D ATA B A S E

OMBUDSMAN

1. originally yovcmmcni official appoimed loactasarepreseniaiive lor citizen complainl.s and i|ucries concerning govemmcnial aciiviiies.

2. any organiialional official who senes to channel any outside

o r

inside complaints or questions concerning an organization. 3. ainembcr of the IRS Commissioner’s immediate staff who directs the IRS’s PR()mj;.M resolution program.

OMITFED DIVIDEND dividend that was scheduled to be declared hy acorporation, but instead was not voted for the time being by the board of directors. Dividends are sometimes omitted when acompany has run into financial difficulty and its board decides it is more impor¬ tant to conserve cash than to pay adividend to shareholders. See also C U M U l . AT I V l ;

PREn-KRia)

STttCK.

ON ACCOUNT

lit gcncrtil: in partial payment of an obligation. Finance: on credit tertns. It applies to arelationship between aseller

and abuyer wherein payment is expected sometime after delivery and the obligation is not dtKumctited by anote; synonymous with open ( i c c o i m r.

ON CONSIGNMENT see c:o.nsignment.

ON DEMAND when asked for. For example, anote payable on denmnti is payable when the sunt is requested. It is called adema.nd note if no due date is included.

O N E - H U N D R E D - P E R C E N T L O C AT I O N l o c a t i o n w h e r e a r e t a i l

establishment would achieve maximum sales volume compared to other locations in the local market area.

OISE MISUTE MrW’AGEK title of book by Kenneth Blanchard and Spencer Johnson: simplification of management issues into superficial one-minute praise or reprimand; oversimplification of complex man¬ agement situations.

ONE-TIME BU^'ER customer on alist who has made only one purchase from the list owner since his or her initial order. See also MULTIBDVI-K.

ONE-TIME RATE rale paid by an advertiser who uses less space than IS necessary to qualify for adiscount. The one-time rate, therefore, is

afull-cosi advertising rale without any discounts.

ONLINE connected lo acomputer, network, or host, especially to the Internet: coiurasl with ohh.ine. Auser may consult online Help (appli¬

cation documentation in searchable form stored in the computer) or "go online’’ to check l-.mail.

ONLINE DATABASE information transmitted by telephone, microwaves, etc. that ntay be accessed and displayed on amonitor or as aprintout. Adatabase for accountants may consist of information

ONLINE TRADING

492

such as tax laws and regulations, accounting practices and Iboinolc references, industry data, financial information on companies, invest¬ ment information, or economic and political statistics. ONLINE TRADING the buying and selling of stocks or other securities throuEh the Internet. Instead of paying abroker to place orders, you

type them in yourself. Brokerage fees are much lower, and iransactions

are

complctcd promptly. The broker's counsel is absent, how-

ever, and fortunes have been lost as well as gained by day tradhrs. ONLINE SERVICE acommercial service that provides access to elec¬

tronic mail, news services, specialized forunts and chat rooms, and the Internet for amonthly fee. See also intkrnet service providek. ON MARGIN see margin.

ON ORDER goods ordered but are not yet paid for nr received. ON-SALE DATE date new issues of aperiodical are scheduled to be

delivered by the wholesai>J< or distributor io newsstands for sale to

the public. The on-sale date drives the publication and printing process. ON-THE-JOB TIL'UNING (OJT) job-related training that occurs on the

actual job site while engaged in the occupation; hands-on instruction. OPEC Oi^anization of the Petroleum Exporting Countries. 12-nation oil-producing organization, created in 1960, whose current members a r e Algeria. Angola, Ecuador, Iran. Iraq. Kuwait, Libya. Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela, Since 1965 its international headquarters ha.s been in Vienna. Austria. OPEN

Banking: to establish an account or aletter of credit.

Finance: unpaid balance of an account. Securities: status of an order to buy or sell securilies that has still not been executed; good-till-cancelep order. See also opf;N order.

Computers: call afile up from disk in order to work on it. You creaie anew fde or open asaved one. OPEN ACCOUNT

1. unpaid credit order; also called open credit. 2. credit relationship between abuyer and aseller. OPEN ARCHITECTURE computer architecture whose details arc made fully public so that other manufacturers can make clones and

compatible accessories. The architecture of the original IBM PC is open.

OPEN BID offer to perform acontract by quoting the price for the mate¬ rials or work, but with the right to reduce that price to meet the quotes

made by others for the same job. In agovcmmcnial contract bid. abid¬ der using an open bid may agree to lower the quoted price if competi¬ tors outbid him.

493

O P E N - E N D M A N A G E M E N T C O M PA N Y

Ol’EN DATING expiralion dale underMandubly slated up from on a retail-packaged fixid item subject to deterioration to aid consumers in

determining the product's useful life, Open dating is arelatively recent consumer marketing practice. OPEN DISTRIBUTION distribution of the same merchandise within a

specified region or area by different dealers. In this type of distribu¬

tion. dealers can carry competitive lines and there are no rcslriclions regarding the number of products adealer can sell, offer for sale, or deliver to retailers. OPEN-DOOR POLICY

I. management policy of encouraging arelaxed environment with employees by leaving the manager’s door open to encourage infor¬ mal employee interaction.

2. national trading policy where citizens and products of foreign extunines receive equal treatment with domestic citizens and pnxiucts. OPEN ECONOMY economy in which foreign investment, imports, and exports arc easy to accomplish and play a.substantial role in economic life. O P E N - E N D Broadcast:

I. ending to anetwork program or commercial that is left blank for

local advertising2. radio or television jirogram with no specific scheduled completion time. For example, aradio talk show is sometimes scheduled to go on until its subject matter is exhausted, rather than rigidly adhere to the usual time schetlule.

3. unscheduled termination of atelevision or radio program. Asudden cessation of programming may be doe to aspecial ncw.s alert or may be caused by technical difficulties.

Prnduction: envelope that opens at the end rather than at the side. OPEN-END CREDIT revolving link oi' CRKDIT offered to consumers by banks, savings and loans, and other lenders. After the line of credit

has been set up with aparticular limit, consumers can borrow up to that limit using acredit card, check, or cash advance.

OPEN-END INVESTMENT COMPANY amltl'al rind that accepts new investments at all limes.

OPE.N-ENl) LEASE Icttsc agreement llial provides for an additional payment after the properly is returned to the lessor, to adjust for any change in the value of the property. O P K N - F. N D M A N A G E M E N T C O M PA N Y i N V E . m i K N T c o . m p a n v t h a t

sells mutual funds to the public. The term tirises from the fact that the firm continually creates new shares on demand. Mutual fund share¬

holders buy the shares at s’lt asset vai.ui- and can redeem them tu any time at the prevailing market price. See ulxo ci.osed-kno mutuai. h)nd. >

OPEN-END MORTGAGE

494

OPEN-END MORTGAGE mortgage under which the mortgagor (bor¬

rower) may secure additional funds from the mortgagee (lender), usu¬ ally stipulating aceiling amount that can be borrowed. OPEN ENROLLMENT PERIOD abrief period, 10 to 30 days, when

employees who have not previously signed up for acertain type of insurance may do so. There may be exclusion.s. however, .such as for preexisting conditions.

OPEN FORM (REPORTING FORM) single policy covering all insur¬

able properly of specified type(s) at all locations of -T'lLt.-CANCEl.l:l> OKOhR.

OPEN OUTCRY methixl of trading on acommodity exchange. Traders must shout out their buy or sell offers. When atrader shouts he wants

to .sell at aparticular price and someone else shouts he wants to buy at that price; the two traders have made acontract that will be recorded.

OPICN SOURCE SOl'TWARE software wliose source code is pub¬ lished so that avariety of people can add contributions, as opposed to proprietary software, whose source code is aclosely guarded trade secret, and only employees of the manufacturer work on the software's development.

OPEN SHOP enterprise that employs workers without regard to whether they are members of alabor union. See also ci.osED shop.

OPEN SPACE land, within adeveloped area, that is left undeveloped and serves as an amenity to surrounding occupants.

OPEN STOCK retail items that can be purchased singly or in aparticu¬

lar pattern. The retailer having open slock makes no promise to have the item always in stock, but will usually order it from (he manufac¬ turer unless it has been discontinued.

OPEN-'I'O-BUY method for aretailer to adjust merchandise purchases to reflect changes in .sales, markdowns. and .so on. Tlie opeiMo-buy

method provides flexibility for the retailer in purchasing new inven¬

tory as the old items sell out and to lake advantage of special product deals.

OPEN UNION union that admits any qualified worker to its membership without requiringthcpaymeniof an initiation fee, high dues, examina¬

tions, or any other practice designed to discourage membership. OPERATING CYCLE average lime period between buying inventory and receiving cash proceeds from its eventual sale. It is determined by adding the number of days inventory is held and the collection period for accounts receivable.

OPERATING ENVIRON-MENT shell surrounding the desk operating .SYSTliM (DOS) of apersonal computer. It lums the display into a desktop that is basically amenu from which one selects and runs PC applications.

O P E R AT I N G E X P E N S E

496

OPERATING EXPENSE amciuni paid to maintain properly, such as

property taxes, utilities, hazard insurance. It excludes financing expenses, depreciation, and income taxes. O P E R AT I N G I N C O M E s e e n i - : t o p e r a t i n g i n c o m e ; o p e r a t i n g p r o fi t (U)SS).

OPERATING INTEREST form of ownership in mineral property in

which Ihe owner is respon.sibic for operating costs. Royalties, produc¬ tion payments, and net profit interests are not operating interests. OPERATING LEASE type of lea.se, normally involving equipment,

whereby the contract is written for considerably less than the life of the equipment and the lessor handles all maintenance and servicing; also culled service lease. Operating leases are the opposite of capital LEASES, where the lessee acquires essentially all the economic benefits and risks of ownership. O P E R AT I N G L E V E R A G E s e e i , e v e r a g e .

OPERATING PROFIT (LOSS) difference between Ihe revenues of a

busines.s and the related costs and expenses, excluding income or expenses

from sources other than its regular activities and before

income taxes; synonymou.s with iiel operating profit (loss) and oper atlng income (loss).

OPERATING RATIO any of agroup of ratios that relate various income and expense figures from the profit and loss siaiement to each other and to balance sheet figures. Among the ratios used are sales to

cost of goods sold, operating expenses to operating income, net prof¬ its to gross income, and net income to net worth. OPERATING STATEMENTS financial reports on the ciish flow of a business or property. See Cash h.OW; RENT ROLL.

OPERATING SYSTEM program that controls acomputer and makes it possible for users to enter and run other programs. Most computers are

set up so that, when first turned on, they automatically begin running asmall program supplied in read-only memory or occasionally in anolher form (see boot). This program in turn enables the computer to

load its operating system from disk or tape. See also disk-operattng system; MS-DOS.

OPERATIONAL AL-DIT' process to determine ways to improve pro¬ duction. Contrast with EXTERNAL AUDIT, which relates to financial statements.

OPERATIONAL CONTROL power ot management over the daily activities of abusiness.

OPERATIONAL OBJECTIX'ES short-term organizalii>nal objectives

necessary to achieve longer-term tactical and strategic goals. They are usually managed by supervisory personnel concerned with immediate re.sulls.

497

OPTION

OPKRATIONS RESEARCH (OR) research concerned wiih the devei-

opniem of malhemalical models of repetitive activiiics. using numer¬ ous variables, such as traffic How. assembly lines, military campaigns, and optional production scheduling. Operations research makes exten¬ sive use of computer simulation,

Ol’INION reason given for acourt's judgment, finding, or conclusion, i'l'c d/svi accountant's opinion,

OPINION LEADER individual who.se ideas and behavior serve as a

intxJcl to others. Opinion leaders communicate me.ssagcs to aprimary grt>up, influencing the attitudes and behavior change of their follow¬ ers. Therefore, in certain marketing instances, it may be advantageous to direct the communications to the opinion leader alone to speed the acceptance of an advertising message. OPINION OF TITLE certificnic, generally from an attorney, as to tire validity ofTlTLEtopro|Krty Ixiing sold. Based upon an attorney'.s opin¬ ion of title, aTITLB INSURANCE company insures title to the property. OI'.M

I. other people's money; on Wall Street, use of borrowed funds by individuals or companies to incrca.se the return on invested capital. See also t.KVRRAGE.

2. options pricing model. See also black-scholbs option pricing M()i)!;i..

OPPORTUNITY COST

In genera!: price or rale of return that the best alternative course of actiirn would provide.

Corporate finance: in evaluating acapital invbstmhnt project, return that capital would cam on the highest yielding alternative investment involving similar risk, as compared to the projected return on the proposed project.

01*T decide or make achoice. For example, an individual may opt to lease rather than purchase facilities.

OPTICAL CHARACTER RKCOONITION (OCR) recognition of printed or handwritten characters in an image of apiece of ptipcr. OCR .software Ucommonly used with scanners so that information received on paper will not have to be retyped into the computer. Aproblem is that the software may not recognize letters and digits with complete certainty, so it has to make imclligeni guesses based on the spellings of known words. Results are also highly dependent on (he quality of (he original image.

OPTIMUM CAPACITY level of output of manufacturing operations lh;il proiiuces the lowest cost per unit. OPTION

I. things one purchases to :idd to abasic product, such ;is air condi¬ tioning for amotor vehicle.

OPTION ARM

498

2. alteniaiivc courses of action that face adecision maker.

3. the right, but not obligation, to buy or sell propeny that is granted in exchange for an agreed-upon sum. If the right is not exercised after aspecified period, the option expires and the option buyer for¬ feits the money. See also call option; naked oPTtON; put option. OPTION ARM ADJUSTABLE-RATE MORTG.AGE (ARM) that allows the bor¬

rower to choose among several alternative methods of making monthly payments. Within limits, the method can change with each payment. Acommon example allows the borrower to choose between

afully amortizing payment, an interest-only payment, and aminimum payment that produces negative aJvIORTIZation. These loans are tai¬ lored to borrowers whose income or expenses are unpredictable. OPTIONEE one who receives or purchases an option. OPTION HOLDER someone who has bought acall or put dh ion but

has not yet exercised or sold it. Acall option holder wani.s the price of the underlying security to rise; aput option holder wants it to fall. OPTIONOR one who gives or sells an option. OPTION TO PURCHASE acontract that gives one the right (but not

the obligation) to buy aproperty within acertain lime, for aspecified amount, and subject to specified conditions. ORAL CONTRACT one that is not in writing or that is not signed by

the parlies. Oral contracts for most purposes arc enforceable, hut con¬ tracts for the sale of real estate must be in writing. OR BETTER indication, abbreviated OB on the order ticket of alimit

ORDER 10 buy nr sell securities, that the broker .should Iransact the order at aprice belter than the specified limit price if abettor price can be obtained. O R D E R

Commercial law: payee's request to the maker, as on acheck, stating, ‘‘pay to the order of (when presented by) John Doe." Inve.stmenls: instruction to abroker or dealer to buy or sell securities or commodities. Securities orders fall into four basic categories: mar¬ ket order, limit order, lime order, and stop order. Law: direction from acourt of jurisdiction; regulation.

Trade: reque.st to buy, .sell, deliver, or receive good.s or services that commits the issuer of the order to the terms specified.

ORDER BILL OF LADING negotiable bill of lading that can be nego¬ tiated like any other negotiable instrument, so ihai ihc shipper can sell it to anyone, not just the intended recipient of the goods, The bill requires the currier to release the goods only when the bill of lading is given him by the recipient. ORDER CARD order bgrm primed on abusiness reply card.

V

499

ORDINARY COURSE OF BUSINESS

ORDER FORM

I. form used to request mcrdiiiiidise, usuiiily from awholesaler, man¬ ufacturer. or direct-mail retailer.

2. document provided by atiiRECT .suRKKriNa UR.\i to acustomer so that order information can be communicated back to the marketer.

It is essential that order forms capture all the information required by the seller without being difficult, tinie-eonsiiming. or confusing for the buyer.

ORDER NUMBER reference number used by awholesaler, manufac¬ turer. or retailer to identify apanicular order.

ORDER PAPICR NhXtcrnABLii instrumknt that by its term is payable to aspecified person or his assigni;i:, rather than, for instance, to cash or to bearer. The payee must be named or otherwise indicated with rea¬ sonable certainty. See also bi-arer paper.

ORDER-POINT .SY'STEM predetermined point at which inventory is automatically reordered. When inventory drops to the order point, the reordering process is triggered. Presumably the order point is the iimount needed until stocks can be replenished, including amargin for safety to avoid stockouts.

ORDER PROCE.SS1NG activities involved in managing the details of preparing and receiving acustomer order.

ORDER TAKER sales rcprc.senlativc who takes customer orders with¬ out giving sales presentations.

ORDINAL SCALE observations distinguished by relative amounts, such as ranks. For example, one can evaluate competitive products on an ordinal scale from best (o worst by using aIcilcr-grade system. See also INTEKVAt, SCA1.I-; NOMINAl. .SCALE; RATIO SCAi.Ii.

ORDINANCE loetil law that applies to persons and things subject to the local JURISDICI IOS. Usually it is an act of acity council or similar body and has the same force as astatute when it is duly enacted. ORDINARY AND NECESSARY BUSINESS EXPENSES tax term

that allow saciirrcnl deduction for business expenses; conlrasled with CAPITAL EJtPi-.NOn UKK and unreasonable expense. An ordinary and neco.ssary businc.ss expense of asole proprietor svoiild appear on Schedule Cof

Form

1040.

ORDINARY ANNUITY .series of equal or nearly equal payments, each payment occurring at the end i>f each equally spaced period. Sec also ANNUITY

IN

A D VA N C E .

ORDINARY COURSE OF BUSINESS common practices of cial transactions: refers to anecessary activity that is normal and inci¬ c o m m e r ¬

dental to the business.

ORDINARY INCOME

500

ORDINARY INCOME income that is lully subject to ordinary intume tas rates (for example, interest income, salary income), as distin¬ guished from income that is subject to the benefit of special tax rates for CAPITAL GAINS. The tax rale for capital gains to individuals is less than the ordinary income rate. ORDINARY INCOME l>ROI*ERTY for charitable contribution pur¬

poses, propeny whose sale at pair market value on the date of the

contribution would have resulted in ordinary income or in short-term CAPITAL GAIN. It includes INVENTORY, works of art or manuscripts cre¬

ated by the donor, and CAPtiAL assets held one year or less. ORDINARY INTEREST simple inieresi based on a360-day year rather than a365-day year, the latter is called exact interest. The difference between the two bases when calculating daily interest on large sums

of money can be substantial. The ratio of ordinary interest to exact interest is 1,0139.

ORDINARY LOSS for income tax purposes, loss that is deductible against ordinary income; usually more beneficial to an individual tax¬ payer than aCAPtTAL loss, which has limitations on deductibility. ORE, OREO abbreviations for other real estate; other real estate owned. Generally, foreclosed property held by lending institutions. Shown in an account of abank or savings and loan association that includes properly other than real estate used for bank operations. ORG see domain.

ORGANIZATION structure of roles and responsibilities functioning to

accomplish predetermined objectives. Organisations have grown tremendously in size in the twentieth century and are found in all parts of the private and public sectors. ORGANIZATIONAL BEHAVIOR academic field of study concerned

with human behavior in organizations; also called organizational p.tycholof;y. It covers topics such a.s motivation, group dynamics. leadership, organization structure, decision making, careers, conflict resolution, and organizational development. When this subject

is taught in business schools, it is called organizational behavior; when it is taught in psychology departmoiits, it is called organizational psychology. ORGANIZATIONAL CHART chan showing the interrelationships of

positions within an o^anization in terms of authority and responsibil¬ ity. There arc basically three patterns of organization: line organiza¬ tion, functional organizti/ion. and line and staff organization. ORGANIZATIONAL PLANNING process of transforming organiza¬

tional objectives into specific management strategics and tactics designed to achieve the objectives. Organizational planning is one of the most important management responsibilities.

501

ORIGINAL EQUITY

O R G A N I Z AT I O N A L P S Y C H O L O G Y s e e o r g a s i ? ^ T I O s - a L B t H AV l O R .

ORGANIZATIONAL STRUCTURE apponionmetu of re^ponsibility

and AUTHORITY among the mombers of an organization, functionai. ORiiANiZATtoN, MATRIX okoanization. and LiNH ORGANIZATION are three

common types of organizational structure. ORGANIZATION COST amounts spent to begin abusiness enterprise,

such as legal fees.business filing fees, and franchise acquisition. ORGANIZATION DEVELOPMENT planned, systematic process in which behavioral science principles and practices arc used to improve

organizational functioning; also called organizaiioiml Jcvehpmeni or Ol).

O R G A N I Z AT I O N

FOR

ECONOMIC

C O O P E R AT I O N

AND

DieVELOPMENT (OECD) agroup of the major Western economic powers that cooperate to improve inlenialional economic deveiopmenl. O R G A N T Z AT I O N M A N . O R G A N I Z AT I O N W O M A N i n d i v i d u a l

whose behavior and lifestyle slavishly conform to the social mores of

an organization; derived from William F. Whyie’.s book The Orgaiiizalion Man. ORGANIZATION, QUALIITED .see QUALinEl) ORGANIZATION. ORGANIZED LAUOR unionized labor. The ait.-cio is the largest union representing organized labor in the United Slates. O R I E N TAT I O N

I. position of asiruelure on asite relative to sunlight angles and pre¬ vailing winds. 2. program or lecture to anewcomer in aschool or company.

3. describing the nature of aperson's strength, .such as having atech¬ nical orienlation. O R H J I N A L C O S T

I. in accounting, all costs associated with the acquisition of an asset. 2. in public utilities accounting, the acquisition cost incurred by the

eniiiy that first devotes aproperty to public use; nonnally the util¬ ity company's cost for the property. ORIGINAL ENTRY entry in ajournal, such as the first entry to record asale or purchase. O R I G I N A L E Q U I P M E N T M A N U FA C T U R E R ( O E M ) a m a n u f a c -

lumr of parts that are used in the assembly of name brands, especially of cars and computers. It implies that the parts are of belter quality

tlian might be found on the replacement parts market. ORIGINAL EQUITY the amount of cash initially invested by the

underlying owner. Distinguished from sweat equity, capiial calls.

ORIGINAL ISSUE DISCOUNT (OID)

502

ORIGINAL ISSUE DISCOUNT (OID) discount from par value at the lime abond is issued. The most exireme version of an original issue discount is aZERO COUPON bond, which is originally sold far below par value and pays no interest until it matures. The tax treatment of origi¬ nal issue discount bonds is complex. Generally, OID must be amor¬ tized over the life of the debt obligation, which in turn increases the BASIS of the bond. ORIGINAL M.ATURITY interval between the issue date and the matu¬

rity date of abond, as distinguished from current maturity, which is the lime difference between the present time and the maturity date.

ORKilNAL ORDER first order received from aparticular customer. It is impoiiant to track the sources of original orders so that efforts to create new first-time buyers can be concentrated on the best sources.

ORIGINATION FEE alender's charge to aborrower, especially for a mortgage loan to cover the costs of issuing the loan, such as the sales¬ man’s commission. It may cover acredit check, appraisal, and title expenses. If the fee is adiscount point and is only for (he use of

money, the fee is considered interest and may be deductible (for pur¬ chase of ahome) or amortizable (for refinancing of ahome). See also POINTS.

O R I G I N A T O R

I. bank, savings and loan, or moitgage banker that initially made the mortgage loan comprising part of apool of mortgages. See also PA S S - T H R O U G H

C E K Ti n C AT E .

2. investment banking firm that worked with the issuer of anew secu¬

rities offering from the early planning stages and that usually is appointed manager of the underwriting syndicate. 3. in banking terminology, initiator of money transfer instructions. OSIIA see occupationai. safety and heai.th administration, O T «

1. abbreviation for off-track betting on races. 2 . s e e o p e n - t o - b u y.

O T C s e e o v e r t h e c o u n t e r.

OTHER INCOME heading on aprofit and loss statement for income from aclivides not in the normal course of business; sometimes called

Ollier revenue. Examples are interest on customeis' notes, div idends and interest from investment.s. profit from the di.sposal of assets other than inventory, gain on foreign exchange, and miscellaneous concession income.

OTHI'IR PEOPLE’S MONEY see opm: i.i;vi;rage.

OUTBID placing ahigher bid than acompetitor. Aperson who has been outbid has lost the auction to the highest bidder.

V

503

OUTSOURCING

OUTCRY MARKICr markcl in which prices are set by rapid, continu¬ ous negotiation among buyers and sellers. Typical outcry markets arc those on the fltxirs of roMMODtTY i-xchanoes-

OUTLET STORE retail .store, operated by amanufacturer, which pro¬ vides an outlet for selling the manufacturer’s irregular, overrun, or cnd-of-scason merchandise. Although it is not alway.s the case, outlet Mitres are often located close to the manufacturer.

OUTLOOK popular e-mail, contact management, and calendar software provided as part of the Microsoft Office suite.

OUTLOOK E.M’RESS e-mail and newsreader software provided with earlier \ersions of Microsoft Windows and also made available by Microsoft for other operaiitig systems; now replaced by Windows Mail or Windows Live Mail. Often confused with ourixtOK; both include amail client.

OUT-OF-POCKET EXPENSES expenditures out of ataxpayer's own funds for business or personal use. For example, unreimbursed out-of-

pocket expenditures for telephone, uniforms, or equipment incurred in rendering services to acharitable organization may be deductible as a charitable contribution.

OUT OF THE MONEY option whose strike price for astock is higher than the current market value in the case of acall, or lower in the case

of aput. See also exercise price.

OL'TI’L.ACEMEN Tjob placement assistance and programs adminis¬ tered by orguni/ations implementing iX)WNSt2iN0 or other staff reduc¬

tions. Although actual outplacement activities vary from one organization to another, depending on their needs and capabilities,

essential activities usually include resume preparation instruction, career and personal counseling, and office space with secretarial assis¬

tance and use of telephone and fax. Some organizations sponsor Job fairs and advertise their available employees. The purpose of outpUuement activities is to assist separated employees in coping with the pres¬ sures of lenniniition while helping them to .sock new employers.

OU TPUT the anuiuni produced: also, results provided by acomputer, as in computer

OUT.StDE DIRECTOR member of acompany’s hcmrd of directors who is not an employee of the comjiany. Such directors are considered important because they are presumed to bring unbiased opinions to major corporate decisions and they also can contribute diverse experi¬ ence to the decision-making process. OUTSIDE THE HOX .reeiHiNKi.sc outside the box.

OUTSOURCINCi having aservice or product supplied or manufactured by another, who could be amanufacturer, merchant wholesaler, agent, o r b r o k e r.

504

O U T S TA N D I N G O U T S TA N D I N G

I. unpaid; acxolints RECEivASi.fc and debt obligations of all types. 2. not yet presented for payment, as acheck or draft. 3. Slock held by shareholders, shown on corporate balance sheets under the heading of capital stock issued and outstanding. OUTSTANDING BALANCE amount currently owed on adebt. O U T S TA N D I N G C H E C K s e e o u t s t a n d i n g . O U T S TA N D I N f ; C A P I TA L S T O C K s h a r e s i n t h e h a n d s o f s t o c k h o l d ¬

ers. Outstanding shares are issued shares minus treasury shares. Dividends are based on outstanding shares. See also treasury stock, O V E R A G E

1. too much; opposite of shortage. 2. in leases for retail stores, amount to be paid, based on gross sales, over the base rent. See also override; pi-rcentage lease.

OVERALL RATE OF RETURN (OAR) percentage relationship of net operating income divided by the purchase price of property. See also C A P n A U Z AT t O N

rate.

OVKR-AND-SHORT see over (short).

OVERBOOKED condition of hotel, airline, or other business that

accepts more reservations for acertain date or flight than it can offer accommodations. No-shows (people who have reserved but who do not arrive and do not cancel) are used to justify ovetbookings. OVERBOUGHT description of asecurity or amarket that has recently

experienced an unexpectedly sharp price rise and is therefore vulner¬ able to aprice drop, called acorrection by technical analysts, because there are few buyers left to drive up the price further. The

opposite condition is oversold— when there are few sellers left and the price would be expected to rise. OVERBUILDING asituation in agiven area where there has been more real estate construction than the market can economically support. OVERCHARGE retail price charged that is greater than the actual retail

price of an item. Overcharges are usually the result of errors and must be refunded to the customer.

OVERDRAFT extension of credit by alending institution. An overdraft check for which there are not sufficient I'unds (NSF) available may be

rejected (bounced) by the bank. Abounccd-eheck charge will be a.ssessedon the check writer’s account. Alternatively, the bank customer

may set up an overdrafi loan account, which will cover NSF checks. OVERFLOW errur condition that arises when the result of acalculation

is anumber loo big to be represented on an electronic computer or c a l c u l a t o r.

OVERHANG sizable block of real estate, securities, or commodities

contracts that.if relea.sedon the market, would pul downward pressure V

505

OVERSELL

on prices. Examples of overhang include shares held in adealer's invenlory.a large iii.slilulional holding, asecondary dislribution sliil in

rcgiscraiion. and alarge commodity position about to be liquidated. OVERHEAD indirect expenses of running abusiness not directly asso¬ ciated with aparticular item or .service sold. For example, wages paid to factory workers and the cost of production materials are direct costs. Electricity, insurance, and benefits paid to workers are overhead expenses. By applying afactor called the burden rale, ctist accounting attempts to allocate overhead, where possible, to the cost of goods sold.

ON’ERHEATINC term describing an economy that is expanding so rapidly that economists fear arise in inflation. In an overheated econ¬

omy. too much money is chasing too few goods, leading to price rises, and the productive capacity of anation is usually nearing its limit. OVERIMPROVEMENT land use considered too valuable for the land,

such as asingle-family home built at acost of $500,000 situated on a relatively undesirable lot worth $5,000. OVERISSUE shares of capital sttk:k used in excess of those autho-

ri/.cd. Preventing overissue is ihe function of acorporation's bkois’ntAR (usually abank acting as agent), which works closely with the

TRANSFER AGE.NT In canceling and reissuing certificaies prc.sented for transfer and in issuing new shares.

OVERKILL expensive promotional effort that produces diminishing returns because it repels rather than attracts consumer interest. OVERPAYMENT money received from ;i credit buyer liuit exceeds the amount due. Unless the payment is for acontinuous service that can be extended, such as anewspaper subscription, the amount of the

overpayment must be refunded or must be credited to the buyer's account to be applied against future purchases.

OVERPRODUCTION excessive production; supply beyond market demand at remunerative prices; glut. See aho ovekrun. O V E R R I D E

1. fee paid to someone higher in the organization, or above acertain a m o u n t .

2. estate carved out of aworking interest in an oil or gas lease. 3. to go beyond an agreement or to ignore part of acontract. 4. in government, legislative btxiy casting enough votes to overturn a veto by the executive branch. OVERRUN production beyond Ihe pnxluclion limits. Overruns can occur because of estimating errors, reduction in order size, or attempts to lake advantage of excess materials. See also oviirproduction.

OVERSELL continue asales presentation after the customer has agreed to buy. Once the sale has been made, salespeople who keep talking run

OVERSHOOT

506

the risk that the customer will hear something iint'avoniblc and cancel t h e o r d e r.

OVERSHOOT exceed atarget figure, such as an economic gt>al or an comings projection. OVER (SHOR'I') dil'ference between initially recorded .store sales fig¬ ures and actual cash or audited figure. The discrepancy might be

caused by human error in making change or recording sales slips. If a cash regi.sier contains more money than expected, it is over; if less, it is short.

OVERSOLD description of aslock or market that has experienced an

unexpectedly sharp price decline and is therefore due, according to some proponents of TECHNtCAl, analysis, for an imminent price rise. OVER THE COUNTER (OTC)

1. security that is not listed and traded on an organiztai exchange. 2. market in which securities transactions are conducted through a telephone and computer network connecting dealers in stixtks and

bonds, rather than on the floor of an exchange. 3. drugs that arc available without aprescription. OVER-THE-COUNTER MEDICINE nonprescription medications

that are legally sold over the counter in aretail store. Over-the-counter medicines can be purchased in any quantity without restrictions at the retail store level.

OVER-THE-COUNTER RETAILING store-based retailing opera¬ tions where merchandise is sold "over-the-counter" at stated prices. OVERTIME lime worked in excess of an agreed upon time for normal working hours by an employee. Hourly or nonexempt employee.s must be compensated at the rate of one and one-half their normal hourly rate for overtime work beyond 40 hours in aworkweek. Working on hol¬ idays or weekends is sometimes referred to as overtime work. O V E R T R A D I N G

Einanee: practice of afirm that expands sales beyond levels that can b e fi n a n c e d w i t h n o r m a l w o r k i n g c a p i t a l .

Securities: (I) practice whereby amember of an underwriting group induces abrokerage client to buy aportion of anew issue by purchasing other securities from the client at apremium; (2) excessive buying and selling by abroker in adiscretionary account. See also CHURNING.

OVERVALUED description of aslock whose current price docs not seem justified. It is therefore expected that the stock will drop in price. OVERVALUED CURRENCY currency whose value is artificially

higher than its market value because of governmental support.

V

507

OW'NERSHIi’FORM

OVERWKl'l'l') record compuier data in adisk location formerly occu¬ pied by other data. If you save anew file using the same name as an older file, the older file will be ovemriuen.

OWNER the perMiii who has legal Tm.n to property: the person in whom ownership, dominion, or title of property is vested. Seeuho owner of RECORD.

OW'NER FINANCING same as SELLER ElNANCiNG.

OWNER OF RECORD the pcr>on(s) who. according to the public records, is/are the ownerfs) of aparticular properly.

OWNER-OPERATOR individual who owns as well as operates his own business or the equipment u.sed in business for the ptirpose of earning ineomc. For example, truckers often are OKner-operators of their trucks. OWNERS AND CONTRACTORS PROIECTIVE LIABILITY INSURANCE endorsement to owners. t.ANULORDS, and iiiNANis t . I A B l L t T Y P O U C Y, M A N U E A n i l R E K S A N D C O N I R A C T O R S t . l A H I t . i r V J N S U R -

ANCE, or Other liability policies for business firms that provide liabil¬ ity coverage for an insured who is sued because of negligent acts or

omissions of an independent contractor or subcontractor resulting in bodily injury and/or property damage to athird parry. OWNER'S EQUITY poriiim of acompany belonging to the owners, represented by capital investments and accumulated earnings less any dividends or other financial obligation. See also sixkkiiolders" E Q U I T Y.

O W N E R S , L A N D L O R D S . A N D T E N A N T S L I A B I L I I A’ P O L I C Y coverage for bodily injury and properly damage liability resulting from the owner.ship, use. and/or maintenance of an insured business's premises xs well as operations by the business anywhere in the United States or Canada.

OWNERSHIP exclusive right of possessing, enjoying, and disposing of athing; often said to include the concepts of KtSSESSlON and of TlTt-H. thus being broader than either. 0\YNERSHIP FORM methtxl of owning real estate, which affects income tax. estate lax, continuity, liability, sursisorship. transferabil¬ ity. disposition at death and at bankruptcy. Ownership forms include: c o r p o r a t i o n ; j o i n t t e n a n c y ; I . I M I T E D PA R T N l - H S M I P ; PA K T N l - R . S I I I P ; s C O R P O K A I I O N ; I . I M I T E D U A H I U T Y C O M PA N Y; I . I M I T E D L I A I U I . I I Y PA R T N E R ¬

SHIP; TENANCY BY THE ENTIRI- riES; TENANCY IN CO.M.MON; and TENANCY IN

S E V E R A L T Y,

508

P A . P. A .

P PA, P.A. see professional association. PACESETTER something that sets the standard for others to follow. A machine. fa.shion, or process that is widely copied and imitated is the pacesetter for the industry. PA C K A G E

In general: set of items sold as one; also called package deal. Advertising: television or radio programming available for purchase by advertisers either singly or as adiscounted package deal. Direct

mail:

1. components constituting adirect-mail promotion piece. Packages usually include the outer envelope, the reply envelope, the order form, and aletier.

2. multiple pieces of mail, usually presorted, batched by destination, and bound together for handling by the U.S. Postal Service, Merchandising: container or wrapper used to present individual items of merchandise for sale or for shipping to buyers. PACKAGE BAND advertisements, announcements, or special price

offers printed on astrip of paper that forms aband around apackage. PACKAGE CODE identification used by direct marketers to track a

particular mailing package. Package codes are important when testing anew package against acontrol package, so that response to each pro¬ motion can be compared. PA C K A G E D E S I G N

In general: planning and fashioning the complete form and structure of aproduct’s package. In crealing anew design or revamping an

existing design, the following aspects of aproduct’s package are usu¬ ally reviewed: size and shape, color, closure, outside appearance, pro¬ tection and economy, convenience, labeling, and the packaging material’s effect on the environment.

Direct mail: creating and developing the complete assemblage of a direct mail package, including the envelope, letter, brochure, pre¬

mium slip, and reply device. PACKAGED GOODS consumer products packaged by manufacturers and sold through recall outlets. Food, tobacco, toiletries, health and

beauty aids, and household products are typically involved in this product cla.ssification. PACKAGE MORTGAGE .mortgage arrangement svhereby the princi¬ pal amount loaned is increased because personalty, such as appliances, as well as realty serve as collateral. PA C K A G I N G L A W S s e e l a b e l i n g l a w s .

509

P & (

I’ACKET aunit of data sent across anetwork. When alaritc block of data is to bo sent over anetwork, it is broken up into several /nickcis. sent, and then reassembled at the other end.

I’ACKING LI.ST statement of the contents of acontainer, usually pul into the container so that the quantity of merchandise may be counted and matched by the person who opens the container.

I’AC -MAN DEFENSE in corporate mergers and acquisitions, transac¬ tion in which atarget company turns the tables and makes acounleroffer to buy the shares of an unwelcome suitor. The name is derived from the electronic video game.

PADDING adding unnecessary material or expenses for the purpose of increasing the size or volume, as for example, padding an expense account to increase the company’s reimbursement.

I’AGINATION process of dividing adocument into page.s. Many com¬ puter word processors offer a"paginate” command that shows you where page breaks will occur in the printed text.

I’AID-iN CAI’ITAL SURPLUS capital received from investors in exchange for slock, as distinguished from capital generated from earn¬ ings or donated. The paid-in capital account includes capital stock and contributions of stockholders credited to accounts other than capital stock, such as an excess over par value. PAID STATUS customer record status that indicates whether and how

the order wa.s paid. Status types include cash order, paid credit ORDER, credit card order, elaims-paid complaint, unpaid credit order, and complimentary subscription.

PAID-UP POLICY life insurance policy in which all premiums have been paid. Some policies require premium payments for alimited number of years, and if all premium payments have been made over those years, the policy is considered paid in full and requires no more premium payments. Tlic policy remains in force until the insured dies or cancels the policy. I ' A I N r i N G T H E TA P E

1. illegal practice by manipulators who buy and sell aparticular secu¬ rity among themselves to create artificial trading activity, causing a succe.ssion of trades, which will lure unwary investors to the "action." The manipulators hope to sell at aprofit. 2. consecutive or frequent trading in apanicular security, resulting in its repeated appearances on the ticker tape. Such activity is u.sually attributable to special investor interest in (he security. P,\IRED SHARES common .stixtks of two companies under llic same

managemciu that are sold as aunit, usually appearing as asingle cetiificate printed front and back. Also called Siamese shares at stapledsUKk. P&I see PRINCIPAL A.ND INTEREST (PAYXtENT).

✓

P&L

510

P & l . s e e P R O I - n A N t J L O S S S TAT E M E N l .

PANIC BUYING/SELLING flurry of buying or selling accompanied by high volume done in anticipulion of sharply rising or falling prices. Asudden news event will trigger panic buying or selling, leaving investors little time to evaluate the fundamentals of individual stocks or bonds.

PAPER credit given, evidenced by awritten obligation that is backed by property: slang for debt, as when aseller finances asale. PAPER GOLD certificates that can be convened into gold at the offices of (he issuer of (he paper, private or government. Paper gold often is used in exchange since it is much less cumbersome than the actual metal. PAPER MONEY certificates issued by government (and, at times, pri¬

vate entities) that are generally accepted within the economy as reli¬ able media of cxchange. PAPER PROFIT (LOSS) unrealized Gain (loss) in an investment or

portfolio. Paper profits and losses are calculated by comparing the cur¬ rent market price to the investor's cost. PAR equal to the established value; face amount or stated value of a negotiable inslniment, stock, or bond, and not the actual value it would receive on the open market. Bills of exchange, stocks, and the

like are ii or entity other than the offending corporation itself. There arc times when the court will ignore the corporate entity and strip the organiz¬ ers and managers of the corporation of the limited liability that they usually enjoy. In doing so. the court is said to pierce the corporate veil. The sC0RP0R.\TI0N provisions pierce the corporate veil and allow the income to be la.sed to the shareholders. The coi.i.aI’Sihi.h corporation

rules also pierce the corporate veil.

PIER TO HOUSE shipping from aplace where containers are stored to the consignec-

PIGEONHOLEI) (of people or things) filed in the appropriate category or compartment (like the pigeonholes in adesk), often with the sense

of being dealt with and forgotten; .shelved. I’lCiG^'BACK to transport truck trailers tind containers designed to ride as rail cargo from terminal to terminal. Piggybacking combines the fuel- and labor-saving advantages of rail cargo with the point-to-point movement of truck cargo. E’IGGYBACKING (CT^EDIT SCORE) financial .scheme in which someone with apoor CRtoi rHISTOkv is added a.s an authorized user of acredit account held by someone with an excellent CRttilT rating.

The result is that the good credit history is attributed to the person added to the account, thereby raising that person's credit rating. The person with the credit account is paid afee. The practice is of dubious legality and clearly defrauds lenders who use CRiitiiT scoring as acri¬ terion for t.'NDURWRniNO loans. 1‘IGGYBACK LOAN

I. combination of constrlction loan with permanent loan commit¬ m e n t .

2. mortgage held by more than one lender, with one lender holding the rights of the others in surordination.

E’EGOU EFKEC’E' effect of price changes upon the real value of privately held money balances, Adecrease in the price level increases the buying power of money that people have, and so increases their consumption, and thus has :ui expansionaiy effect upon the economy. The effect was first demonstrated in 1943 by A. C. Pigou of Cambritige University. ITI(;S derisive acronym applied to the heavily indebted European nations Portugal, Ireland, Italy, Greece, and Spain.

I’EE.OT PLANT small facility prixlucing amodest numbicr of units, designed to prove or test methods that may lie u.sed in full scale plants. Apilot plant reduces the insesiment risk in unproven production methods.

PIM see PERSONAL ini-okmation manager.

P I N

534

PIN acronym for personal identification number. Customers use PIN numbers to identify themselves when using an ATM or making purcha.ses with adebit card.

PINK SHEETS daily publication of Pink Sheets, LLC (formerly the National Quotation Bureau) that details the bid and asked prices of thousands of over-the-counter (OTC) stocks. Brokerage firms sub¬

scribe to the pink sheets, named for their color, because they give cur¬ rent prices and list MARKET makers who trade each stock. PIN MONEY small sum for incidental expenses; asmall cash advance with amajor contract might be called pin money. P I P E L I N E

I. line of supply or channel by which information is transmitted. 2. conduit through which materiaJs are transported, as in an oil pipeline. 3. work in progress.

PIRACY the illegal use, copying, or distribution of computer software. PITCH the number of characters per inch (cpi) in aparticular size and

style of type. Accurate only for monospaced (fixed-width) fonts. PITI abbreviation for principal, iniereil. taxes, and insurance, the pri¬ mary components of monthly mortgage payments. PIVOT TABLE amulti-dimensional table that can be rearranged to allow different views of the data. Recent versions of Excel contain a

wizard that automatically creates pivot tables. PIXEL (picture element) one of the individual dots that make up a graphical image, each of which combines red. green, and blue (RGB) phosphors to create aspecific color. AVGA screen in high-resolution mode consists of 640 x480 or 307,200 pixels.

PLACED IN SERVICE (the date when property is) in astate of readi¬ ness and is available for aspecific use.

PI.ACEMENT TEST examination measuring the skills, intelligence, motivation, mteiests. needs, and goals of applicants for the purpose of selecting those most likely to have the greatest success in particular occupations. Placement test scores are comparable and can be used for

finding the best applicants from agroup for particular occupations. PLACE UTILITY adding consumer value by locating products in con¬ venient locations. See also FOUR PS.

PI.AINTIFF one who initially brings the suit. In apersonal action, he seeks aremedy in acourt of justice for an injury to, or awithholding of, his rights, PLAN organized sequence of predetermined actions management has

chosen to complete future organizational objectives, planning is one of the primary responsibilities of organizational managers.

P L AT B O O K

535

E’l.AN It alternative plan if aprincipal plan of action is unsuccessful; backup plan. For example, if anew product is less than .successful, plan B's strategy is to repackage it and advertise it in adifferent market.

PLANNED ECONOMY economy in which government planning dom¬ inates the direction of economic activity, and market forces are not

allowed to do so to any considerable degree. Socialist and. especially, communist economics are planned economics, whereas capitalist economies arc much less so.

PLANNED UNIT DEVELOPMENT (PUD) zoning classification that

allows flexibility in the dc.sign of asubdivision. PUD zones generally set an overall density limit for the entire subdivision, allowing the dwelling units to be clustered to provide for common open space. PI.ANNING function of organizing asequence of predetermined actions to complete future organizational objectives- Planning is one of the primary management functions. See also pijvN. PLANNING COMMISSION group of citizens appointed by local gov¬ ernment officials to conduct hearings and recommend amendments to the ZONING ORDINANCI-. The planning commission generally oversees

the work of aprofessional planning department, which prepares a comprehensive plan. It may also be called aplanning hoard, zoning commission, or zoning htiard. depending on the locality. PLAN SPONSOR entity that establishes and maintains apension or insurance plan. This may be acorporation, labor union, government agency, or nonprofit organization. Plan sponsors must follow govern¬

ment guidelines in the establLshmem and administration of these plans, including informing plan participants about the financial health of the plan and the benefits available.

PI.ANT assets composed of land, buildings, machinery, natural resources, furniture and fixtures, and all other equipment permanently employed; synonymous with fixed assets. In alimited sense, the term is used to mean only buildings or only land and buildings; "properly, plant, and equipment" or "plant and equipment." P L A T

1. to draw adescription of land. 2. plan or map of aspecific land area. See also dilscriptioni govern¬ ment

R E C TA N G U L A R

S U R V E Y.

An official plot is filed at the county counhouse. It shows exact boundary lines for each lot, utility easements, anil streets. PLAT BOOK public record containing maps of land that have been sub¬ divided, showing the division of the land into streets, blocks, and lots, and indicating the measurements of the individual pabgeI-S, utility lines.

P L AT F O R M

536

Pl.ATFORM the standards that set the piuameters for what asystem can and cannot do; generally refers to the microprocessor and/or the oper¬ ating system. The term cross-platform refers to applications, formats, or devices that work on different platforms.

PLAXO online address book and social networking service. Plaxo pro¬

vides automatic updating of online contact information stored on Plaxo's servers. User edits appear in the address books of all tho.se who also store the information.

PLEADING statement, in logical and legal form, of the facts that con¬ stitute plaintiff's cause of action and defendant's ground of defense. Pleadings are either allegations by the parties affirming or denying certain matters of fact, or other statements in support or derogation of certain principles of law, which are intended to describe to the court or jury the real matter in dispute.

PLEDGE or PLEDGING deposit of personal property as security for a debt; delivery of goods by adebtor to acreditor until the debt is repaid; generally defined as alien or acontract that calls for the transfer of personal property only as security. See also bailment, collateral,

PIVI (PL/1) (Programming Language) very powerful computer pro¬ gramming language developed by IBM in the early 1960s to accom¬ pany its System 360 computer. PLOT

1. piece of land. also PLOT plan.

2. scheme, possibly with sinister motives.

3. preparing charts or graphs of business matters, possibly aided by a computer output device called aplotter.

PLOT PLAN diagram showing the proposed or existing u.se of aspecific PA R C E L o f i a n d -

PI.OTTAGE VALUE increment in the value of land resuldng from ASSEMBLAGE of smaller plots into one ownership entity.

PLO'ITER computer output device that draws graphs on paper by mov¬ ing pens according to directions from the computer.

PLOW BACK to reinvest acompany's earnings in the business rather than pay out those profits as dividends. Smaller, fast-growing compa¬ nies usually plow hack most or all earnings into their businesses,

whereas more established firms pay out more of their profits as divi¬ dends.

PLUG-AND-PLAY (ftiP) astandard way of configuring PC-compatible computer hardware auiomatically.devcloped by Microsoft and anum¬ ber of other companies in the mid-1990s. When aPnP component is llrsi connected to acomputer, the operating system delects it, reads its identifying information, and makes the necessary tidjusiments li> install the device appropriately.

537

1*0LICE POWER

PLUS TICK see uptick. P-\U abbreviation for privati; MORTGACt issurancu. I’OA sec POWKR OF ATTORNKY. P O I N T

llonds: percentage change of the lace value of abond, expressed as points. For example, achange of 1% is amove of one poini. For abond u'ith aSI JXK) face value, each point is worth $]0. See also basis point.

Real estate, commercial tending: upfront fee charged by the lender, designed to increase the overall yield to the lender. Apoint is 1% of the total principal amount of the loan. For example, on a$100,000

mortgage loan, acharge of three points equals $3JXK). Stocks: change of $1 in the markei price of astock. If aslock has risen five points, it has risen hy $5 ashare. The movements of stock market averages, such as the Dow Jones Industrial Average, arc also quoted in points, but these are not percentages. POINTING DEVICE an input device that lets auser manipulate a

pointer in agraphical user interface. The most common poinung device is amouse; others are the trackball, graphics tablet, joystick, and various kinds of pen-type devices. POINT-OE-PURCHA.SE DISPLAY device promoting consumer pur¬

chases by providing consumer information and prcxluct advice. These devices are normally located at convenient retail locations and are

quite attractive. Apoiiii-of-purduise display may be acomputer-driven device providing textual and graphical descriptions of products and giving specific advice when queried. POINT-OF-SALE (PO.S) S$'STEM acomputer used in place of acash register in retail applications. Besides recording transactions, the com-

piiior can track inventory, print informative invoices and receipts, and handle credit and debit card payments. The system usually incorpo¬ r a t e s s o m e f o r m o f b a r r e a d e r.

POIN T-TO-POINT PROTOCOL (PPP) aprotocol used by routers

and PC computers to send packets over dial-up and leased-line connections.

POISON Pll.L strategic move by atakeover target company to make

its stock less attractive to an acquirer. For instance, afirm may autho¬ rize anew .scries of I’RI-.i-IiKRUD srocK that gives shareholders the right to redeem it at a)iremium price after atakeover. POI.SSON DISTRIBCTION type of probability distribution typically used in studies concerned with the count or number of occurrences of e v e n t s .

POLICE POM'ER inherent power of governments to impose upon pri¬ vate rights those restrictions that are reasonably related to promotion and maintenance of the health, safety, morals, and general welfare of

POLICY

538

tlie public. It includes restrictions upon the use of one’s properly, such as ZONING laws, or upon the conduct of one’s business. POLICY

1. Management: acompany's plan, procedure, course of action. 2. Insurance: awritten agreement of insurance coverage. POLICYHOLDER individual or other entity who owns insurance pol¬ icy. Synonymous wiili policyowner.

POLICY LOAN loan from an insurance company secured by the cash surrender value of alife insurance policy. TTie amount available for

such aloan depends on the number of years the policy has been in effect, the insured's age when the policy was issued, and the size of the d e a t h b e n e fi t .

POLISH NOTATION way of writing algebraic expressions that does not require parentheses to state which operations are done first; also called reverse Polish nolanon. It is named in honor of its inventor. Jan Lukasiewicz (1878-1956).

POLITICALACTION COMMITTEE (PAC) separate and segregated fund established by an organization for making political cuntribudons. These funds were authorized by the Federal Election Campaign Act of 1971 and clarified through subsequent court decisions. PACs allow organizations to contribute money to federal elections, control the dis¬ bursement of funds, solicit contributions from an organization's share¬ holders and employees, and accept contribudons from any lawful source. PACs have been extremely important in financing elections. POLL TAX anominal lump-sum tax imposed on those who vote in pub¬ lic elections. The tax is considered ameasure for discouraging lowincome citizens from voting and has been ruled in violation of the Fourteenth Amendment to the U.S. Constitution. POLLUTION

I. in industry, disposal of waste products into air. water, and land.

2. crossbreeding that can be regarded as the souree of degeneration of astock. Mixing inferior product components with standard compo¬ nents results in the pollution of aproduct. PONZl SCHEME any false investment oppoiiunity where the promoter uses money from new investors to pay interest and principal redemp¬ tions of exisdng investors. The scheme collapses when required redemptions exceed new investment. Named after Charles Ponzi who

perpetuated such ascheme in the 1920s under the pretense of his opportunities to make money through international currency transac¬ tions. See also maekihh scandal. p o o l .

Corporate tlnance: concept that investment projects are financed out of apool of funds rather than out of bonds, preferred stock, and com-

V

539

P O R TA L - T O - P O R TA L PAY

mon stock individually. Aweighted as crage cost of capital is thus used in analyses evaluating the return on investment projects. See also COST 0|:

C A P I TA L .

Industry: joining of companies to improve profits by reducing com¬ petition. Such poolings are generally outlawed in the United States by various antitrust laws.

Insurance: associaiion of insurers who share premiums and losses in order to spread risk and give small insurers an opponunity lo compete with larger ones.

Investments; (1) combination of resources for acommon purpose or benefit; (2) group of investors Joined together to use their combined power to manipulate security or commodity prices or lo obtain control

of acorporation. Such pools are outlawed by regulations governing seeuiities and commodities trading. Real estate: agroup of mortgages that arc used as collateral for a PA S S - T H R O U G H S E C U R I T Y. S e e a l s o B L I N D P O O L .

POOLING OF INTERESTS accounting method formerly used in the combining or merging of companies following an acquisition, W’hcreby the balance sheets (assets and liabilities) of the two compa¬

nies are simply added together, item by item. POOP AND SCOOP illegal scheme whereby unfavorable information about aslock is circulated, usually on the Iniernei, to drive down its price so it can be bought cheaply and later converted into aprofit. Conirosi pump and du.mp.

P O P U L AT I O N s e e u m v e r s I - ,

POPUP ADN’ERTISING messages that pop up in anew- browser win¬ dow to advertise products and services. There is strong consumer resentment about this method of advertising, resulting in software to block popups as well as pop-iiiulers, new browser windows that open behind the current window (as opposed to in front of it), to be revealed when the current window is closed.

POPUP MENU asecondary menu that appears above aselected menu item.

PORTABII.ITY characteristic of employee benefits such as pension and insurance coverage. Benefits are portable if employees can retain them when they leave to take aJob with another employer. P O RTA B L E POR

l'ABLE

COMPUTER DOCUMEN

see l'

notebook

F O R M AT

see

computi-r. pde.

PORTAL- TO-PORTAL PAY compensation for all expenses incurred while traveling from door to door. Ponal-lo-portal pay is used in busi¬ ness organizations for business-related puiposcs, such as business travel where all expenses including transportation are covered.

PORTFOLIO

540

PORTFOLIO

I. group of SECURITIES held by an individual or insiituiional investor, which may contain avariety of common and preferred stocks, cor¬ porate and municipal bonds, certificates of deposit, and Treasury bills, that is. appropriate selections from the equity, capital, and money markets. The purpose of aportfolio is to reduce risk by d i v e r s i fi c a t i o n .

2. case or folder carried by artists to show their best works. PORTFOLIO INCOME in taxation, includes interest, dividends, royal¬

ties, and gains and losses from investments, but not passive activity investments. The concept distinguishes pa.ssivo, active, and portfolio income, passive ACnviry losses generally may not be offset against active or portfolio income. PORTFOIJO MANAGER professional responsible for the securities PORTFOLIO of an individual or inslitudonal investor. Aportfolio man¬

ager may work for amutual fund, pension fund, profit-sharing jjlan, bank trust department, or insurance company, as well as for private investors.

PORTFOLIO REINSURANCE coverage in which an insurance com¬

pany's portfolio is ceded to areinsurer, who reinsures agiven per¬ centage of aparticular line of business. POR'I'FOLIO THEORY sophisticated investment decision approach that permits an investor to classify, estimate, and control both the kind and the amount of expected risk and return; also called portfolio manaaement theory or modern portfolio theory. Essential to portfolio theory are its quantillcaiitm of the relationship between risk and return

and the assumption that investors must be compensated for assuming risk.

PORT OF ENTRY shipping entry into acountry where customs may

inspect the shipment and assess duties when applicable. PORl'RAIT orientation of acomputer screen or sheet of paper (for viewing or printing) in which the vertical dimension is greater than the hori/ontai. Conirast with i.andscape. P O S s e e P O I N T- O F - S A L E s y s t e m .

POSITION

In gencTal: to deliberately put oneself, or it company, in acertain place such as asmategic market location. Hanking: bank's net balance in aforeign currency. F i n a n c e : fi r m ' s fi n a n c i a l c o n d i t i o n .

Investments: (1) investor’s stake in aparticular security or market. A LONO position equals the number of shares owned: ashort position is the number of shares owed. (2) to take on along or ashort position in aslock.

V

541

POSSESSION

POSITIONING jee KismoN. POSITION SCHEDUI.E BOND see nDEU.iTV noND.

POSITIVE CARRY siliiulioii in which the cosl of money borrowed to finance securities is lower than the yield on the securities. For exam¬

ple, if afixed-income BOND yielding 10‘S- is purchased with aloan bearing 8% interest, the bttnd has positive carry. The opposite situa¬ tion is negative carry. P O S I T U ’ F. C A S H F L O W s e e b e f o r e - Ta x c a s h n . o w. P O S I T I V E C O R R E L AT I O N d i r e c t a s s o c i a t i o n b e t w e e n t w o v a r i a b l e s .

As one variable becomes liirge, the other also becomes large, and vice versa. Positive correlation is represented hy correi.ation coefficiiiNTS greater than 0, See also negative correi-ation. POSITIN'E LE\'ERAf;K use of borrowed funds that increases the return on an investment. See also leverage; reverse leverage. P O S I T I V E Y I E L D C U RV E u s u a l s i t u a t i o n i n w h i c h i n t e r e s t r a t e s a r e

higher on long-term debt securities than on short-term debt securities

of the same quality. See Figure 7. See aha iNVi-RTEi) yield curve. POSITIVE YIELD CURVE

Q

E V >

s o c

Uatuiity term (years) FIGURE 7

POSSESSION having, holding, or detaining I'roim-KTY in one’s control, When compared with mere custody, possession involves custody plus the assertion of aright to exercise dominion.

POSSESSION UTILITY

542

POSSESSION UTILITY additional consumer value created by iraiis-

fcrring aproduct's ownership. Various lime payment, leasing, and credit purchase strategies can be important in making aproduct more attractive to aconsumer. See also HOUR Ps.

POST transfer accounting entries from ajournal of original entry into a

ledger book, in chronological order according to when they were gencrtited. Banks would traditionally po.sf checking account deposits and

withdrawals in aledger, then summarize these transactions on the monthly bank statement. Now such operations are computerized. POSTAGE METER machine used to apply postage in lieu of printed

stamps. The owner or renter puls po-stage in the machine by having post office personnel set it for the amount paid. The po.stage meter can then issue postage by printing on an envelope or on gummed labels until the amount of money paid is exhausted by postage consumed. POSTAGE RATE cost of mailing aletter or package that is set by the U-S. Postal Service. The rate depends upon the parcel's weight and destination and the service sought. P O S T- C L O S I N G T R I A L B A L A N C E t r i a l b a l a n c l a f t e r t h e c l o s i n g ENTKiisS have been recorded.

POSTDATED CHECK check dated in the future, l! is not negodablc until the date becomes cuirent. P O S T H O C E R G O P R O P T E R H O C FA L L A C Y ! a f t e r t h i s , t h e r e f o r e

because of this"; fallacious reasoning that connects unrelated events or

causes by assuming that asub.sequeni action is aconsequence of apre¬ vious one, as by attributing afalling birth rate to aprevious reduction in the population of siork.s. P O S T I N G

1. to affix physically in order to display. 2. in bookkeeping, to list on the company’s records, such as to list the detail of sales and purchases on the accounts receivable or payable records.

3. in civil procedure, affixing of certain required information as asub¬ stitute form of .service of process.

4. in commercial law. proc^ure that abank follows in deciding to finally pay anegotiable instrument and in recording its payment. 5. exhibition of notices on real property, warning potential Irespas.scrs

that fishing or hunting is not permitted by the properly owner. POSTMARK cancellation affixed on stamps by the U.S. Postal Service to indicate use of the postage. The dale and place of mailing are usu¬ ally indicated by the postmark and may be offered as evidence in a legal dispute of when and where something was mailed. POSTSCRIPT agraphical command language for ouI|hiI devices such as lu.ser printers. Many application programs are designed so that they

543

P P M

send PosiScripi code to the printer, which directs the primer to print text and graphics—provided that the printer is !*i>stScripl-com|tatihle. POTENTIAL (iDP the level of GDP that would be possible if full uti¬ lisation of avuilttble capital and labor were attained. POTENTIAL GROSS INCOME (PGI) the amount of rent aproperty would generiito if it were leased all year. See alsn ilH-i-cnivE GROSS INCOMi; (KOI). MtSCtit.I.ANIiOUS iNCOMli. VACANCY RATE.

POL'.VD SIG.N the character #. used by some applications in number for¬ matting switches or as awildcard in searches. Also called mimhersign whash

mark.

P O V E R T Y

I. relative measure within asociety, being the state of having income and/or wealth so low as to be unable to maintain what is con.sidcred aminimum siandard ok uving.

2. in absultite terms, having income and/or wealth too low to maintain l i f e a n d h e a l t h a t a s u B S i S T H N C F. l e v e l .

POWER CEN'IT'iR ashopping center with few ienants, most of them ANCHOR TE-NANTS. Generally, a/wiver cen/erv anchor tenants are "cat¬

egory killers," that is. the dominant retailers in the markets they sene. POWER OF A’lTORNEY (POAI instrument by which one person, as principal, appoints another as his agent and confers upon him the authority to perform certain .specified acts or kinds of act.s on behalf of the principal. The primary purpose of apower of allorney is to evi¬ dence the authority of the agent to third parties with whom the agent deals. Aperson need not be an attomey-at-law to have the power of

attorney to act for another. There are several types of POA: general, specific, durable, and springing. POWER OF SALE clause, sometimes inserted in murtgage.s or deeds of trust, which grants the lender (or trustee) the right to sell the property upon certain dehiult. The property is to be sold at auction but court authority is unnecessary. See also power of attorney. P O W E R b O F A P P O I N T. M E N T s e e G R N i - . R A t - f o w i j i o i - a p p o i n i m e n t ; SPECIAL

POWER

OK

APPOINTMENf-

POWERPOINT presentation software from Microsoft, included in the DKTiCE SUITE. U.sed for prcparitig “slides” to be primed as overhead projector transparencies or projected directly from acomputer screen. Coordinated speaker notes and handouts can also be produced. POWER SURGE sudden increase in voltage that outers acomputer or word processor through the ptiwer line; poienlially damaging to elec¬ trical equipment, especially eomputei^. PPM pages per minute, ameasure of the speed of printers; also parts per M I L L I O N ( P P. M ) .

ppp

544

P l ’ l ’ , \ e e P O I N T- T O - P O I N T P R O T O C O L .

PRACTICAL CAPACITY highest activity level at which the factory can operate with an acceptable degree of efficiency, taking into con¬ sideration unavoidable losses of productive lime (i.e., vacations, holi¬ days, repairs Ui equipment); also called nui.ximum practical capacity. See abo capacity.

PRK-.APPROVAL acceptance of aparty for aloan. Aborrower may PREQUALlR' for amortgage loan, which indicates the maximum amount aborrower can afford. Pre-approval indicates ihai the lender is willing to make aloan for ucertain amount to that borrower. PREC.AUTIONARY MOTIVE cause of an action preventing some¬ thing else from occurring. For example, ahome owner puts the car in

the garage at night to prevent it from being stolen. PRECIOUS METALS gold, silver, platinum, and palladium. These metals are valued for their intrinsic value, backing world currencies, as well as their beauty or industrial applications. Fundamental issues of supply and demand arc important factors in their prices, along with political and economic considerations, especially when producing

countries are involved. Inflation fears will stimulate gold accumula¬ tion and higher prices, as will war and natural disaster, especially in major producing or consuming countries or regions. PRECLOSING rehearsal of the dosing whereby instruments are pre¬

pared and signed by some or all parties to the contract; used when dosings are expected to be complicated. PRECLOSING TRIAL BALANCE see trial balance.

PREDATORA' lending apractice attributed to certain mortgage lenders that seeks to take advantage of the ignorance or gullibility of borrowers. Often associated with refinancing, home equity unes of CREDi r, or home improvement lending, these practices can lake one (or more) of several foims: saddling borrower.s with more debt than they can handle, tricking aborrower into aloan with high rates and fees, and overcharging or charging twice for routine scnuces. PREDATORY I’RICING deliberate pricing of merchandi.se or services for the sole purpose of driving competitors of similar products or ser¬ vices out of the market. Once these competitors are eliminated, the intent is to raise the price. See also A.'rriTRU.ST acts. PREDICTION foretelling of afuture event. Predictions arc probabilis¬ tic estimates of future occurrcnce.s based upon many different estima¬ tion methods, including past patterns of occurrence and statistical projections of current data. PREEMPTIA'E RIGHTS right specified in the charter of acorpora¬ tion, granting lo existing shareholders the first opportunity to buy a new issue of slock.

“ V

545

PREFERRED RISK

PREEXISTING use; land use that is not in conformance with the cur¬ rent ZONING ctxie. hut is allowed to continue because the

use

was

in

effect at the time the code was passed; also ciilled N(>nconr>rming list;. Continuation of the land use is typically conditioned on certain

limitations on improvement and rebuilding of the existing structures. P R K E A B R I C AT K I )

I. con.structed, as building components, in afactory prior to being erected or installed on the construction site.

2. constructed, as ahouse, of prefabricated comjxincnts. See also MODULAR

HOUSING.

preference choice of one alternative over another. For example, some people show apreference for certain colors over others because they make ihent feel happy.

PREFERENCE I'l'EM see 'I'ax prr!i-:ri;Ncf. rntM.

PREFERENCES settings that allow acomputer user to customize the working environment; also called options. For example, mouse soft¬ ware allows users to set the double-click rale and tracking, whereas other programs allttw users to choose the appearance of certain screen

elements such as dialog boxes (w-hether buttons are “sculptured," for example), the extent to which the program provides automated assis¬ tance, and whether or not areminder to save or information about the

function of abutton is displayed. In many applications, users can choose where files will be stored, whether backups will be made, and the file formal to be used as the default. PREFERFINCFI SHARES see prior-priperred stock,

PREEERENTIAI. REHIRING provision in Title VII of the 1964 Civil

Rights Act according to which companies can be enjoined under Section 203criods. For cxainpl e . the present value of an annuity of SI .00 per year for 10 years, dis¬

counted at 12%. is S5-65. See also ordinary ansuity.

PKESENT VALUE (S\’ORTH) OF Itoday’s value of an amount to be received in the future, based on acompound interest rate. For e

x a n i -

pie, at a12% interest rate, the receipt of one dollar one year from now has apresent value of $0.89286. One dollar to be received in two years has apresent value of $0.79719. Factors are ba.sed on the following formula:

present value of SI =

1

(l +iT

where iis the interest rate and nthe number of periods.

PRESIDENT highest ranking officer in acorpomiion after the chair¬ man OF THE HOARD, unless the title chief executive ofrcer (ceo) is

used, in which case the CEO can outrank the presitleiii. The president

is appointed by the board of dirixtors and usually reports directly lo the Board of Directors.

PRESIDENTIAL ELECTION CYCLE THEORY hypothesis of investment advisers that major stock market moves can be predicted based on the four-year presidential election cycle. Slocks should start lo rise in anticipation of the economic recovery that the incumbent president wants lo be roaring at full steam by election day. PRESOLD ISSUE issue of municipal bonds or government bonds that

is completely sold out before the price or yield is publicly announced. PRESORT FIR.ST-CLASS MAIL reduced rale offered by the U.S.

Postal Service for first-class mail that is pan of agroup of 10 or more

pieces soned to the same five-digit ZIP code or 50 pieces to the ZIP code with the same first three digits. The total mailing must exceed .500 pieces and the shipper must pay an annual fee in addition to postage foreaeli piece.

✓

PRESS KIT

550

PRESS KIT set ot prepared press releases and related materials given to

the press for general dissemination. Press kits are prepared by an organb.ation, often by the public relations or press department, to give an official statement or view regarding aparticular newsworthy event.

PRESS RELATIONS process of communicating with representatives of the mass media, including reporters, editors, and administrators. PRESTIGE ADVERTISING advertising designed to enhance the pres¬

tige of acompany or acompany's products or services. PRESTIGE PRICING pricing reflecting the assumption that con¬ s u m e r s will not pay less than apredetermined price floor for mer chandise since il is believed that otherwise it will be of inferior quality.

Tiffany’s, for example, does not carry inexpensive retail iiem.s since this would be perceived as inferior quality. PRKSUMPTION

1. impertinent or irritating opinion, conduct, or speech.

2. assumption made until proven incorrect; inference made I'lxtir available information.

PRETAX EARNINGS or PRETAX PROFIT NbT income (earnings or

profit) before federal income taxes. PRETAX INCOME the amount earned from abusiness or investment before deducting income taxes.

PRECTAX RATE OF RETURN yield or capital gain on aparticular

security before taking into account an individual's tax situation. See also RATE OF RETURN-

PREVENTIVE MAINTENANCE keeping properly and equipment in

agood state of repair so as to minimize the need for more costly major repair work or replacement. The life of asystem can be prolonged through continual preventive mainienance.

PRICE/BOOK RATIO ratio of astock’s price to its book value per

share. This number is used by SECURmES analysts and money man¬

agers to judge whether astock is undervalued or overvalued. Astock

selling at ahigh priee/book ratio, .such as 3or higher, may represent a

psipular GROWTH STOCK with minimal book value. Astock selling below its book value may attract value-oriented investors.

PRICE DISCRIMINATION the practice of charging different people different prices for the same gotxis or services. When price discrimi¬

nation is engaged in for the purpose of reducing competition, as, for instance, through lying the lower prices to the purchase of other goods or services, it constitutes aviolation of antitrust acts. PRICE-EARNINGS (P/E) R.ATIO price of astock divided by its earn¬

ings per share, also known as the multiple. The P/E ratio may either use the reported earnings from the latest year (called arrailing PIE) or

SSI

PRICE

WAR

employ pn analyst's forecast of next year's earnings (called aforu’ard FIE). The trailing P/E is listed along with astock's price and trading activity in the daily newspapers. For instance, astock selling for $20 ii share that ciimed $1 last year has atrailing P/E of 20. If the same

sKKk has projected earnings of $2 next year, it will have aforward P/E of 10.

PRICK ELASTICITY relationship between the total amount spent on a good in the market and the price of the good. It is the percentage change in quantity divided by the percentage change in price. If aprice decrease results in larger total expenditure, the good is price elastic. If aprice decrease results in less total expenditure, the good is price inelastic. PRICK FLEXIHILITY describes an economic circumstance in which

prices are allowed to vary considerably. P R I C E - F I X I N G u n d e r f e d e r a l A S m T R t i s r m w. s , c o m b i n a t i o n o r c o n ¬

spiracy for the purpose and with the effect of raising, lowering, or siabiliiing the price of acommodity in interstate commerce.

PRICE INDEX index that traces the relative changes in the price of an individual good, or amakklt UASKtTof goods, over time. Well-known price indexes are the consumer price iNDiiX (CPI) and the prouuckr PRICE tNDEX (PPI). P R I C E I N E L A S T I C I T Y s e e P R I C E E u a S t i c i r v.

PRICE LEADER (LEADERSHIP) the firm in an OLioopOLlsnc indu.stry whose output pricing decisions arc most likely to be matched (up or down) by most other fimis. The price leader establishes the pricing of products or services that becomes apallem in the industry. This reduces competition and makes it less difficult for competitors to make pricing decisions. PRICK LEVEL range of market prices of agood, or prices of goods, usu¬

ally u.scd in comparison with prices of the same items at dilferent times. PRICE STABILIZATION collection of government policies designed

to halt or slow down rapid changes of price, usually during inflation¬ ary episodes or shortages, PRICE SUPPORT govenimciit-set price floor designed to aid fartners i>r other producers of goods. For instance, the government sets amin¬ imum price for sugar that it guarantees to sugar growers. If the market

price drops below that level, the government makes up the difference. PRICE SYSTEM element of an economic system in which the market-

determined price determines the allocatio.n oh RESOURCES: generally accepted as part of the capitalist system. PRICK WAR retailers in the same line of business continually trying to

underprice each other, sometimes below actual merchandise costs, as

PRICEY

552

ii competitive strategy to attract customers. Price wars result in low profits and often in bankruptcy. Since deregulation of airline fares, the major air carriers have frettucntly waged price wars. PRICEY

In general: prtuiuct offered at aprice at or near the top of what the m a r k e t w i l l b e a r.

Investment: unrealistically low bid price or unrealistically high offer price. If aslock is trading at $15. apricey bid might be $10 ashare, and apricey offer $20 ashare. PRICING ABOVE (BELOW) THE MARKET retail pricing strategy to atcracl customers either with ahigh price image, strong personal service, and merchandise quality or by underbidding the competition

in the case of bclow-ihe-markei pricing. For example, retailers in a highly competitive environment, such as gas stations, may price below the market in oixler to attract customers. Sec also prick war.

PRIDE OF OWNERSHIP asense of well-being and pleasure some

people derive from owning ahome or other real property, one of the intangible benefits of home ownership. This feeling relates to the social status conveyed to property owners, afeeling of financial accomplishment and commitment to the local community, as well as pride in the property's appearance. PRIMA FACIE at first view, on its face. The term relates to acircum¬

stance that docs not require further support to establish existence, valid¬

ity, credibility. For example. Sid is caught with untaxed cigarettes. In the state where he is caught, untaxed cigarettes are designated prima facie contraband and are immediately subject to forfeiture to the stale. PRIMARY

BENEFICIARY

see

b e n e h c i a r y.

PRIMARY BOYCOTT union boycott of an employer's products,

goods, or services by preventing their use, purchase, or transportation. No effort is made to involve or persuade those noi directly involved in the dispute, as in asecondary boycott. PRIMARY DATA original data compiled and studied for aspecific pur-

po.se. For example, astructured survey might be conducted for the pur¬ pose of discovering current attitudes on aparticular topic; raw survey responses would be primary data. PRIMARY DEMAND market demand by consumers of non-capital goods. See also derived demand. PRIMARY DISTRIBUTION sale of anew issue of stocks or bonds, as

distinguished from asecondary distribution, which involves previ¬ ously issued .stock. All issuances of bonds are primary distributions.

Also called primary offerini;, but not to be confused with initial pub¬ lic offering, which refers to acorporation’s/irst distribution of stock lo the public.

PRIME

553

COST

PRIMARY EARNINGS PER (COMMON) SHARE earnings avail¬ able 10 common stock (which is usually net earnings after taxes and

preferred dividends) divided by the number of common shares ciutstatiding. See also DlLiniON, I’RIMARY LEASE leasi; between the owner and atenant whose inter¬

est. all or in part, has been sublet. PRIMARY MARKET market for new issues of securities, as distin¬

guished from the seconiiary market, where previously issued securi¬ ties are bought and sold. Amarket is primary if the proceeds of sales go to the issuer of the securities sold. PRIMARY MARKET AREA

I. newspaper or related publication's major area of editorial and advertising coverage. I-or example, XYZ newspaper may do astitry on the XYZ fire department because it is situated iti its primary market area. Similarly, retailers would place an ad in the XYZ newspaper if they were interested in reaching consumers living in XYZ's primary market area.

2. major area of sale and distribution for an advertiser's product or service; also called hiarlland. For example, the primary market area for woolen hats would be northern states or other cold weather

regions. Abbreviated PMA. P R I . M A RY M E T R O P O I . I TA N S TAT I S T I C A L A R E A ( P. M S A ) a

geographic entity designated by the federal Office of Management and Budget for use by federal statistical agencies. If an area that qualifies as aMETROPOl.iTAN AREA IMA) has acensus population of one million

or more, two or more primary metropolitan statistical areas (PMSAs) may be defined within it if they meet olficia! standards and local opin¬ ion favors the designation. When PMSAs arc established within an MA, tliat MA is designated aconsolidated miiTROPOLITan statis'iiCALAREA (CMSA).

PRIMARY PACKAGE jiackagc in which aunit of the product is

sold. For example, abag of potato chips is the primary package, and the carton in which bags of the potato chips arc shipped is the outer IHickage. PRIMARY RESIDENCE one's official home, more formally called a PRINCIPAL RESIDENCE. OmIraSI with second IIOMi; and VACATION IIOME.

PRIMARY STORAGE DEVICES memory area of computer where

current data arc stored. This section of the computer is referred to as KAStxxM ACCESS MEMORY (RAMI and consists of volatile memory chips. Unless this information is saved to aSECONDARY storage device, it

will be lost wlien the computer is powered down. See also reai>Oni.y MEMORY (ROM). P R I M E C O N T R A C TO R s e e g e n e r a l c o n t r a c f o r. PRIME

COST

see

direct

cost.

PRIME

PA P E R

554

PRIME PAPER highest quality coMMiiROAL pai'i-;r, as rated by Moody's Investor’s Service and other rating agencies. Prime paper is considered INVESTME.NT GRADE. Moody's ho-s three ratings of prime paper: P-1

(highest quality). P-2 (higher quality), and P-3 (high quality). PRIME RATE interest rate banks charge to their most creditworthy cus¬

tomers. The rate is determined by the market forces affecting abank's cost of funds and the rates that borrowers will accept. The prime rate tends to become standard aertrss the banking industry when umajor ban)c moves its prime rate up or down. Banks may offer major cus¬ tomers discounts on the prime rate.

PRIME TENANT in ashopping center or office building, tenant who occupies the most space. Prime tenants are considered credit-worthy and attract customers or traffic to the center. See also anchor tenant. P R I N C I PA L

1. one who owns or will use property. For example, the principals to the lease arc the landlord and the tenant; principals to astile are the buyer and the seller. 2. one who contracts for the services of an agent or broker; the bro¬ ker’s or agent's client. 3. amount of money raised by amortgage or other loan, as distinct from the inti-rest paid on it. See also principal amount. PRINCIPAL AMOUNT face vai.uk of an obligation, such as abond or

aloan, that must be repaid at maturity, as separate from the inikrest. Principal paymenus are not tax deductible. Principal receipts in repay¬ ment of aloan are not taxable income, but principal receipts from a sale may be taxable if the sale was reported as an installment sale. PRINCIPAL AND INTEREST PAYMENT (P&I) periodic payment, usually paid monthly, that includes the interest charges for the period

plus an amount applied to amoni7ation of (he principal balance; com¬ monly used with amortizing loans. See also AMORTiZATtON; debt ser¬ vice; MOHTGACK constant.

PRINCIPAL, INTEREST, TAXES, AND INSURANCE PAYMENT IPITI) periodic, typically monthly, payment required by an amortiz¬ ing loan that includes escrow deposits. Each periodic payment includes aprincipal and interest payment plus acontribution to the escrow account set up by the lender to pay insurance premiums and

properly taxes on the mortgaged property. PRINCIPAL PLACE OF BUSINESS test for determining whether a h o m e o f fi c e i s d e d u c t i b l e . S e e a l s o h o m e o f fi c e .

PRINCIRAL RESIDENCE former name for primary residence.

PRINCIPAL STOCKHOLDER stockholder who owns asignificant

number of shares in acorporation. Under Securities and Exchange Commission (SEC) rules, aprincipal stockholder owns 10% or more of the voting stock of aregistered company.

555

I’RIOR PKRIOD ADJUSTMENT

l■K I N C I P A L S U ^ l

Kiiiaiice: obligalion due under ndebl iiistrumenl exclusive of imeresc. Insurance: amount specified ax payable to the beneficiary under a policy, such as the death benefit.

PRINCIPLE rule or general standard adhered to in most areas of human conduct. Aprinciple can be an ethical declaration, as in "do unto oth¬

ers as you would have them do unto you.” PRINTER device for putting computer output on paper. Printer types include line printer, daisy-wheel printer, dot-matrix printer, electrosta¬ tic printer, ink jet printer. laser printer, and thermttl printer. PRINT MONEY strictly speaking, to engrave and produce physical cur¬ rency. Connotativciy. it metin-s adding to the supply of money and credit for the purpose of monetising debt or stimulating spending, implicitly leading to inflation or. at worst, hyperinllation. See also QtiASrTITATlVE EAStNO (QE).

I’RINTOUT HARD copy (paper) output from acomputer, such ax selected information from or analyses of computer files or simply a printout of the information currently on the computer screen. Some printouts, such as statistical analyses, require special programs lo loll ilic computer how to produce ihem. Others, such as aprintout of the screen, arc produced by the basic operating system programs. PRIORITY (1) preference; (2) coming before, or coining first, in abank¬ ruptcy proceeding; (3) right to be paid before other creditors out of the assets of the bankrupt party. The term may also be used to signify such

aright in connection with aprior lien, prior morlgagc, and so on. PRIORITY MAIL class of mail offered by the U.S. Posial Service for letters and parcels (h;ii weigh up to 70 pounds; combined length and girth must not exceed 108 inches. Tlie most expeditious method of shipping is used on Priority M;iil; two-day service is generally pro¬

vided but not guaranteed. First-class letter mail weighing more than 13 ounces is automaiically considered Priority Mail; ihe minimum rate (which covers Icltcrs and parcels up lo one pound) is currently $4.93. Pieces weighing one pound or more arc subject lo zoned rates, but the

USPS offers anumber of flat-rate envelopes and boxes that ship for one price (beginning at $4.95) regardless of weight or distance. PRIORITY OF TAX LIEN aI'edcnil tax lien for nonpayment of taxes has priority over most other liens. However, afederal tax lien is noi valid against any purchaser, holder of asecurity interest, mechanic's lienor, or judgment lien creditor until Ihe lax lien has been properly recorded. Certain ■'superpriorilies” (c.g.. on securities. aulomiAilcs) may be superior to alax lien. PRIOR PERIOD ,\l)JliSTMENT in accounting, charge that relates to aprevious year that should have no effect on the current year, such as the collection or payment of money arising from liligation of an event

PRIOR-PREFERRED STOCK

S56

that occurred in the past. Once made hy charging retainbd EARNtNCS, accountants should consult the most recent siatemeni of the Financial

Accounting Standards Board for instructionsPRIOR-PREFERRED STOCK preferred stock that ranks ahead of

other issues of preferred stock or cominon slock in terms of payment of dividends and its claim on assets in the event of liquidation; also known as preference shares. PRIOR SERVICE COST amount that needs to be contributed for

employee benefits under apension plan for employment before a given date.

PRIVACY LAWS laws passed by the United States Congress upon the recommendations of the Privacy Protection Study Commission estab¬

lished by the Privacy Act of 1974. The laws require mailing list own¬ ers who rent their list to other direct marketers to inform people on the

list that the list i.s being rented and to give each individual "an oppor¬ tunity to indicate to the organization tliat he does not wish to have his address ...made available for such purposes." PRIVATE ACCOUNTANTS in-house accountants employed by an

organization for the purpose of maintaining financial control and supervising the organization's accounting system. ACOOTroli.kr is an organization's most senior private accountant. PRIVATE BRANDS product brands owned by aretailer or awholesaler rather than the manufacturer; al.so caUed ltoii.\e brands. They normally retail at aless expensive price than anational brand. Compare GENERIC

PRODUCTS.

PRIVATE CARRIER company’s transportation system designed for its own shipping requirements. PRIVATE EQUITY FUND fund, usually in the form of alimited part¬ nership. controlled by aprivate equity firm that acts as the general

partner and ihal gets specific dollar commitments from qualified insti¬ tutional invc.stors and individual accredittm investors. These pas¬

sive limited partners fund pro rata portions of their commitments when the general partner ha.s identified an appropriate opportunity,

which may be venture capital to finance new products and technolo¬ gies, expanding working capital, making acquisitions, financing lever¬ aged buyouts (LflO.s), and other investments in which the equity is not publicly traded. PRIVATE FOUNDATION family or corporate foundarion engaged in charitable activities. Stricter contribution limilnlions and various penally and excise laxe.s apply to private foundMions. See public charity. P R I VAT E G O O D s e e p u b l i c G O O D S .

PRIVATE ISSUE .vee PRIVATE placement.

V

557

P R O B A B I L i T Y

PRIVATE LAW’ law governing rdaiionships between iwu or more pri¬ vate individuals, companies, or organisations, it has not been passed or ruled upon by ajiublic authority. See alio pl'BI.IC law. PRIVATE M0RT(;AGE INSURAN'CE (PMI) dh'allt insurance on

conventional loans, provided by private insurance companies. See also MORTGAGE

rNSURANCK.

P R I VAT E O F E E R I N G o r P R I V, V T E E ’ L A C E M K N T i n v e s t m e n t o r

business ofl'erod for sale to asmall group of investors, generally under

exemptions to registration allowed by the Securities and Exchange Commission and state securities registration law.s. See also REGUt.ATION

D.

PRIVATE RULINC; reply from the Internal Revenue Service regarding the tax treatment of aproposed transaction. At one lime, private rul¬ ings were unpublislied, but they have been made public information and are published by several reporting services. Nonetheless, only the party to whom the private ruling was issued may rely on it. P R I VAT I Z AT I O N

I. process of making private, such as apublic corporation repurchtising its oulstanding slock or anationalized company or government service agency reverting to the private .sector. Prieaiizaiion

involves removing an organization from public ownership. 2. in inlemalional affairs, transferring ownership of housing, busi¬

nesses. and other properly from government or social ownership to individuals or businesses, especially in Eastern Europe in the 1990s, PRIVILEGE right or prerogative to do something that is unique to the individual or to agroup. For example, having wealth provides privileges. PRIVITY relationship between parties out of which arises mutuality of interest. See also ease.me.nt; ri.n wini the land.

PRIZE BROKER arranger of the exchange of an advertiser’s merchan¬ dise for free broadcast time or publicity plugs on aradio or television

.show; also called barter broker. Aprize broker \a employed by acom¬ pany specializing in the “bartering" of merchandise for broadcast ser¬ vices, and is frequently called upon by game shows for these services. PRO/kCTI\'E having an orientation to the future, anticipating problems and taking affirmative steps to deal positively with them rather than

reacting after asituation has already occurred. PROBABILITY astatistical measure of the likelihixid that aresult will

(Kcur or that astatistic measured from arandom sample i.s indicative of the population as awhole. For example, the probability of atossed

coin coming up heads is 0.5. If a.sufficiently large sample of men have an average weight of 175 pounds, it is possible to calculate the proba¬

bility that the average weight of the entire population of men is 175 pounds, plus or minus xpounds.

V

PROBABILITY DENSITY FUNCTION

S58

PROBABILITY DENSITY FUNC’I'ION for adiscrete random variable,

the probability density function at aspecific value is the probability that the random variable will have that value; for acontinuous random vari¬

able, the probability density function is represented by acurve such that the area under the curve between two numbers is the probability that the random variable will be between those two numbers. P R O B AT E

1. act of proving that an instrumknt purporting to be awill was signed and otherwise executed in accordance with the legal requirements for awill, and of determining its validity. 2. combined result of all procedures necessary to establish the valid¬ ity of awill. See also avoiding probate. PROBATE ASSET.S those assets in an estate that are subject to pro¬

bate and court disposition and thus become part of public records. PROBATE ESTATE property passing by will or by operation of state INTESTATE succession law from adecedent to his or her HEIRS or other

BENEHCiARiES. Prohtiie estate may be quite different from CROSS ESTAte. P R O B AT I O N A R Y E M P L O Y ’ E E

1. new employee being considered for permanent status. Aprobation¬

ary employee has no seniority privileges or status and may be dis¬ charged without cause, except where the discharge violates affirmative action laws.

2. current employee being placed on probation as adisciplinary act before being dismissed. PROBI.EM RESOLUTION PROGRAM route provided by the IRS

fur aggrieved taxpayers who have difficulty getting their voices heard. See also ombudsman.

PROCEEDS

1. funds given to abonower after all interest costs and fees are deducted.

2, money received by the seller of an asset after commissions are deducted; for example, the amount astockholder receives from the sale of shares, less broker’s commi.ssion. PROCEEDS FROM RESALE see resale proceeds

PROCESS CONTROL SYSTEM computerized sensing system that monitors specialized devices and processes within acontrolled envi¬ ronment. The system has the capiibilily of automatically making adjustments to maintain preset environmental specifications. PROCESS DIVISION management method of dividing the productive

priK-edures In amanufacturing organization into organizational seg¬ ments. For example, in an automobile factory the proce.sscs may be divided according to engine b!(x;k casting, engine assembly, and engine testing.

559 PRODUCTION AND OPERATIONS MANAGEMENT (POM)

PROCUREMENT acquisition of goods (materials, pans, supplies, equipment) required to carr>- on an emorprise. Procurement expenses can be amajor cost of doing business. PROCURING CAUSE legal term that means the cause resulting in accomplishing agoal, used in real estate to determine whether abro¬ ker is entitled to acommission.

PRODIGY an oni.ini; service now owned by AT&T (formerly SBC Corporation). PRODUCE

I. to make, fabricate, or bring forth somcdiing. For example, farmers

produce wheat and com. Automobile manufacturers produce cars, 2. fruits and vegetables. PRODUCER COOPERATIVE organization of producers who cooper¬

ate in the areas of buying supplies and equipment and of marketing. I’RODUCER GOODS new machinery and equipment bought for busi¬ ness use; durable goods used in business production. See also capital GOODS.

PRODUCER PRICE INDEX (PPl) measure of wholesale prices, for-

merl) called the wholesale price index, released on amonthly basis by

the U.S. Bureau of Labor Statistics. Prices arc calculated as products

move through the manufacturing and distribution stages, before they reach the consumer.

PRODUCT output or end result of production process. For example, automobiles are aprtxJuct of the automobile companies. PRODUCT ADVERTISING advertising targeted at specific products or services that describes features, benefits, and performance. PRODUCT DEVELOPMENT PROCESS stages of introducing anew

product or service concept and managing its development until it actu¬ ally comes to markct.The stages include analyzing the market, target¬ ing potential buyers, understanding the productive capacity of the organization, developing aproduct to fit the market needs, distributing it to the marketplace, and analyzing customer feedback. PRODUCT DIFFERENTIATION see DiireRENTiATiON strategy. PRODUCT IMAGE see brand imaok.

PRODUCTION formal activity that adds value to g^s and .services,

including creation, transport, and warehousing until used. Production is an organized process with specific goals.

P R O D U C T I O N A N D O P E R AT I O N S M A N A G E M E N T ( P O M )

planning, coordination and controlling of an organization's resources to facilitate the production process. POM is an extremely important

PRODUCTION BUILDER. PRODUCTION HOME

560

management area. Issues such as the location of production facililic.s, labor and transportation costs, ;ind productjon i-ORECAsriNc are extremely important considerations.

PRODUCTION BUILDER, PRODUCTION HOME one with plans and specifications that have been replicated in an efficient

or

assem-

hly-line process. See also tract house; comnisi with custom GUILDER.

PRODUCTION CONTROL planning, routing, scheduling, dispatch¬ ing. and inspection of operations or items being manufactured.

PRODUCTION FORECASTING process of judging how much pro¬ duction is required to meet estimated sales in aparticular forecasting period. Considerations include previous sales, the general state of the economy, consumer preferences, and competitive products. Production

forecasting decisions affect budgetary and scheduling decisions. PRODUCTION FUNCTION amathematical formula that describes

how various inputs combine to create output of apnxiuci, either for firm or for an industry as awhole. The function neccs.sarily embodies aspecific level of technology. Can be used to analyze how one indus¬ try affects others segments of the economy. See also [Nput-outpijt a

TA B L E .

PRODUCTION-ORIENTED ORGANIZATION oiganization whose primary function is production. Aproduction-oriented organization can

either perform the production itself or contract for the production. I'tir example, an automobile company Is aproduction-oriented organization. PRODUCTION.POS.SIB1LITY CUR^T. graphic representation of var¬ ious possible outputs of two goods with afixed supply of resources ih.-u are fully employed; also called iransfonuaiion curve. Aproductionpo.ssibility curve i.s useful for determining possible product mixes. PRODUCTION POSSIBILITY FRONTIER the collection of various

combinations of several goods that can be produced by an economy using all of its available resources.

PRODUCTION RATE rate at which aproduction line manufactures

a

product.

PRODUCTION WORKER workers directly concerned with the

m i i n u -

fiicturing operation processes of an organization, iis opposed to super¬

visory and clerical employees; also called production line workers.

PRODUCTIVE state of being creative. For example, an artist who is very prolific is said to be productive. See also productivity.

PRODUCTIVITY moa.sured relationship of the quantity and quality of units produced and the tabor per unit of time. For example, an increase

in productivity is achieved through an increase in production per unit of labor over time. See also f*0DL'CTive.

561

P R O f - I i S S i O N A L E M P L O Y E R O R G A N I Z AT I O N ( P E O )

PRODUCT LIAHII.ITY in general, amanufaciurer’s responsibility to

market safe proOuets. Under the law of tokts, amanufacturer is hold strictly liable when one of its products, placed on the market with the knowledge that it will be used without inspection for defects, proves to have adefect that causes injury to ahuman being.

PRODUCT LIKE CYCLE developnient of aproduct from introduction or birth, through various growth and development stages, to deletion or death. Names have been given to four stages in the life cycle: intro¬ duction. growth, maturity, and decline. It guides marketing managers in developing marketing strategy and decisions. PRODUCT LINE group of produces manufactured by afirm that are closely related in use and in production and marketing requirements.

The depth of the product line refers to the number of different jircxlucts olTered in aproduct line. P R O D U C T M A N A G E R s e e b r a n d m a . n a g e r.

PRODUCT MIX the assotimeni of merchandise made or held for sale. PRODUCT RESEARCH AND DEVELOPMEN T(PR&D) activity

performed by ateam of professionals working to transform aproduct

idea into atechnically sound and proinotabic product: also called research i. development (RiD). Corporate research and development

(R&D) departments are found in both large and small companies and are generally responsible for product development and testing, researching brand names, and creating an effective packaging concept.

PROFESSION certain activity that requires ahigh level of education and standard of ethical behavior. Professions include engineering,

medicine, lav.', leaching, professional accountancy, and architecture. P R O E E S S I O N A I . A S S O C I - AT I O N s e e P R o m s i O N A I . c o r p o r a t i o n .

PROFESSIONAL CORPORATION acorporation formed for the pur¬

pose of engaging in one of the learned professions, such as law, inod-

icine, or archileclure. Traditionally, corporations were prohibited from

engaging in such professions because they lacked the human, personal

qualifications necessary to pursue them. Within recent years, however, most stales have enacted aprofessional corporation or association act

that allows professional persons to practice in the corporate form pro¬ vided that all shareholders are members of the profession.

PROFESSIONAL EMPLOYER ORGANIZATION (PEO) astaffing

firm that provides employees to another company through employee

leasing or staff leasing. The PEO is the employer of record and. in

exchange for afee from the client company, may provide many or all of the following services: paying wages and employment taxes of the employee out of its own accounts; reporting, coliccling, and deposit¬ ing employment taxes with stale and federal authorities; establishing and maintaining aco-employment relationship with its employees that > !

PROFESSIONAL LIABILITY INSURANCE

562

is iniencled to be long-term and not temporary; assuming responsibil¬ ity as an employer for specified purposes of the workers assigned to the client locations; and sharing the responsibility of co-employees’ wages and safety with the client. In essence, PEOs assume the burden

of HUMAN RESOURCES MANAGEMENT for client companies. PROFESSIONAL LIABILITY INSURANCE coverage for specialists in various professional fields. Since basic liability policies do not pro¬ tect against situations arising out of business or professional pursuits, professional liabiliry insurance is purchased by individuals who hold

themselves out to the general public as having greater than average expertise in particular areas. P R o n x

Finance: pti.sitive difference that results from selling products and ser¬ vices for more than the cost of producing these goods. See also net INCOME.

Investment: difference between selling price and purchase price of commodities or securities when the selling price is higher. PROFITABILITY. PROF ITABILITY RATIO metisure of earnings, expressed as apercentage of earnings on sales, total costs, total a.ssets. or equity.

PROFIT AND LOSS STATEMENT (P&L) summary of the revenues, costs, and expenses of acompany during an accounting period; also called INCOME statement, operating siaiement. statement of profit and loss, income and expense statement.

PROFIT CENTER segment of abusiness organization that is responsi¬ ble for producing profits on its own. Aconglomerate with interests in hotels, food processing, and paper may consider each of these three businesses separate profit centers, for instance. PROFITEER making excessive profits, oflen to the detriment of others.

One who is profiieerhig is pursuing the act of making excessive profits. PROFIT MARGIN see MARGIN of promt.

PROFIT MOTIVE desire to earn afavorable financial return on abusi¬

ness venture. Without aprofit motive, tax losses from an activity may be considered ahobby loss, deductible only to the extent of income.

PROFITS AND COMMISSIONS FOR.M insurance coverage protect¬ ing future profits to be earned from amanufacturer’s inventory. A manufacturer may lose all or part of an inventory due to aperil such as fire and still be able to operate. Bui in the event that an inventory and other merchandise is destroyed by an insured peril, the insured is indemnified for the loss of profit or commissions.

PROFIT-SHARING PLAN agreement between acorporation and its employees that allows the employees to share in company profits.

PROGRAMMABLE FUNCTION (PF) KEY

563

Annual conlribulions are nuido by Iheconipany, when il lias profils, lo a profit-sharinj; account for each employee, either in cish or in adeferred plan, which may be invested in stocks, bonds, or cash etjuivulcnts. The

funds in apmrit-sharing account generall)' accumulate lax deferred until the employee retires or loaves the company. Many plans allow employ¬ ees to borrow against prolil-sharing accounts for major ex|x;nditures such as purchasing ahome or financing children’s education,

PROFIT SQUEEZE expression that indicates more dilTlcully lo main¬ tain the same amount or rate of profit as in the past, due to reduced sales, prices or rising production costs, financing costs, general and adminisiralive expenses, or taxes. I’KOKI'l SYSTEM element of the capitalist economic sy.stem in which profit directs the activities of entrepreneurs and determines the

makeup of the production side of markets. See also isvisim.E hasp. PROFIT TAKING action by shon-lerm .securities or commodities traders to cash in on gains earned on asharp market rise. Profit taking pushes down prices. P K O K I T - TA K I N G S T R AT E G Y ’ . t e e m i l k i n g s t r a t e g y.

PRO FORMA according lo form. Presentation of data, such as abal'anck sheet or INCO.me ,stati;mknt, where certain amounts arc hypo¬ thetical. For example, apw forma balance sheet might show adebt issue that has been proposed but has not yet been consummated, or a

pro forma income statement might reflect amerger that has not yet been completed. P R O G R A M

1. organi/cii event, typically over aset time period, such as airainina program.

2. set of instructions for acomputer to execute. Aprogram can be written in aprogramming language, such as BASIC or Pascal, or in an assembly language. PROGRAM BUDGETING method of budgeting expenditures lo meet programmatic objectives rather than on aline-item basis. In program

hudgeiing. specific performance objectives arc used in formulating

systematic costs for all relalcd functions, as opposed lo totaling lineitem requests. PROGRAM EVALUATION AND REVIEW TECHNIQUE (PERT)

planning and control technique to minimize interruptions and/or delays in aprocess with inierrciaicd functions. PERT is used to assist

in reducing the lime required for completion of aproject. PROGRAMMABLE FUNCTION (PE) KEY key on acomputer key¬ board whose function depends on the software being run. In many cases, PF keys can be defined as equivalent to coinhinalions or sequences of other keys.

V

l > R O G R A M M E R

564

PROGRAMMER person who prepares instructions for computers. A programmer receives directions from asystems analyst. I’ROGRAM TRADE institutional buying (buy program) or selling (sell

program) of all stocks in aprogram or index on which options and/or futures are traded. Massive program trade activity has been held responsible for large-scale daily slock market fluctuaiions. I’ROGRESSIVE TAX tax whose rale increases as the amount subject to tax inerea.ses, thereby liixing the wealthy at ahigher rate than the poor or middle class. See also proportional tax. reorkssive tax.

PROGRESS PAYMENTS payments to acontractor as work is per¬ formed; in construction, loan payments issued to the builder as build¬

ing is completed. See also draw, PROJECTED BENEFH OBLIGATION actuarial present value as of a date of all benefits attributed by the pension benefit formula to

employee service performed before that dale. It is measured using assumptions us to future compensation levels if the pension benefit for¬ mula is based on those future salary levels (e.g., pay-related, final-pay). PROJECTED nNANCIAl- STATEMENT see pro for-MA. PROJECTION estimate of future performance made by economists, cor¬

porate planners, and credit and securiiie.s analysis. Economists use econometric models to project oro.ss domestic product (GDP), infla¬ tion. unemployment, and many other economic factors. Corporate

financial planners project acompany’s operating results and cash Hi.ow, using historical trends and mtiking assumptions where necessiiry. PROJECTION PERIOD the lime duration for estimating future CASH FLOWS and the resale proceeds from aproposed investment. For example, a\0-yeai projection period is typically used in aDISCOUNTED CASH FLOW analysis of income-producing real estate. PROJECT’ MANAGEMENT organizational mantigcmem system that

assigns employees to specific projects teams when special projects are contracted and then reassigns them back to the organization when the project is completed. Project management also involves coordinating project activities with organizational divisions and departments in order to complete their objective.

PROLETARIAT the working class or those who must support them¬ selves through physical labor. In Marxist economic theory, the prole¬ tariat are exploited by liie owners of capital, who benefit from the value produced by labtir. PROMISSORY NOTE negotiable instrument wherein (he maker

agrees to pay aspecific sum at adefinite time; often simply called anote. PROMOTION

I. job advance, with higher level of pay and responsibility.

PROPERTY LINE

565

2. selling icchniques, including udvemisiiig, priming, and salesperson commissions.

PROMOTIONAI, ALLO\VANCE reduction of the wholesale price as an incentive tn retailers or middlemen. Apromoiional nZ/oHnnee com¬

pensates the retailer for expenditures made promoting the product. See also ALLOWANCE.

PROMOTION MIX promotion that supports marketing objectives, including advertising, personal (face-to-face) selling, publicity (nonpaid advertising such as news bulletins or magazine articles), and sales promotion (product displays, trade shows and other sales events, dealer tillowances, coupons, contests, and avariety of other promo¬ tions that don't fit into the other three types). P R O M P T

1. payment on or before the due date.

2. symbol that appears on acomputer terminal screen to signal to the user that the computer is ready to receive input. Different programs

use different prompts. For example, under CP/M and IBM PC DOS. the prompt looks like A> or B>. depending on whether Aor Bis the default disk drive.

PROOF OF CLAIM adocument filed with acourt by acreditor to ver¬ ify position as aholder of debt.

PROOF OK LOSS documentation of loss rec|uired of apolicyowner by an insurance company. For example, in the event of an insured's death, adeath certificate must be submitted lo the company for alife insur¬ ance death benefit to be paid to the beneficiary. PROPERTY'

1. every valuable right or interest that is subject to ownership, has an exchtingctible value, or adds to one's wealth or estate. Property describes one's exclusive right to possess, use. tind dispose of a thing, as well as the object, benefit, or prerogative that constitutes the subject matter of that right. 2. real estate.

PROPF.RTY DAMAGE LIABILITY INSURANCE coverage in the event that the negligent acts or omissions of an insured result in dam¬ age or destruction lo another's properly. PROPERTY’ DEPRECIATION INSURANCE coverage that provides

for replacement of damaged or destroyed property on anew replace¬ ment cost basis without any deduction for depreciation. This is equiv¬ alent to repkiiemem cost property insurance. PROPERTY INSURANCE see iksurano; property rxtvERAOK.

PROPERTY LINE recorded boundary of aplot of land.

PROPERTY MANAGEMENT

566

PROPERTY MANAGEMENT opcraiion of real esate as abusiness, including rcnial.reni coilcciion. maintenance, and soon. For example, the following tasks are often required in the ownership of real estate: accounting and reporting, leasing, maintenance and repair, paying taxe.s, provision of utilities and insurance, remodeling, and rent rate setting and collection. I’ROPERT^' REPORT required by the Interstate Land Sale Act for the sale of SUBDIVISIONS of 50 lots or more, if the subdivisions arc not oth¬

erwise exempt. It is filed with HUD’s OFUCli of interstatb land SALES

R E G I S T R AT I O N .

PROPERTY RIGHTS rights to the ownership and stewardship of, and profits from, land, capital, and other goods. Exien.sive property righl.s of private individuals in most goods is abasic element of the capital¬ ist system.

PROPERTY TAX tax imposed by municipalities upon owners of property within their jurisdiction, based upon the assessed value of such property. The property tax on real estate is the principal method of financing for local governments and school districts. See ad VA L O R E . M .

P R O P O RT I O N A L P I T C H u s e o f c h a r a c t e r s w i t h d i ff e r e n t w i d t h s i n a

single typeface so that, for example, Mis wider lhan I. Conventional printing typefaces arc proportional, making printed material more readable lhan text produced by afixed-pitch typewriter or primer. PROPORTIONAL TAXATION lax whose buidcn is applied at the same rate to the poor as to the wealthy. Contrast progressive tax. REGRESSIVE

TA X AT I O N .

PROPRIETARY owned by aparticular person. In trade secrets law,

proprietary property is information or knowledge in which the person developing it has ownership rights. Such rights are usually protected by contract and have not been the subject of apatent application.

PROPRIETARY INTEREST any right in relation to achatvel that enables aperson to retain its possession indefinitely or for aperiod of lime.

P R O P R I E T. A R Y L E A S E l e a s e b e t w e e n t h e r e s i d e n t / s i o c k h o l d c r i n a

cooperative apartment and the cooperative as owner of the building. See also condominium.

PROPRIETARY OPERATING SYSTEM computer operating .system that functions on only one type of computer. Proprietors operating systems limit ihe ability of software applications lo run on other sys¬ tems and also limit the market for any application software.

PROPRIETOR owner; the person who holds Tm.i-. lo properly. See proI’Ritn'ARY:

I'ROPRiETORSiiip;

sole

proprietorship.

PROSPERITY

567

PROPRIKTORSHll’ unincorporaicd business owned by asingle per¬ son. The individual proprielor has llic right to all the profits from the business and also responsibility for all the flnn's liabilities. The income of aproprieiorship is reported on Schedule Cof the owner's Form 1040. If the taxpayer is actively involved In the business, the net income is also subject to self-i-mi‘i.oyment tax. E’ROPRIKTORSHIP INCOME in tax law. income earned in businesses

that are sol.K pROMtii-.roRSHiPS (owned by one person, not incorpo¬ rated).

PRO RATA proportionate allocation. For example, apro rata property lax rebate might be divided proportionately {pronued) among taxpay¬

ers ba.scd on their original assessments, so that each gets the same per¬ centage. See aliO prdrati;. PRO RATA CANCELLATION revixtalion of it policy by an insurance company, which returns to the policyholder the uiieanieJ preiniiim (the portion of the premium for the remaining period that the policy will not be in force). There is no reduction for expenses already paid by the insurer for that lime period. PRO RATA DISTRIBCTION CLAUSE provision in many property

insurance policies that automatically distributes coverage over insured properly at various locations in proportion to their value. PRORA'I'K to allocate between seller and buyer their proportionate

share of an obligation paid or due; for example, when ahouse is sold to prorate real property taxe.s or insurance: or to refund unearned rent or an unexpired subscription. PROS AND CONS strategic advantages and disadvantages regarding a

particular .situation. Fi>r example, the pros oiul cons of launching a

new product at aparticular time have to be weighed in tenns of com¬ petitive and other market factors. F R O S F K C r 1. to seek customers.

2. person considered likely to buy; prospective purchaser. See also COLD

C A N VA S S .

3. pxitciuial employee, particularly in professional sports. 4. see Qt'ALIKIED PitosTlia'.

PROSPECTUS formal written oiTer to sell securitie.s that sets forth the

plan for aproposed business enterprise or the facts concerning an existing one that an investor needs to make an informed decision. See a l s o l ‘ R l ; i , I M I N A RY P R O S P E C T U S .

I’ROSPERITY situation of economic growtii. low iinempi.dyment,

and general sense of well-being of most of the economy's population.

y

V

PROTECTED CLASS

568

PROTECTl!)!) CLASS idenlified minority subgroup ol' the population that cannot be legally discriminated against under federal law. See aho OPEN HOUSINti.

I'ROTECT. PROTECTION. PROTECMONISM. PROTECTION¬

IST economic policies designed to restrict imports of giwds that com¬ pete with domestic producers. Protectionists advocate protectionism

in order to protect domestic producers from foreign competition. PROTECTIVE COVENANT see covenant. P R O T E S r

I. Slated objection, disapproval, or complaint regarding aparticular matter or prtxJuct.

2. to remonstrate or complain about something. PROTOCOL

1. formal diplomatic rulc.s of etiquette. 2. aseries of rules and conventions that allow different kinds of c puiers and application.s to communicate over anetwork.

o m ¬

PROVEN PROPERTY the principal value of an oil or gas property, demonstrated by prospecting, exploration, or discovery work. Adevel¬ opment well would be proven property, but not awildcat well. PROVISION see allowance.

PROVISO condition or stipulation. Il.s general function is to except something from tlic basic provision, to t|ualify or resirtiin its general scope, or to prevent misinterpretation. P R O X Y

In general: person authorized to act or speak for another, lliisiness: iI) written power oe attornev given by shareholders of corporation, authorizing a.specific vole on their behalf at corporate

i l

meetings; (2) person authorized to vote on behalf of astockholder of acorporation.

PROXY FKiHT technique used by an acquiring company to attempt to

gain control of atakeovi-.u ttirget. The acquirer tries to persuade the shareholders of the target company that the present management of the firm should be ousted in favor of aslate of directors favorable to the

acquirer, if the shareholders agree, they can sign proxy statements allowing the acquiring company the right to vote their shares.

PROXY STATEMENT information that the Securities and Exchange

Commission rec|uircs to be provided to shareholders before they vote

by proxy on company matters.The stalemeni contains proposed mem¬ bers of the board of directors, inside directors’ salaries, and pertinent information regarding their bonus and option plans.

S69

P U B L I C C O R P O R AT I O N S

PKIJDENCK displaying foresight, caution, and discretion in one’s actions; not acting carelessly and recklessly. One acts pnidenlly by being careful with one's actions. PRUDENT-MAN RULE standard adopted by some U.S. slates to guide

those with responsibility for investing the money of others. Such HiHt-

C'lARiES (executors of wills, trustees, bank trust dcpartmenus.and admin¬ istrators of c.slales) must act as aprudent man or woman would be

expected to act. with discretion and intelligence, to seek reasonable income, preserve capital, and, in general, avoid speculative invesimcnis. I’SVCHIC INCOME income in aform other than monetary. Psychic

income gratitles psychological and emotional needs. Power, prestige, recognition, and fame arc all forms of psychic income. I’SYCHOGRAPinCS determining market segmentation ba.sed on con¬

sumer psychological profiles. The two general areas include hi>w the consumer views himself or herself in relation to the rest of the world and income characteristics.

PUBJ>IC ACCOUNTANT rccogni/ted in afew slates, accouniams who !

served the public before there was an accountancy law could be grand¬ fathered its public accountants; distinguished from CEin'iHEO i'UHUC ACCOUNTANT (CPA).

PUBLIC ACCOUNTING independent CERTihiEt) PUBi.ic accountant's function, resulting in an accountant’s opinion or auditor’s report. PUBLIC AD.UI.STER representative of an insurance daimant, as may be needed by tin owner in the event of major property damage. P U B L I C C A R R I E R s e e c o m m o n c a r r i e r.

PUBLIC CHARITY in taxation, organization that draws its support trom abroad base within the community, along with schcxils. churches, and hospitals. More generous contribution limitations apply to donors. Generally, aggregate income from the four previous years must be received from individual contributions or govemmcnlal sources, and not more than onc-ihird may consist of investment income and unrelated business income.

PUBLIC CHOICE application of economic theory to the public sector

and the demand and supply of government services. Public choice

analysts treat the public sector as asupplier that attempts to maximize its welfare, tending to make decisions designed to promote the reelec¬ tion of incumbent politicians.

PUBLIC CORPORATION.S corporations formed by federal, stale, and

local governments for specific public purposes, including education, health and hospitals, waste removal, and transportation. The Port Authority of New York and the Tennessee Valley Authority (TVA) are two examples.

PUBLIC DEBT

S70

PUBLIC DEBT borrowings by governments to finance expenditures not covered by cureent tax revenues. PUBLIC DOMAIN

1. all lands and waters in the possession of the United States, and all

lands owned by the several stales, a.s distinguished from lands pos¬ sessed by private individuals or corporations. 2. information, the source of which is available to anyone and is not subject to COPYRKIHT.

PUBLIC EMPLOYEE person employed in the public sector. Public employees are found at all levels of government, from the federal,

state, and local levels to special districts, Public employees are elected, appointed, or chosen for the civil service on the basis of merit cxarainulions.

PUBLIC GOODS products the government is best positioned to utilize as compared to the private marketplace. Police power and militaryrelated hardware are most effectively managed by the government. PUBLIC HOUSING government-owned housing units made available to low-income individuals and families for nominal rental rates.

PUBLIC HOUSING AUTHORITY BOND obligation of local public housing agencies, secured by an agreement between the Department

of Housing and Urban Development and the local housing agency, that provides that the federal government will loan the local authority a

sufficient amount of money to pay principal and interest to maturity. PUBLIC INTEREST values generally thought to be shared by the pub¬ lic at large. However, there is no one public imeresi. Rather, there are many public interests depending upon individual needs. PUBLIC INTEREST RESEARCH GROUP (PIRG) sec u.s. publicinterest RESEARCH GROUP (USPtRG).

PUBLIC LAND acreage held by the government for conservation pur¬

poses. Public lands arc generally undeveloped, with limited activities such as grazing, wildlife management, recreation, timbering, mineral development, water development, and hunting. Many western slates, such as Alaska and Nevada, have large amounts of public lands. Apart of this area is held by the federal government and is dedicated to national parks, wilderness, and wildlife refuges. Some oil and mineral exploration is allowed under i.eaSE to private firms.

PUBLIC LAW constitutional, siatuloty, or judicial law developed by governments and applied equally to the general public. Coiurasi with P R I VAT E

LAW.

PUBLICLY HELD CORPORATION acorporation that has aclass of common slock registered on anational stock exchange. PUBLICLY TRADED CORPORATION see publicly held corpora¬ t i o n .

571

PUBLIC UTILITY

PUBLICLY TKAUED PARTNERSHIP (PTP) ;i limited partni-ksiiip

iDmied under slaw partnership law where limiled parlncrsliip iiilcresls arc publicly traded on an osiablislied exchange or "over the counter"; also called master limited partnership. Registration of interests in publicly traded partnerships is required under federal securities laws.

PUBLIC OI'FERING soliciting the general public for the sale of invest¬ ment units. It generally requires approval by the Securities and Exchange Commission and/or state securities agencies. See also GOING

PUBLIC

public;

private

offering.

OWNERSHIP

Government: government ownership and operation of aproductive facility for the purpose of providing some good or service to citizens. Examples of publicly owned enterprises in Ihe United States include

the postal service and numerous transponulion and public utilities corporations.

Investment: portion of acorporation’s slock that is publicly owned and traded in llie open market.

PUBLIC PURPOSE the justification that the government must cstablUh in its powers of eminent domain to acquire property. See also new L O N D O N , C O N N E C T I C U T. D E C I S I O N .

P U B L I C R F. C O R I )

1, in real estate, land transaclion records kept at the county court¬ house. Documents that are evidence of real estate transactions

should be taken to the county courthouse to be officially eiuercd in llie public record. Recording gives constructivf. notice of adoc¬ ument's oxiMence.

2. court documents, such as pleading in aca.se, consent decrees, divorce, and so on.

PUBLIC RELATIONS (PRI form of communication that is primarily directed to image building and that tends to deal with issues rather

than specifically with products or services. I’ublic relations uses pub¬ licity that does not necessitate payineiit in awide variety of media and is often placed as news or items of public interest. PUBLIC SALE sale upon notice to llic public and in which members of the public may bid. PUBLIC USE right of the public to use or to benefit from the use of property condemned by the govcmmcnl through the exercise of its power of e.minent DOMAIN. One of the limitations upon the use of this power is lh;il property so taken must be for upublic use. PUBLIC UTILITY afor-profit company that, because of the nature of its business, has characteristics of amuural monopoly. For instance, an electric company will have anatural monopoly over the sale of

electric power in agiven area, since having asingle supplier of elec¬ tricity for that area is the most efficient method of producing and dis-

PUBLIC

WORKS

572

tributing electricity. Beciiuse no free market or competition exists for

the services or go^s sold by public ulililies. they arc .subject to gov¬

ernment regulation of the price they may charge and the means by which they may distribute their goods. The concept of natural monop¬ oly is currently being challenged, and deregulation of utilities, permit¬ ting competition, is now occurring in certain segments.

PUBLIC WORKS government project created for the public good and paid for from public revenues. Examples arc the construction of dams, highways, .schools, and government buildings. PUD see planned unit devkixipment.

PUFFING overstating the cjualities of aproperty, often by asaiesperson.

Ii could be grounds for amisrepresentation lawsuit. PULL-DOWN MENU asecondary MENt) that appears below aselected menu item.

PULL STRATEGY promotional strategy whereby the seller concen¬ trates marketing efforts on the end user through advertising, direct mail, flyers, and related activities. The concept seeks to educate con¬

sumers regarding the target products so they will ask retailers to offer them for sale to the public. Subsequently the retailers request the prod¬ ucts from wholesalers or manufacturers.

PUMP PRIMING economic policy of increasing government expendi¬ tures and/or reducing taxes in order to stimulate the economy to highci' levels of output. Pump priming measures are supposed to be tempo¬ rary. existing only until the economy spontaneously develops and sus¬ tains growth on its own. PUMP AND DUMP illegal scheme whereby alarge stockholder hires apromoter to help publici^te. or pump, the stock, ol'ten by means of -SPAM emails or junk paxes. The shareholder then makes aprofit by

dumping his investment at an artificially inflated price. Conrrasi PtXJP AND

scoop.

PUNCH CARD index card punched with holes repre.scnting data. Punch cards were the dominant way of feeding information into computers in the 1960s but becajtie obsolete as interactive terminals became widely used. See also keypunch.

PUNCH LIST enumeration of items that need to be corrected, such as

repairs to amachine or building, prior to or after asale.

PUNCTUALITY quality of being on time and meeting deadlines. Aper¬ son displac ing punctuality is responsible and reliable. PUNITIVE DAMAGES compensation in excess of actual damages that is aform of punishment to the wrongdoer and reparation to the injured- Punitive damages are awarded only in rare instances of mali¬ cious and willful misconduct. They arc taxable unless the damages

573

P U R E C A P I TA L I S M

arise from physical injury or sickness; such damages arc excludable from income taxes.

I’UK AUTRK VIE for (he life of another; estate in properly that one per¬ son grants to another only for the duration of the life of athird person. I’URCHASE acquisition that is bought, as contrasted with an liXaiANOE. (JltT, or INHERITANCE. Generally the purchase price serves as the OKlUINALCOST

BASIS.

PURCHASPi CAPITAL the amount of money used to purchase abusi¬ ness or inve.slmcnl, regardless of the source. I’URCH^LSE CONTRACT sir contract of sale; purchase AGKitHMHNi'. I'URCHASK DISCOUNT sec cash discount.

PURCHASE .JOURNAL book where purchases on account are first recorded.

PURCHASE MONEY -MORTGAGE loan from aseller in lieu of ca.sh

for the purchase of propeily. Such mortgagc.s make it po.ssibic to sell property when mortgage money is unavailable or when the only buy¬ ers are unqualified to borrow from commercial sources.

PURCILYSE ORDER written authorization to avendor to deliver speci¬

fied goods or scn'iccs at astipulated price. Once accepted by the sup¬ plier. the purchase order becomes alegally binding purchase contract.

PURCHASING POWER value of money as measured by the gixtds and services it can buy. For example, the purchasino power oi.- the dol¬ lar can be determined by comparing an index of consumer prices for agiven base year to the present. PURCHASING I'OWER OETHE DOLLAR measure of the amount

of goods and services that adollar can buy in aparticular market, as compared with prior periods, assuming always an infi.ation or a

DEFLATION factor and using an index of consumer prices. It might be

reported, for instance, that one dollar in 1982-1984 had 46 cents of

purchasing power in 2010 because of the ero.sion caused by inflation. PURCHASING I’OWER PARITY an economic theory that estimates the currency exchange rates necessary in aforeign trade situation so that each currency has the same purchasing power. PURCHASING POWER RISK the risk that inllalion will have eroded

ihe value of the currency in which adeal has been made. For example, an investor who purchase.s U.S. Treasury bonds with a.30-year matu¬ rity is exposed to purchtisinn pouer risk as opposed to 1>EFault risk. PURE C-APITALISM economic system in which the principles of captTALiSM operate unfettered by any limiting factor such as goveniment control or interference. By inference, government performs little except those functions that cannot be performed by any other entity.

PURE COMPETITION

574

PURE COMPETITION market for ahomogeneous product in which

there are many producers and consumers, none of which arc large

enough to have any individual effect upon the market on their own. In theory such amarket produces the largest output at the lowest price. There are few, if any. real-world markets of this nature; probably the closest in the United States are maikets for farm product.s. PUKE-MARKET ECONOMY economy in which pure competition prevails. PURE RISK situation where there is arisk of loss with no opportunity

for gain. These are conditions, including tires, natural disasters, and liability, where the need for insurance coverage is clearly indicated as there is only the risk of loss with no possibility of beneficial gain. Conira.u with speCLT-ATIVERISK.

PUSHING THE ENVELOPE working close to, or at. personal, physi¬ cal, or technological limits. PUSH MONEY (PM) money or other incentives given by amanufac¬ turer to retail salespeople for selling its own products. Push money. also called promoiiomd money or prize money, is additional compen¬

sation given to salespeople by the manufacturer. It is comrover.sial with retailers because of possible divided loyalties. PUT OPTION contract that grants the right to sell at aspecified price a

specific number of shares by acertain date. Aput or eall is considered aCAPfTAL ASSET when held by anondealer. See al.so call option; WRITER-

PUT TO SELLER phrase used when aput option is exercised. The

option WRITER is obligated to buy the underlying shares at the agreedupon price.

PVALUE statistic relating whedier or not the sample supports the le.sied

hypothesis. Pvalues are the probability that acaleulaled lest statistic

as large or larger occurred by chance alone. Pvalues range from 0to I. Azero Pvalue would indicate that the probability of sampling a population and obtaining atest statistic with as large ur larger avalue was nonexistent. Topically, Pvalues less than 0.05 are deemed statis¬ tically significant, resulting in rejection of the null kypothesls. PYRAMIDING

1. use of financial leverage or paper profits from an investment to finance purchases of additional investments. 2. building of abusiness through adealership network designed pri¬ marily to sell dealerships rather than useful products. 3. fraudulent business practice in which the chain of distribution is artificially expanded by an excessive number of distributors selling to other distributors at progressively higher wholesale prices, ulti¬ mately resulting in unnecessarily inflated retail prices. 4. see P0N2I SCHEME.

QUALIFIED RESIDENCE INTEREST

S7S

Q QK2 QUANmATivE UASiNG 2, ucomroversial program impleinomcd by the U.S. Federal Reserve in 2010 (ended June 30, 20ll> to purchase

$f)00 billion in U.S. Treasury bonds. Essentially, this is monetization of the debt. Its stated purpose is to reduce interest rates to stimulate the

economy, with asecondary effect of causing the stock market to go up. Its major negative concern is the potential creation of inflation. Q.TIPTRUST see quaufied TtiRMiNAmi-; interilst fROPERTY (QTiP)niusT.

QUALIFIED CHARITY an organization that has applied for and received tax-exempt status.

QUALIFIED ENDORSEMENT KSDORSE.mkst that contains wording designed to limit the endorser's liability. "Without recourse" means that if the instrument is not honored, the endorser is not responsible.

QUALIFIED OFINION language in the auditor's opinion accompany¬

ing financial statements that calls attention to limitations of the audit exceptions the auditor takes to items in the stalcmenis. Typical rcafor qualified opinions; pending lawsuit that, if lost, would mate¬ rially affect the financial condition of the company; indeterminable lax liability relating to an unusual transaction; inability to confirm apor¬

o

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s o n s

tion of the inventory because of inaccessible location. See also accountant'.s npiNios’.

QUALIFIED ORGANIZATION an organization to which adeductible charitable contribution may be made.

QUALIFIED PLAN or QUALIFIED TRUST pension or profit-sharing plan set up by tin employer for the benefit of employees that adheres

to the rules set forth by the Internal Revenue Service in 1986. An

employer receives an immediate deduction for contributions, the irast income is not taxable, and the employee is taxed on the income only upon receipt.

QUALIFIED PROSPECT prospective buyer who has the requisite

financial resources, motivation, and authority to make apurchase of a given product or service.

QUALIFIED REPLACEMENT PROPERTY properly acquired in a

t.iKE-KJM) FJtaizsNGE OF due to an involuntary conversion if it has the

same qualifietl use as that of the replaced property before the exchange. QUALIFIED RI'ISIDENCE the I’RINCIPai. ri-sidencb and one other res¬

idence of ataxpayer or spouse. Imercsl paid on aqualified residence may be deductible as an n>:Mlz>;D deductton; see interest OKriUcriON.

QUALIFIED RESIDENCE INTEREST interest on ahome mortgage, which may be deductible as an itemizeo deduction. Includes interest

QUALIFIED TERMINABLE INTEREST Pl^OPERTY (Q-TIP)

576

on ACQUISITION INDEBTEDNESS and on HOME EQUITY i.OANS. See also INTEREST

DEDUCTION-

QUALIFIED TERMINABLE INTEREST PROPIORTY (Q.'ITP) TRUST strategy providing that all income from assets in trust be paid at least annually for the life of the sundving spouse. This trust, which prohibits transfer of any assets to anyone else, can provide for the sur¬ viving spouse to will the property to one or more individuals among a group previously designated by the deceased spouse. QUALIFIED TRANSFER any amount paid for an individual (I) to an

educational organization for the individual's education or training (2) to any person for medical care provided to the individual. For gift o

r

tax purposes, total gifts for the year do not include qualified transfers.

QUALIFIED TUITION PROGRAM (Qi P. 529 PLAN) an invest¬ ment vehicle created under the Small Bu.siness Job Protection Act of 1996 that allows individuals to make tax-deductible contributions to accounts that accumulate tax-free income if used to cover abenefi¬

ciary's qualified educational expenses.

QUALIFYING PERSON for purposes of hi;ad ok household filing status:

1. achild, grandchild, stepchild, or adopted child, a. Asingle child does not have to be adependent, except for afoster child, b. A m

a

r

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ried child must be the taxpayer's dependent unless the other parent claim.s the child as adependent under the noncustodial rules.

2. any relative living with the taxpayer whom the taxpayer can claim as adependent. Adependent parent does not have to live with the taxpayer if the taxpayer paid more than half the cost of keeping up ahome that was the parent's main home for the entire year.

QUALIFYING STOCK OPTION privilege granted to an employee of acorporal ion that permits the purchase, for aspecial price, of shares

of its CAPITAL STOCK, under conditions sustained in the Internal Revenue Code.

QUALITATIVE ANALYSIS analysis that evaluates important factors

for their pre.sencc or absence but does not measure them precisely. See also QUANTITATIVE ANALYSIS.

QUAI.ITATIV'E RESEARCH research that deals with the quality, type, or components of ti group, substance, or mixture, whose methods are applied to advertising audience research in order to determine

the quality of audience responses to advertising. Qualitative research is exploratory in nature and uses procedure.? such as in-depth and focus group interviews to gain insights and develop creative advertis¬ ing tactics. QU.ALITY charaeierisfic or standard measure of excellence; ba.sic char¬

acter of something. Quality is ameasure of the degree to which thing meets astandard, V

s o m e -

577

QUANTITY DISCOUNT

QUALITY ASSURANCE inanagemcm method of guuramecini! dial

high-quality product and service standards are established and

achieved- Quality assurance has to be acomprehensive managcmeni

system that achieves total QUAt-tTY manaoemem having the ultimate objective of achieving zero dcfoctsQUALITV CIRCLES small groups of employees meeting on aregular basis within an organization for the purpose of discussing and devel¬ oping management issues and procedures. Quality circles arc estab¬ lished with management approval and can be important in implementing new procedures. While results can be mixed, on the whole, management has accepted iiualiiy circles an important orga¬ nizational methodology.

QUALITY CONTROL (QC) process of assuring that products are made to consistently high standards of quality. Inspection of gcxKls at

various points in their manufacture by either aperson or amachine is usually an important part of the quality control process. QUALITY ENGINEERLNG portion of quality management concerned with prevention planning and the correction of nonconformance with the production or service cycle. QUALITY .MANAGEMENT see total QliAt.il ymanagement.

QUALITY OF WORK LIFE (QWL) general employment environ¬ ment within an organization affecting individual altitudinal and moti¬ vational mindset.

QUANT person with maihcmutieal or computer skills who provides numerical and an.alylical support services.

QUANTITATIVE ANALYSIS analysis dealing with mathematically measurable factors as distinguished from such qualitative considera¬ tions as the character of management or the slate of employee morale. See Ulso gUAl.lTATtVE ANAI-Y.SIS,

QUANTITATIVE EASING (QE) policy implemented by the Federal Reserve of frequent purchases of bonds, thereby increasing the money supply (and. it is hoped, economic activity) without using the Fed's direct controls of interest rates. See also i-rlst money, qe2.

QUANTITATTVI'l RESEARCH research that detils with the quumilics of things ;ind that involves the ineasurenieiu of quantity or amoiml,

applied to advertising audience research to develop actual numbers of audience members in order to accurately measure market situations. QUANTITY DE.MANDEU the amount of aspecific good that is sold in

the market at aspecific price. The quantity demanded at each price level is defined by the AGGRiitiATE demant> niHVii.

QUANTITY DISCOUNT discount in dollars or percent, allowed on the basis that the buyer will purchase agiven quantity of mcrchiindisc: also called volume Jiscoimi. For example, the unit price of an item

V

QUANTITY SUPPLIED

S78

may be $10.00. If more than 10 are bought at atime, the unit price

drops to $7.50 for a25% discount.

QUANTITY SUPPLIED the amount of agood or service that will be

brought to market at agiven price. The schedule of quantities supplied at each market price defines the AGGRt-xiATE supply curve. QUANTITY THEORY OE MONEY AND PRICES the fundameniai

theory underlying the view of monetarist economists. Holds that there is aconsistent relationship between the money supply (M) and the level of prices in the economy (P), such that MV =PQ, where Vis the VELOCITY of money and Qis the national income, or gdp. The

velocity of money measures how quickly currency circulates in the economy. Monetarists maintain that the only way to control inflation is to keep the growth of the money supply close to the growth in GDP. Q U A R T E R LY

In general; every three months (one quarter of ayear); magazine pub¬

lished every three months. Securities: basis on which earnings reports to shareholders are made; also, usual lime frame of dividend payments. QUARTERLY RETURNS employment and estimated tax returns that

are due quarterly to report gross wages paid and withholdings of income tax. Social Security lax. and Medicare lax. These include

Forms 94), 942, and 943. Some state unemployment tax returns arc also due quarterly.

QUARTILE statistical measurement. The first quartile of alist is the num¬ ber that has three quarters of the numbers in the list below it; the fourth

quartile is the number that has three quarters of the numbers above it. QUASI CONTRACT obligation created by law for reasons of justice and fairness. The doctrine of quasi contract is based upon the princi¬ ple that aparty must pay for abenefit he desired and received under circumstances that render it inequitable for him to retain it without making compensation. For example, acar owner brings his car in for brake repairs. The mechanic fixes the brakes and in doing so he also fixes aseparate part of the axle that has adirect reltitionship to the car's ability to brake correctly. Although the axle repair was not specifically contracted for, aquasi contract is implied for which the owner must pay the mechanic. QUASI-PUBLIC CORPORATIONS organizations such as utilities

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cable television companies with exclusive public charters to operate within agiven senricc area. Quasi-public corporations have essentially been granted by agovernmental entity amonopoly to provide aservice. QUEUE 1, line wailing to be served.

2. in computer use. data structure from which items are removed in the same order in which they were entered- Series of items such as

QUITCLAIM DEED

579

PACKi;vs or print jobs waiting to be processed. For example, aprint queue holds files waiting to be printed. QUEUINC THEORY (WAITING LINE THEORY) quantitative tech¬ nique for balancing services available with services required. It eval¬ uates the ability of service facilities to handle capacity and load at different times during the day. It is useful in problems of balancing cost and service level, such as determining the number of toll booths

on ahighway and the number of tellers in abank. QUICK ASSET cash or something that is readily convened into cash, including marketaBI.E st-CURiTitis and accounts RuCEtVABLt^s. QUICKEN popular financial recordkeeping software produced by Intuit. QUICK RATIO cash, marketable securities, and accounts receivable

divided by current liabilities. By excluding inventory, this key liquid¬ ity ratio focuses on the firm's more UQUtD assets, whose values are relatively certain. It is also called acid test riiliv. (juiCK ASStn' ratio. QUID PRO QUO something for something; in some legal contexts, syn¬

onymous with consideration. It is sometimes referred to as the Quid

and always indicates that which aparty receives or is promised in return for something he promises, gives, or does. QUIET KN.lOYMENT right to unimpaired use and enjoyment of prop¬

erty. (1) For leased premises, aguarantee of quiet enjoyment is usually expressed by acovt-SANT of quiet enjoyment in awritten lease, but

suchacovenantmaybeimpli^todayfromthelandlord-tenantrela¬ tionship. even where it is not so expressed. (2) The covenant may be and often is included in adeed conveying title to property. If it is pre¬ sent in adeed, the grantor is obligated to protect the estate of his grantee against lawful claims of ownership by olhcrs. QUIET TITLE SUIT to settle acontroversy. For example, alawsuit to quiet title to apiece of property can be undertaken when one believes oneself 10 be owner ofa tract of land. If such is proven, one can legally

extinguish claims of those who falsely assert ownership. Asuit to quiet title enables the rightful owner to transfer clear title to the property.

Hisiorically. such lawsuits hate been used to extinguish claims of a squatter on property.

QUIT voluntarily terminate an employment relationship; end aprocess; end asession with acomputer program by purposely closing the appli¬ cation; exit.

QUITCLAIM DEED deku that conveys only that right, title, or interest that the grantor has, or may have, iind does not warrant that the grantor actually has any particular title or interest in the property. The grantor under aquitclaim deed releases whatever interest he may have to the grantee. See also ci.oul) title; cikneral warranty deed, special WARRANI

Ydeed.

V

QUORUM

5X0

QUORUM minimuin number of members of any body who must be present in order to transact llic business of that body. Q U O TA

1. predetermined goal in asales program established as atotal dollar amount, as apercentage of increase over sales from aprevious time, or in quantities of merchandise soid.

2. predetermined goai in amedia plan established in terms of money to be spent, gross rating points to be achieved, or number of inser¬ tions and spots to be bought. 3. see QUOTA SAMPLE.

QUOTA SAMPLE sample group of people used for research purposes who have been selected at the discretion of the interviewer. TTie inter¬ viewer will be instructed to make selections from aminimum number

of persons who fulfill the researcher’s quota classifications. Q U O TAT I O N

1. in commercial usage, statement of the price of an item. 2. price slated in response to an inquiry. 3. BID AND ASKKD price for Slock at any moment. QUO WARRANTO ancient com.mon law writ that was issued out of

chancery on behalf of the king against one who claimed or usurped any office, franchise, or liberty, to inquire by what authority he asserted such aright, in order that the legitimacy of the assertion might be determined. Formerly acriminal method of prosecution, it has long

since lost its criminal character and is now acivil proceeding, expressly recognized by statvte, and usually employed for trying the title to acorporate franchise or to acorporation or public office, QWL see quality oi- work life.

581

R A I D E R

R s e e C O K H - l C l f c N T O l - D K T K R M I N AT I O N .

KABBI TRUST an iirraisal approaches used to estimate the value of the subject being appraised.

RECONDITIONING PROPERTY' restoring property to its original

specifications. Reconditioning property improves its value by repair¬ ing it or making changes to enhance it. RECONSIGN to change destination or consignee of freight while it is being shipped. RECONN'KYANCE transaction when aMORTOAOh debt is RETiRhi). The

lender conveys the properly back to the equity owner, free of the debt.

RlvCORD in data processing, collection of related data items. Acollec¬ tion of recotds is called afile. 1-or example, acompany may store

information about each employee in asingle record consisting of a field to represent the name, afield to represent the social SECURm’ NUMOHH, and so on. RECORD DATE see dati; of rec-oro; l!.x-l>lVlDE.^iD d.ati;; I'ay.mest datis.

RECORDING

592

RECORDING act of entering atransaction in abook of public records, notably instruments affecting the title to real property. Recording in this manner gives notice to the world of facts recorded. See also CONSTRUCIIVE

NOTICE.

RECORDS see accoontino recoros.

RECORDS MANAGEMENT system used to collect, record, store, and eventually discard information.

RECOUP, RECOUPMENT regaining what was lost. RECOURSE ability of alender to claim money from aborrower in default, in addition to the property pledged as collateral. See also N O N R E C O U R S E D E B T.

RECOURSE LOAN

I. loan for which an endorser or guarantor is liable for payment in the event the borrower defaults.

2. loan made to adirect participation program or LtMiTED partnership whereby the lender, in addition to being secured by specific assets, has recourse against the general assets of ilic partnership. See also NONRECOURSE

D E B T.

R E C O V E R Y

Economics; period in abusiness cycle when economic activity picks up and the (iROss domestic product grows, leading into the expansion phase of the cycle.

Finance: (Dabsonnion of cost through the allocation of depreciation; (2) coilection of an account RiiCiilVABLE that had been written off as

abad debt; (3) residual cost, or salvage value, of afixed a.sset after all allowable depreciation.

Invesfmentt period of rising prices in asecurities or commodities market after aperiod of falling prices. RECOVERY FUND in real estate, fund that requires all licensees to contribute, then reimburses aggrieved persons who are unable to col¬

lect from brokers for wrongdoings, Arecovery fund is generally administered by astate Real Estate Commission.

RECOVERY OF BASIS process by which ataxpayer receives areturn

of cost through distributions or payments with respect to aproperly, A

recovery of basis is generally noniaxable if it follow.s ataxable di.stri-

buiion of earnings and profits from acorporate liquidation. RECOVERY PERIOD the number of years over which the cost of asset may be depreciated (for example, five years for an automobile). a

n

RECRUITERS individuals, normally associated with ahuman resource

department, who have the responsibility for locating and obtaining

new employees. Recruiiers can use many different methods for obtaining new employees. In addition to visiting college campuses and

V

593

REDEMPTION

FEE

employmem agencies, they also develop advenising campaigns, allcnd job lairs, and tievclop source.s through referrals.

RECRUITMENT act of seeking prospective new employees or mem¬ bers for an organization. Recriiitmeiu is avital function for an organi¬ zation to maintain its personnel. RECRUITMENT BONUS bonus often given by employers and employment agencies for lociiting potential employee.s. ArecruUmem

hnmii is usually given for employee categories where ascarcity of qualified candidates exists. RECYCUE BIN in Windows, the place where deleted files are .stored, corresponding to the tra.sh on the Macintosh. You can drag afile to the Recycle Bin or send it there by choosing Delete in Windows Explorer

and sitnilar applications. To delete it permanently, press Shifi+Delete (or delete it from the Recycle Bin). RECYCLING reprocessing used on abandoned materials to create new products. Commonly used for paper, plastic, steel, lead, and glass. For example, glass can be crushed and then refired to form new glass hav¬ ing perfect quality. REDACT prepare for publication or presentation by correcting, revising, or adapting. In current parlance, redaction usually refers to the black¬ ing out of private, confidential, or sensitive information in adocu¬ ment. especially apublic record, so that it cannot be read. Accomplishing thi.s in electronic files can be difficult. R E D E E M

In general: buy back. Finance: cash in. as amaturing note or bond. Mtrrtgage: cure adkv'ault by paying all overdue loan payments iind penalties after receiving anotice of default but before the lender can FORECLOSE the mongagc. REDEEMABLE

BOND

see

callabli:.

R E D K . M P T I O N

1. regaining possession by payment of astipulated price; especially,

process of annulling adefcasibie title, such as is created by amort¬ gage or tux sale, by paying the debt or fulfilling other obligations. 2. for tax purposes, purchase by acorporation of its own stock. 3. in marketing, accepting acoupon for partial payment of goods bought. 4. acquisition by acorporation of its own slock in exchange for prop¬ erty, without regard to whether the redeemed slock is canceled, retired, or held as treasury STOCK.

REDEMPTION FEE acharge to repurchase an asset or release the asset from creditor claims.

REDEMPTION

PERIOD

594

REDEMPTION PERIOD period during which alormer owner can reclaim foreclosed property or property posted for koreclosure. See also EQUirV OF RF.DIiMPTlON. REDEMPTION PRICE see call price.

REDEVELOPMENT process of demolition of the existing improve¬ ments and construclion of new improvements on asite. The new

improvements are often adifferent type from the old. RED HERRING see preliminary pro.spectus.

RED INK slang for loss. REDISCOUNT to discount short-term ncgoliable debt inslruments, such as bankers' acceptances and commercial paper, that have been discounted with abank, that is. exchanged for an amount of cash adjusted to reflect the current interest rate. REDISCOUNT RATE rate of interest charged to member banks when they borrow from the federal reserve system; also called discount RATE.

REDLINING illegal practice of refusing to originate mortgage loans in ccrtiiin NEiaiiBORHtxfDS on the basis of race or ethnic composition. The lerai derives from the alleged practice of drawing ared line on a map around certain neighborhoods to designate them as off limits for loan approvals. RED TAPE necessity to complete extensive paperwork lo gain approval

by several people in order lo accomplish agoal. The term i.s ol'ten used with bureaucracy, as in “bureaucratic red tape.” R E D U C E D R AT E I . s e e D I S C O U N T.

2. see ALLOWANCE.

3. periodical subscription or newssiand-sold copy sold at aprice less Ilian tlie basic rate. Most new subscriptions iue sold at reduced rate.s

as an incentive for new customers. When the subscriptions are renewed, the publisher alicmpi.s to get the full price. Subscriptions are somelimes not profitable until renewed at the full rale. R E D U C T I O N C E R T I F I C AT E d o c u m e n t i n w h i c h t h e m o r t g a g e e

(lender) acknowledges the sum due on the mortgage loan. II is used when mortgaged property is sold and the buyer assumes the debt. REDUNDANCY intentional or uninieniional ropetilion of computer data or engineering support of aweakness- Having two fuel lines in an

airplane provides redundomy in the event that one gees clogged. Data files can be compressed by removing redumhmey and expressing Iho same data more concisely, whereas reliability of data transmission can be increased by sending the same data twice.

V

595

REGIONAL BANK

REENGINEERING making major structural changes in acorporation or important business operations.

REFEREE quasijudieial officer appointed by acourt for aspecific pur¬ pose, to whom the court refers power and duty to take testimony, determine is.sucs of fact, and report the findings for the court to use as abasis for Judgment. R E F E R R A L

1. suggesting the use of acertain professional, company, or broker. 2. suggestion that leads to hiring acertain employee. REFI abbreviation for '‘refinanced mortgages." Refers to the volume of mortgage loans originating from the refinancing of existing debt, REFINANCE refund exLsting debt. It usually implies selling anew bond issue to provide funds for redemption of amaturing issue, or placing unew inorigiige on atiousc that retires an old mortgage. Refinancing is generally used to raise cash, reduce interest rates, or both.

REFORMATION !-:gi)irAiii,i; remedy consisting of arevision of acon¬ tract by the court, in cases where the written terms of the contract lio

not express what was actually agreed upon. Thus, reformation is gen¬ erally only decreed upon aclear and convincing showing of mutual mistake isee mistaki;); if only one party was mistaken, rcfonnaiion is not appropriate unless the mistake of one party resulted from the other party’s fral'd.

REF'RFISIl clear part or all of acomputer screen and redraw it. When an Internet site “hangs" in loading, using the Refresh button sometimes clears the problem. REFUND, REFUND CHECK to return cash or acheck; check itself.

Also, paid to ataxpayer by the IRS when withholding and estimated tax payments exceed tax for the year. Arefund of federal taxes paid is not TAXABI.I-: iNatMi:. Arefund of .state taxes is taxable if the taxpayer claimed adeduction.

REFUNDABLE CREDIT acredit that is paid to ataxpayer even if the amount of the credit exceeds the lux liability (for example, the i:arn!;i) iNCOMli (TAX) CRl-DlT and laxes withheld on wages). REFUNDING

Finance: process of selling anew issue of securities to obtain funds

needed to retire existing securities. Debt refunding is done to extend maturity and/or to reduce debt service cost. See also RfcFi.NANCi-.. Merchandising: reluming money to acustomer who is dissatisfied with aprrxiucl.

REGIONAL BANK bank that specializes in collecting deposits and making loans in one region of the country, as distinguished from a MONEY CENTER RANK, which operates nationally and iniemationally.

REGIONAI. SHOPPING CENTER

596

REGIONAL SHOPPING CENTER area containing 300.000 to

900,000 square feci of shopping space and at least one major depart¬ ment store; larger than strip, neighborhood, and community .shopping centers: smaller than asuper-regional center. REGISTERED BOND bond that is recorded in the name of the holder on the books of the issuer or the issuer's registtiar and can be irans-

fened to another owner only when endorsed by the registered owner, Coiilrasl wilh COUPON BOND.

REGISTERED CHE-CK check issued by abank for acustomer who

places funds aside in aspecial register. The customer writes in his name, the name of the payee, and the amount of money to be trans¬ ferred. The registered check is similar to amoney order for someone who does not have achecking account at the bank. REGISTERED COMPANY company that hits filed aregistration STATEMENT with the Securities and Exchange Commission in connec¬ tion with aPUBLIC OFH-RING Of securities and must therefore comply with SEC DISCLOSURE requirements. REGISTERED INVESTMENT COMPANY investment company,

such as an open-end or closed-end mutual fund, that files aregistra¬ tion statement wilh the Securities and Exchange Commission and meeLs all the other requirements of the investment company act OF

1940.

REGISTERED MAIL service offered at extra cost for any first-class mail- It is the safest way to send valuables through the U.S. Postal

Service. The fee includes proof of mailing and delivery. Up to $25,000 of insurance and restricted delivery service are available at extra cost. REGISTERED MAIL AND EXPRESS MAIL INSURANCE cover¬

age for damage or destruction of properly with relatively high mone¬ tary value, such as .stock brokerage house and bank shipmeiils that involve the iransl'cr of securities and monies to different locations and

whose loss would result in great expense. Coverage is on all-risk

basis, excluding war. nuclear disaster, and illegal trade items. R E G I S T E R E D R E P R E S E N TAT I V E ( R R | e m p l o y e e o f a s t o c k

exchange member broker/dealer who acts as an account executive for clients. As such, the registered representative gives advice on which securities to buy and sell, and he collects apercentage of the commission income he generates as compensation. ''Registered’'

means licensed by the Securities and Exchange Commission and the New York Stock Exchange. REGISTERED SECURITY

I. security whose owner's name is recorded on the books of the issuer or the issuer's agent, called aregistrar; for example, aregistered bond as opposed to ahearer bond. -V

597

R E G R E S S I V E TA X

2. .securities issue registered with the Securities and Exchange Commission as anew issue or as asecondary offering- See also mTliR

STOCK.

R I X J I S T R A R

In general: person who keeps olficial records, such as of students in acollege or holdings of amuseum. Real estate: person who is to maintain accurate official records, such us for deeds, mortgages, and other recorded documents.

Securities; agencies responsible for keeping track of the owners of bonds and the issuance of stock. The registrar also makes sure that no more than the authorized amount of stock is in circulation. RI'XJISTUATION

In general: enrollment process; for example, selecting classes in a college. Securilies: process set up by the Securities Acts of 1933 and 1934 whereby securilies that are to be sold to the public arc reviewed by the Securities and Exchange Commission. The hi-gistration stateMh.KT details pertinent financial and operational information about the company. REGISTRATION STATEMENT document detailing the purpose of u propo.sed public offering of securities. The siatemoni outlines financial details, ahistory of the company's operations and management, and

Ollier facts of importance to potential buyers. REfilSI'RY OF DEEDS ofTieially maintained bixik that provides a

place and mechanism for registering evidences of conveyances of interests in real property, so that constructive NixriCK may be avail¬ able to all third parlies that there has been achange in the ownership

of property effected by aconveyance of that properly. REGRESSION ANALYSIS statistical technique used to establish the relationship of adependent variable, such as the sales of acompany, and one or more indepcndciu variables, such as family fomialions, gross tx>.MESTic PROOLLT. per capita income, and other econo.mic INDICATORS. By measuring exactly how large and significant each independent variable has historically been in its relation to the depen¬ dent variable, the future value of the dependent variable can be pre¬ dicted. Essentially, regression analysis attempts to measure the degree of correlation between dependent and independent variables, thereby establishing the latter's predictive value. REGRESSION LINE line calculated in regression analysis that is used to estimate the relation between two quantities, the independent vari¬ able and the dependent variable. See also MULtiPi.i-. RtiCRhssiON. REGRESSn'E TAX lax that lakes ahigher percentage of the earnings

of alow-income family than of those of ahigh-income family. A.sales lax on food is considered regressive because low-income people pay

REGULAR-WAY DELIVERY (AND SETTLEMENT)

598

the same amount of tax on aloaf of bread, for example, as do highincome people,

RP:GL’LAR-VVAY delivery (and set tlement) completion of asecurities transaction at the office of the purchasing broker on (but not before) the third full business day following the date of the trans¬ action. as required by the New York Stock Exchange, REGULATED COMMODITIES commodities under the JurUdiction of the Commodity Futures Trading Commission, which include all commodities traded in oiganized contract markets. The CFTC polices matters of information and disclosure, fair trading practices, registra¬ tion of firms and individuals, protection of customer funds, record

keeping, and maintenance of orderly tornjRES and options markets. REGULATED FUTURES CONTRACT acontract that: (1) provides

that amounts must be deposited or withdrawn from amargin account based on dally market conditions (a system of marking to market); and

|2) is traded on, or subject to the rules of. aqualified board of exchange. See also .mark to (the) market.

REGULATED INDL'ST'RY industry that is regulated by government to asignificant extent. UTiurrv industries are excellent examples; their pricing, profits, and, sometimes, production methods arc regulated by both federal and slate governments. R E G U L AT E D I N V E S T M E N T C O M PA N Y ( R I C ) m u t u a l f u n d o r

real estate INVESTME.NT fRUST (REtT) eligible under Regulation Mof the Interna! Revenue Service to pass capital gains, dividends, and interest earned on fund investments directly to its shareholders to be taxed at the personal level, thus avoiding the double taxation on cor-

pomlions and stockholders. REGULATION rules used to carry out alaw; act of administering alaw. Many government agencies prepare regulations to administer alaw. R E G U L AT I O N D r e g u l a t i o n o f t h e S e c u r i t i e s a n d E x c h a n g e Commission that sets forth conditions necessary for aprivate offer¬ ing (PRIVATE PLACEMENT) exemption. RE;ii!I) cash flow; hurDl.l;

R AT E .

REQUISITION 1. form issued by ausing department to the supply or materials department requesting the acquisition of material not regularly car¬

ried in using department's normal slock: also called purchase req¬ uisition and stock requisition. 2. to request the acquisition of materials. RES (Latin for "thing’') the property underlying atrust. RESALE PRICE in aprojection of investment performance, the assumed selling price aproperty could fetch at the end of the projec¬ tion PERIOD- See also re-Sai.k proceeds.

RE.SALE PROCEEDS amount aformer owner receives upon asale

after paying transaCTIOS costs, remaining debt, and, sometimes, income taxes; same as proceeds from resale. RE.SCHEDULE to schedule an activity or event fora lime different than

the time originally scheduled. For example, because of rain the out¬ door concert was rescheduled for the following evening. RESCIND cancel acontract agreement. The Truth in landing Act con¬ fers the RtaHT OF RESCISSION, which allows the .signer of acontract to nullify it within three business days without penally and have any

deposits refunded. Contracts may also be rescinded in cases of fraud, failure to comply with legal procedures, or misrepresentation.

RESCISSION

606

RESCISSION canceUaiion of acontract ami ihc return of the parties to the positions they would have occupied if the contract had not been

made. Grounds for rescissions may include original invalidity of the agreement, fraud, failure of consideration, or material breach or DEFAULT. Rescission may be brought about by the mutual consent of the parties, by the conduct of the patties or by adecree by acourt of equity. RESEARCH

1. scientific method of systematically gathering, recording, and analyTting data. Research information is used to plan, create, and exe¬ cute effective advertising and marketing campaigns.

2. department within acompany whose primary responsibility is con¬ ducting these types of investigations. RESEARCH AND DEVELOPMENT (R&D) scientific and marketing evolution of anew product or service. Once such aproduct has been created in alaboratory or other research setting, marketing specialists

attempt to define the market for the product. Steps arc then taken to manuracture the product to meet the needs of the market.

RESEARCH DEPARTMENT division within acorporation, brokerage firm, investment company, bank trust depaitmeni. insurance company, or other institutional investing organization that analyzes products, markets, or securities. See also research and development (r&d).

RESEARCH INTENSIVE product, project, or industry requiring many man-hours of research. Most research-intensive applications involve complex technology. R E S E RVAT I O N

1. booking, appointment, or date to perform some activity at apartic¬ ular time and place. 2. reluctance, doubt, suspicion, or misgiving entertained about .some¬ thing or someone.

RESERVATION PRICE the highest price ubuyer can pay and still achieve his or her primtuy objectives, such as keeping the monthly payments affordable or paying no more than market value for the properly. Abuyer will negotiate in hopes of keeping the sales price at or Ixlow his or her reservation price. Contrast with upset price. RESICRVE

1. segregation of retainf:d earnings to provide for such payouts as dividends, contingencies, improvements, or retirement of preferred stock.

2. valuation reserve, also called allowance, for depreciation, bad debt losses, shrinkage of receivables because of discounLs taken, and other provisions created by charges to the profit and loss statement.

3. hidden reserves, represented by understiitcments of balance sheet values.

RESET BONDS

607

4. cash on hand and dcposii mainiained by acommercial bank in a Federal Reserve Bank lo mcci ihc Fed’s reserve require-ment.

5. i;old and foreign currency held by governments to pay for imports and foreign debts. RliSEUVIv ARMY OF THK UNICMPl.OYED in Marxist theory, the

large number of unemployed whose existence assures that wage.s will be kept at minimum levels. RkiSERVE FOR DEPRECIATION see ACCUMULATED DEPRECIATION.

RESERVE FUND in real estate, account maintained to provide funds

for anticipated expenditures required lo maintain abuilding. Areserve may be required by alender in the form of an escrow to pay upcom¬ ing ttixes and insurance costs. Areplacement reserve may be main¬ tained to provide for replacement cost of short-lived components, such a.s carpets, heating equipment, or roofing. Deposit of money into such afund does not achieve atax dcduction.

RESERVF; method (BAD debts) accrual of bad-debt expense

based on the projected worthlessness of receivables or prior experi¬

ence with uncollectible receivables. The use of the reserve method by

accrual basis taxpayers is permitted only for some small banks and thrift institutions with assets of $500 million or less. Other accrual tax¬

payers must use the sPECinc charge-oet method. RESERVE PRICE see UPSET PRICE.

RESERVE REQUIREMENT, REQUIRED RESERVES, BANK RESICRVES KEDERAi. RESERVE SYS'lEM rule mandating the financial

assets that member banks must keep in the form of cash and other liq¬ uid assets as apercentage of DEMAND DEPOSrrs and time deposits. This money must be in the bank’s own vaults or on deposit with the near¬

est regional Federal Reserve Bank. Reserve requirement.s, set by the

Fed’s Board of Governors, are one of the key tools In deciding how

much banks can lend, thus setting the pace at which the nation’s

money supply grows. The higher the reserve requirement, the tighter the money.

RKSERVES, INTERNATIONAL reserves of money that central banks can exchange among themselves to balance demand for their respec¬ tive currencies.

RESERVE-STOCK CONTROL technique designating appropriate inventory levels for the maintenance of business until new merchan¬ dise can be supplied. Reserve-stock control considers the length of lime necessary to physically replenish needed inventory. RESET BONDS bonds issued with aprovision that on specified dates, the initial interest rate must be adjusted so that the bonds trade at their original value.

RESIDENCE

608

RESIDENCE see personal residence; principai. residence; qualified RESIDENCE.

RESIDENT aperson who is liable for tax in acounty or state because of DOMICILE, residence, citizenship, place of management, place of incor¬

poration, or other similar criteria. Aperson is not aresident merely by having income derived from asource in acounty or state, even though the income is subject to tax.

RESIDENT ALIEN person who has been admitted to permanent resi¬ dent status but has not been granted citizenship.

RESIDENT BUYER individual with an office in an important chandise center. Aresident buyer is crucial to providing valuable merchandising information and allows acompany to keep in close m e r ¬

touch with the market. Aresident buyer can be inside or outside the organization.

RESIDENT MANAGER one who supervises the care of an apartment complex while living in one of the units in the complex. Duties include showing vacant units to prospective tenants, making sure the building is kepi clean, and providing entry to repair persons. R E S I D E N T I A L s e e r e s i d e n t i a l p r o i ' E R T Y.

RESIDENTIAL BROKICR in real estate, one who lists and sells houses o r c o n d o m i n i u m s . S e e a l s o c o m m e r c i a l b r o k e r.

RESIDENTIAL DISTRICT district where people reside, as contrasted with commercial or industrial areas; often found in the zoning law or ZONING

MAPS.

RESIDENTIAL MORTGAGE morlpge on aresidential property.

Interest on such mortgages is deductible lor federal and suilc income

tax purposes up to $1 million; for home equity loans, interest up to $100,000 is deductible.

RESIDENTIAL PROPERTY in real estate brokerage terminology, owner-occupied housing.

RESIDENTIAL RENTAL PROPERTY rental units used for dwelling purposes, not of atransient (hotel, motel) nature. To qualify as resi¬ dential for income tax purposes, at least 80% of abuilding’s income should be derived from dwelling units. This type of property is eligi¬ ble for a271ad etjuipment. ROUNDING ERROR error that occurs bccau.se the computer cannot store the true value of most real numbers; instead, it can store only an

approximation of afinite number of digits. ROUND l,OT generally accepted unit of trading on asecurities exchange. On the New York Stock Exchange, for example, around lot is 100 shares for stock and SIDOO or $5,000 par value for bonds. Conira.tl ODD LOT.

ROUTER network component that joins several networks together intel¬ ligently. Arouter is often used to link an incoming DSL or cable modem connection to ahome network, wired or wireless.

ROUTING production method of determining the sequence of manu¬ facturing steps necessary to complete aproduct. Routing is detennined by the type of prtxluci and its associated production process. ROYALTY share of the product, or of the proceeds therefrom, resersed by an owner for permitting another to exploit and use his propekty; rental paid to the original owner of property, based on apercentage of profit or production. It is used for mineral or mining leases, con¬ veyances. as well as literary works, inventions, and other intellectual productions.

ROYALTY TRUST oil or gas company spin-off of an oil-prtxiucing property to shareholders. As long as the trust distributes most of iLs income directly to shareholders, it is not taxed at the corporate level. In addition, shareholders get the lax benefits from DbPLETiO.s allowances. R F C

I. role-playing game.

2.Report^gramGenerator,aprogramminglanguagedevelopedby IBM in the 1960s in an attempt to simplify programming for busi¬ ness applications.

RSS Really Simple .Syndication (or Rich Site Summary or RDF Site .Summary), afamily of XML file formats used by news Web sites and HLOOS to notify subscribers of updated conlent. Software called anews (tggregoror checks subscribed sites at specified intervals and provides list of headlines and/or short descriptions of the content, together with alink to the full version. This is called an RSS feed, wehfeed. RSS stream, or RSS channel. RSS allows users to stay up to date on topics a

of interest without having to check Web sites frequently for updates. RTF see Ricti tkxt HOKMAT.

RUBBER CHECK

624

RUBBER CHECK check for which insufficient funds are available (ovtiRDRAFT). It is Called arubber check because it bounces-

RULE AGAINST PERPETUITIES rule that no contingent interest is good unless it vests not later than 21 years after the death of aperson living at the time the interest is created. It prevents apenon from keeping property in his family for multiple generations. RULE OF 72s approximation of the time it takes for money to double when earning compound interest. The percentage rale is divided into 72 to derive the number of years to double the principal. RULE OF 78s method for computing unearned interest used on install¬ ment loans with add-on interest. The number 78 is based on the sum

of the digits from Ito 12. For example, a12-month loan is made for 51,000 with 8% add-on interest. The loan payments are based on a total of $1,080, payable at the rate of $90 per month for 12 months. If the borrower prepays the loan at the end of one month. 12/78 of the

$80 interest is charged; the balance of interest is refunded. If the bor¬ rower prepays at the end of the second month, (12 11 )/78 =23/78 is charged. Prepayment at the end of the eleventh month results in a1/78 refund of total interest. R U L I N G

1. ADVANCE RULING from the IRS. 2. court decision. RUN

Banking: demand for their money by many depositors all at once. If large enough, arun on abank can cause it to fail, as hundreds of banks

did in the Great Depression of the 1930s, Such arun is caused by a breach of confidence in the bank, perhaps as aresult of large loan losses or fraud.

Computers: to perform aroutine or use acomputer program. RUNAWAY out of control; u.sually used in reference to inflation or other undesirable economic phenomena. RUNDOWN status report or summary.

RUN OF PAPER (ROP) in publishing, logistical position of anewspa¬ per advertisement determined at the publisher’s discretion- Rates are constructed to take this into account.

RUN OF SCHEDULIC (ROS) advertising lime allocated wherever in the schedule the radio or television station see.s fit. Rates are constructed to r e fl e c t t h i s .

RUN WITH THE LAND right or restriction that affects all current

and future owners of aproperty. It is contrasted to an agreement, between acurrent owner and other parties, that is not passed on to I'uture owners in udeed. See also restrictive covenant.

V

625

RUST

B E LT

RURAL penaining to the area outside larger and moderate-sized cities and surrounding ptipulation concentrations, generally characterized by rantis, ranches, small towns, and unpopulated regions. See al.ui suhurd;urban,

RURBAN areas, on the fringe of urban development, that arc in the prtxtcss of being developed for urban uses. RUST BELT geographical area of the United States, mainly in Pennsylvania, West Virginia, and the industrial Midwest, where iron and steel are produced and where there is aconcentration of industries that manufacture products using iron and steel. Used broadly to mean

traditional American manufacturing with largely unmodeniizcd plants and facilities.

V

S.A. (SOCIEDAD ANONIMA OR SOCIETfi ANONYME)

626

s S.A. (SOCIEDAD ANONIMA OR SOCIETE ANONYME) the respective Spanish and French designations for acorporalion. SABO TAGE direct interference with or destruction of productive capa¬ bilities in aplant or factory by those opposed to acompany's man¬ agement or to the country in time of warfare. Saboteurs perform sueh acts. Disgruntled employees can often be industrial saboteurs.

SACK OR SACKED discharge, terminate, fire (an employee); the employee "gets the sack,” originally meaning that he picked up his sack of tools and moved on.

SAKE HARBOR RULE in taxation, guidelines provided by the IRS for certain transactions, indicating specific parameters ataxpayer can observe to ensure favorable tax treatment or to avoid an unfavorable one. An example is alist of parameters that, if followed, will assure

SALH AND LtASEBACK treatmonl rather than afinancing arrangement to certain transactions.

SAFE HAVEN politically secure currency. The American dollar, the euro, and gold are typically considered safe havens. SAFEKEEPING storage and protection of assets, valuables, or document.s. Some individuals use abank safe deposit box; others might rely on abank or abrokerage firm to hold stock certificates or bonds, keep track of trades, and provide periodic statements of changes in position.

SAKE MODE away of running Windows with many special hardware drivers disabled to work around problems including improperly

installedhardwareorsoftware.Safemodeisusedonlyfortestinganil to recover from an improper shutdown. Office Safe Mode is away of running Microsoft Office applications using default, oul-of-lhe-box sellings as atroubleshooting technique.

SAFE RATE an interest rate provided by relatively low-risk invest¬ ments sueh as high-grade honds or well secured hrst .mortgages. See also RNANCIAL MANAGEMENT RATE OF RETURN (FMRR).

SAFETY COMMISSION governmental organization having as its prime function the review and encouragement of safety practices within an organization. In the private .sector, usually referred to as a Safety Committee, it plays an important safety supervision role in labor and management relations. SAFETY MARGIN excess of actual sales over break-even sales. For

example, if the break-even point is 3,(X)0 units and actual sales volume

is 3,diX) units, asafety margin of 400 units exists. Thus, sales

c

a

n

decrease by 400 units before the company would incur aloss. See also BREAK-EVEN

P O I N T.

627

SALES BUDGET

SAGACITY charactcrisiics of inielligcnco, shrewdness, or wisdom; simndness of judgineni.

SALARIAT working class; those who work. SALARY regular compensation received by an employee as acondition of employment. Salaries are composed of basic wage and perfor¬ mance-based pay and indirect fringe benefit compensation, usually computed on an annual basis. SALARY CONTINUATION PLAN arrangement, often funded by Lire

INSUKANCB, to continue an employee's salary in the fonn of payments to autNKFiciARY for acertain period after the employee’s death. The !

employer may be the beneficiary, collecting the death benefit and making payments to the employee’s beneficiary. SALARY REDUCTION PLAN plan that aliow.s employees the oppor¬

tunity to have acertain percentage of their gross salao’ withheld and invested in the employee's choice of astock, bond, or money market fund. See aho siction 40i(k) pi^vn; simI'u; ira; simplifii-d i-:mi’loybb PBNSiON (SEP) PLAN. S A L E

In general: any exchange of goods or services for money. See also IIARTBR.

Finance: revenue received in exchange for goods and services recorded for agiven accounting period, either on aCASH iiASrs (as received) or on an accrual basis (as earned). I.awi see sale or exchange.

Marketing: price reduction for ccnahi merchandise. Securities: in trading, transaction when abuyer and aseller have agreed on aprice for the purchase of asecurity. SALE AND LEASEBACK form of leasb arr.asgbmbnt in which a

company sells an asset to another party —usually an insurance or llnancc company, aleasing company, alimited partnership, or an insti¬ tutional investor—in exchange for cash, then contracts to lca.se the asset for aspecified term. Generally, any gain nr loss on sale is recog¬ nized. except when the risks and rewards of ownership arc not trans¬ ferred; in that case the transaction is treated as though the “seller"

merely arranged aloan. See Figure 8. SAI.E OR EXCHANGE disposition of property in avaluo-for-value exchange, as opposed to adisposition by gift, contribution, or the like. SAI.ES ANALYST person in an accounting department with the job of tracking sales by region, product, or account to assure proper account¬

ing and make recommendations to enhance profitability. SALES BUDGET estimated amount of anticipated sales allocated by

product, territory, or person; prepared weekly, monthly, or annually.

SALES CHARGE

628

SALE AND LEASEBACK Cash pries Sale Second o w n e r

becomes tenant

Property

owner

becomes

landlord Lease

Annual ren^ FIGURES

SALES CHAR(;F, fee paid on purchasing an investment or product. For example, the sales charge for some mutual funds starts at H'/.% of the capital invested and decreases as the size of the investment increases. See also front-end load; load fund; no-load fund.

SALES COMPARISON APPROACH one of three appraisal approaches. Value is estimated by analyzing sale prices of similar propenies (COMPARABLES) recently sold. Also called MARKirr compar¬ ison approach; compare COST approach, income approach.

SALES CONTRACT contract by which buyer and seller agree lo the terms of sale. See also agreement of sale; earnest money contract.

SAl.ES EFFECTIVENESS TEST testing designed to judge the ability of an advertising campaign, promotion, or communications medium to sell aproduct.

SALES INCENTIVE remuneration offered to asalesperson for exceed¬ ing some predetermined sale.s goal. Sales incentives are offered by manufacturers as part of apromotion for the sale of their goods. The incentive may be in cash, or it may take the form of aspecial prize, such as atrip lo an exotic or exciting vacation place. SALES JOURNAL journal where credit sales are first po.sted to accounting

rextords.

SALES LITERATURE written material designed to help sell aproduct or service.

SALES LOAD see .salf.s charge.

SALES OFFICE manufacturer-owned office having no inventory, pri¬ marily intended to increase customer sales.

V

SAMPLING

629

SAI.KSPERSON one whose main aciiviiy is selling aproduct, service, or investment. Salespersons in many industries (real estate, insurance, securities) must be licensed.

SALKS PRICE the amount of money required to he paid or previously paid for property or product. SAI-ES PROMOTION

I. activities, materials, devices, and techniques u.scd to supplement

the advenising and marketing efforts and help coordinate the advertising with the personal selling effort, swkepstakes are among the best-known sales promotion tools, but other examples include special displays, coupons, promotional discounts, contests, and gift offers.

2. casually, combined activities employed to sell aprixluct or service. SALE-S RETURNS AND ALLOWANCES account to accumulate price

reductions given to customers because of goods returned and defective merchandise not suited to the customers' needs.

SALES REVENUE amount received or to be received from selling a service or product.

SALKS TAX percentage tax imposed on the retail sale of certain items. Sales taxes, which are based on the value of the item sold, are a

RhXjRESSivE TAX. They arc amajor source of revenue for most states. SALES TYPE LEASE accounting by lessor in which one or more of the four criteria required for acapital lease are met and both of the fol¬ lowing criteria are satisfied: (1) collectibility of minimum lease pay¬

ments is predictable and (2) no important uncertainties .surround the amount of unreimbursable costs yet to be incurred. ■S A L L I K

MAE

see

si.M

cortoration.

SALVAGE VALUE estimated value of aproperty when the taxpayer

completes his use of the property, in determining the amount of depre¬ ciation allowable, salvage value must be subtracted from basis. Salvage value is ignored by the MACRS and ACRS rules. SAMI see sales area MAHKimsc. iNC.

SAMPLE group of items chosen from apopulation. In statistics, it is used 111 estimate the properties of apopulation. SAMPLE BUYER individual who purchases at aspecial introductory

rule or obtains at no cost asample of aproduct, such as alravcl-si7.e bottle of shampoo or abox of detergent big enough for one washload. See also trial size. SAMPLING

1. Marketing research: studying asmall group of people who are

representative of alarger group. If the research is correctly con-

S & L

630

ducted, conclusions drawn from the sample can be applied to the larger group without incurring exorbitant costs. 2. Sales promotion: offering aproduct or asmall portion of it to con¬ sumers at little or no cost in order to stimulate regular usage. S&L.vee savings ano i.oan association. S&P/CASE-SHILLER INDEX sec ca.se-shiller/s&P home price INDEX.

S&P 500 see standard &poor's index.

SANDWICH LEASE lease held by ale.ssee who becomes alessor by subletting. Typically, the sandwich leaseholder is neither the owner nor the user of the property. See also sublease.

SARBANES-OXLEY ACT OF 2002 (SARBOX) legislation introduced on the heels of aseries of corporate financial scandals, especially those affecting Enron, Tyco International, tind WorldCom. Sponsored by Senator Paul Sarbanes (D-Md.) and Representative Michael G. Oxley (R-Oh.), the Act wa.s approved by the House by avole of 423-3 and by the Senate 97-0. Major provisions include

!Requirement for certification of financial reports by CEO and CFO. !Ban on personal loans to any executive officer or director. !Accelerated reporting of insider trading,

!Prohibition on insider trades during pension fund blackout periods. !Public reporting of CEO and CFO compensadon. !Auditor independence, including bans on certain work and precertificadon by the company's Audit Committee of all non-audit work.

!Criminal and civil penalties for violations of securities law. !Longer Jail sentences and larger fines for corporate executives who knowingly and willfully misstate financial statements. !Prohibition on audit firms providing extra value-added services to

their clients, including actuarial services and consulting unrelated to their :ujdit work.

!Arequirement that publicly traded companies furnish independent annual audit repnri.s on internal controls related to financial reporting. SARI. (SOCIETA ARLvSPONSIBILITA LIMITADA) the Italian des¬ ignation for afirm with iimiled liability. S AT E I . L I T E C O M M U N I C AT I O N u s e o f o r b i t a l s a t e l l i t e s t o s e n d

voice, data, video, and graphics from one locadon to another.

SATISFACTION OF ADEBT release and discharge of an obligation in reference to which performance is executed. SATISFACTION PIECE instrument tor recording and acknowledging final payment of amortgage loan. The lender acknowledges that the debt has been satisfied.

S AV I N G S E L E M E N T

631

SATURATION grciiicr Ilian normal presence in the market, achieved by,

for example, providing astore outlet in every neighborhiKxi or advertis¬ ing so frequently that everyone has hcartl the message numerous times. S AV E

1. put aside (money or goods) for future use instead of spending or using. 2. write computer data to asemipennanent storage medium, such as

the liAKD DISK or .some form of removable storage media (cd-rom, lloppy disk, r.asii drive). Until aivcii, data exists only in com¬ puter's volatile ram.

SAVE AS... program command used to save afile under adifferent name, in adifferent folder, or in adifferent format. The Save As dia¬

log is presented automatically for the first save of anewly created file, providing the opportunity to name the file. SAVINGS the amount of DisposADi.t; income that is not spent on con¬

sumption. The percentage of gross income that is saved defines the savings rate, akey indicator of economic health, SAVINGS ACCOUNT deposit account at acommerciai. bank, savings HANK, or SAVINGS AND LOAN ASSOCIATION that pays interest, usually

from day of deposit to day of withdrawal. Savings deposits are insured up to $250.(XM) per account if they arc on deposit at ahank insured by the FEDERAL DEhosir INSURANCE CORPORATION (FDic) Or aSavings and loan insured by the savings association insura.ncefund(saif). SAIF is administered by the FDIC. S A \ ' I N G S A N D L O A N A S S O C I AT I O N ( S & L ) i n s t i t u t i o n s i m i l a r t o a

savings bank in history and operation except that originally the sav¬ ings and loan association’s primary purpose was to provide loans for purchasing and building homes; also called building and loan associ¬ ation. In recent years, S&Ls have made awide variety of loans. SAVINGS BANK type of bank, prevalent on the East Coast and in the !VI id west, whose major service traditionally has been the time-savings

account. The bank is usually owned by its depositors as creditors whose dividends arc paid as interest on their accounts. Functions are similar to those of savings and loan associations (s&ls).

SAVINGS BOND U.S. government bond issued in face value denomi¬ nations ranging from $50 io$10JD00. Issued at adiscount, these bonds are redeemed at face value at maturity. From 1941 to 1979. the gov¬ ernment issued SERIES EBONDS. Sincc 1980, .SERIES EE and series HU RONDS have been issued. S AV I N G S E L E M E N T c a s h v a l u e o f l i f e i n s u r a n c e t h a t a c c u m u l a t e s

according to atable in apolicy. It reflects premiums in the early years that exceed the pure cost of protection during that period. If apolicy

is surrendered the policyowner receives the cash value and the insur-

S AV I N G S

R AT E

632

ance ends. This is why acash value policy can be considered asavings or investment vehicle.

SAVINGS RATE rale at which savings occur out of income. See also MARGINAL

PROPENSITY

TO

S AV E .

SAY'S LAW proposition, in 19th-century (classical) economics, that .supply creates its own demand, that whatever quantity is supplied will

also be demanded. It is named for the 19th-century French economist J . B . S a y. SBA see small business administration.

SCABS individuals who work fur an employer while astrike condition exists. The term, used fay union members, is applied to nonunion and union members who cross aunion picket line to perform work for an employer. See also strikebreakers.

SCALABLE FONT afont that can be printed at any size. The shapes of the characters in ascalable font are stored as vector graphics (that is, as aseries of mathematical expressions that define the curves and lie

of the letters) rather than as bitmaps. Also called vector or ou’iine font. SCALAGE percentage deduction granted in business deaiings with goods that are likely to shrink, leak, or otherwise vary in the amount or weight originally stated. SCALE

Economics: amount of production, as in economy or diseconomy of scale. See also marginal cost.

Labor: wage rate for specific types of employees. For example, the union scale for carpenters is $3().00 per hour. .Modeling; proportional relationship between the dimensions of a drawing, plan, or mode! and the dimensions of the phy.sical object it represents.

SCALE ORDER order for aspecified number of shares that is to be exe¬

cuted in stages in order to average the price. Such an order might pro¬ vide for the purchase of atotal of 5,(X)0 shares to be executed in lots of 500 shares at each quarter-point interval as the markcl declines. S C A L E R E L AT I O N S H I P

I. comparison by use of agiven scale, such as wage scale, social scale, scale of athermometer.

2. relationship between arepresentative dimension and the object it represents, such as ascale of one inch to amile.

SCALPER speculator who enters inlo quasi-lcgal or illegal transactions to turn aquick and sometimes unreasonable profit. For example, a ticket scalper buys tickets for amajor theatrical or athletic event at

regular prices; then, when the event is sold out, the scalper resells the tickets at the highest price possible.

633

SCIENTER

SCANNER device tliat can read or scan iyped characiers from paper (hard) copy and nu(omalically transfer this information onto some¬ thing else. See also machine kkadabi.e.

SCARCITY, LAW OF ba.sic fact of life that most things are available in insufficient quantities to satisfy the desires of the population.

Available supply is allocated to those willing to pay the required price. In aMARKET iiCONOMY, that price is in money and is set by the inter¬ action of supply and demand. Scarcity underlies the concept of MAR¬ KET

VA L U E .

.SCARCITY. SCARCITY ^'ALliE relative abundance of acommodity or good. The scarcity value of acommodity is that element of Its value that Is due to ii.s scarcity. Scarcity is only one element of value; small¬ pox is very scarce, but has no value because nobody wants it. SCATTER DIACiUAM diagram showing relation between two quanti¬ ties. One quantity is mea.sured on the vertical axis, the other on the

horizontal axis, and each observation is represented by adot. SCATTER PLAN broadcast media plan that schedules advertising announcements to run during avariety of radio and/or television pro¬ grams. This schedule gives an advertiser awider audience for the adver¬ tising dollar than asponsor of asingle program would achieve. SCENIC EASEMENT e.ncumbrancc on the tttiJ: to aproperty to preserv eit in amore or less natural or undeveloped state. See also K A . S E M E N T.

S C H E D U L E

I. written or printed statement of details. 2. timetable of events. See also SCHEDULLNg. 3. IRS income tax form.

SCHEDULE Cthe tax form schedule an individual uses for each busi¬

ness (or self-employed activity). Ataxpayer lists income less expenses on this schedule.

SCHEDULED PRODUCTION limclabie for the prixiuction of aprod¬ uct or products; when aproduction sequence is to oecur. SCHEDULE K-1 tax form used to report to each partner or beneficiary his or her share of income, losses, capital gains, and other tax infor¬ mation passed through from apartnership or trust to the individual. SCHEDULING devising alimclabie of events; deciding when and pos¬

sibly where certain events shall occur. See also schedule. SCHOLARSHH’ see qualihed scholarship; taxable scholarship AND

fellowship

GRANTS.

SCIENTER previous knowledge of operative facts, frequently signify¬ ing guilty knowledge-As used in pi.i-adinos, the term signifies that the alleged erime i>r tORT was done designedly or with guilty knowledge.

SCOOP

634

The term is usually employed in relation to kraud. and means aper¬ son's knowledge that he was making false representations, with intent to deceive.

SCOOP news story published before one by arival news organization. SCOPE OF AUTHORITIf in the law of agency, those acts proper for the accomplishment of the goal of the agency, including not only the actual authorization conferred upon the agent by his or her principal but also that which has apparently or implicitly b«n delegated to the agem. SCOPE OF EMPLOYMENT acts done while perfoiming one's job duties. The phrase was adopted by the courts for the purpo.se of deter¬

mining an employer’s liability for the acts of employees. The employer is said to be vicariously liable only for thn.se lort-s of the employee that are committed within the range of his job activities. SCORCHED-EARTH DEFENSE disposal by the target of acorporate

acquisition of its crown jewels for the purpose of thwarting ahostile TAKEOVER. Such astrategy often results in apermanent impairment of its earning power and value.

SCORE Counselors to America’s Small Business, formerly service CORPS OFRETIRED EXECUTIVES. Volunteer organization founded in 1964

with 13,000 members. SCORE’S main office is in Washington, D.C.; it has 364 chapters. SCORE is sponsored by the U.S. Small Business

Association and consists of active and retired businesspersons who provide free management advice to small businesspeople. S C O R P O R AT I O N C O R P O R AT I O N w i t h a l i m i t e d n u m b e r o f s t o c k h o l d ¬

ers {100 or fewer) that elects not to be taxed as aregular (C) corpora¬ tion and meets certain other requirements. Family members may elect to be treated as one shareholder, Shareholders include in their personal tax returns their PRO rata share of capital gains, ordinary income, tax

preference items, and so on. This form avoids corporate doubi.e tax¬ ation while providing limited liability protection to shareholders of a corporation. S C R A P. S C R A P VA L U E s e e s a l v a g e v a l u e . SCREEN

1. acomputer display; aMONfTOR. 2. ascreenful of information.

3. process agrayscale image for priming by breaking down the vari¬ ous shades of gray into very small dots. See Halpione. S C R I P

In general: receipt, certificaie.or other representation of value recog¬ nized by both payer and payee. Scrip is not currency but may be con¬ vertible into currency.

Securities; temporary document issued by acorporation to represent afractional share of stock resulting from as’ixjck split, exchange of slock, or SPIN-OFF.

V

63S

SEASONED LOAN

SCROLL to move up and down (or from side to side) in acomputer file, bringing dilTercnl information into view, as if the computer .screen were the visible portion of ascroll being unrolled at one end and rolled up at the other. SCROLL BAR the bar on the side (vertical) or bottom Ihori/ontal) of a computer screen window iliat allows u.ser.s to navigate up and down (or from side to side) through the window’s contents. Scroll bars have arrows at either end that can be clicked with amouse and rovide fin;ineial main¬ tenance for ;inothcr while securing it with restrictions to guard against

V

SPIDER

668

its unwise use. Spendihrifi /r«jw are often created by parents for their children.

SPIDER see SPDR-

SPIJ-I-OVER cfTecls of economic activity or pnx;ess upon those who are not directly involved in it. Odors from arendering plant are nega¬ tive spillover ei'fccK upon its neighbors; the beauty of ahomeowner’s (lower garden is apositive spillover effect upon neighbors.

SPIN-OFF similar to atax-free SPLiT-on= except that the shares of the new corporation (or the subsidiary corporation) are distributed to tlte original shareholders (or the parent’s shareholders) without their sur¬ rendering any of their stock in the original (or parent) corporation. SPLINTERED AUTHORITY division of authority between many managers. Amanager with splintered authority will have to deal with many other managers before decisions can be finalized. SPLIT increase in acorporation'.s number of outstanding shares of stock,

to make the stock more marketable, without any change in the share¬ holders’ equity or the aggregate market value at the time of the split. In asplit, also called asplit up. the share price declines. If astock at SlOO per share splits 2for 1. the number of authorized shares doubles

(for example, from 10 million to 20 million) and the price per share drops by hall', to $50. Aholder of 50 shares before the split now has 100 shares at the lower price. Dividends per share will also fall proportionately. SPLIT COMMISSION coMMisstON divided between the securities

broker who executes atrade and another person who brought the trade to the broker, such as an investment counselor or financial planner. Split commissions between brokers arc also common in real estate transactions.

SPLIT DOLLAR LIFE INSURANCE policy in which premiums and ownership rights and death proceeds are split between an employer

and an employee, or aparent and achild. The employer pays at least the pmi of each yeiu's premium that equals the increase in the cash

value, and in some cases the employer pays the entire premium. Abenefieiary chosen by the employee splits the death payment with the employer. SPLIT-OFF either of two types of tax-ftee reorganizations. Under a

Type No. 1exchange, aeorporution transfers pan of its as.sets to anew corporation in exchange for stock of the new corporation. The original corporation then distributes the same .stock to its shareholders, who in turn surrender part of their stock in the original corporation.

AType No. 2contraction occurs when aparent company transfers .stock of acontrolled corporation to its stockholders in redemption of asimilar portion of their stock. “Controi" refers to the ownership of 80% or more of the corporation whose shares arc being distributed.

669

SPOT

PRICE

SPLIT SHIFl' work shift interrupted with an unpaid time-off peritxl. For example, asehiHtl bus driver may be requested to wort; early in the morn¬ ing and later in the aftemtxtn while having the middle of the day off. SPLIT-UP form of reorganization by which acorporation splits into two or more smaller corporations and the slock of the new corporations is distributed lax free to the shareholders of the old corporation, who in turn surrender the stock of the old corporation. See also divisive reor¬ g a n i z a t i o n .

SPOKESPERSON indiv idual who speaks on behalf of aproduct or ser¬

vice and whose name becomes associated with the product or service. Aspokesperson may be acelebrity or someone who begins as an unknown and gains ameasure of celebrity through as.sociaiion with the product. See al.w hersonai.i iy; TiisriMOMAL. SPONSOR

1. in alimited partnership, general partner who organizes and sclLs alimited partnership. 2. invcsinicni company, .such as amutual fund, that offers shares in its funds; also called the underwriter.

3. in securities trading, important investor, typically, an institution, mutual fund, or other big trader, whose favorable opinion of apar¬ ticular security influences other investors and creates additional demand for the security. 4. advertiser who pays for part or all of atelevision or radio program by running one or more advertisements during the program, spool- uQUEUE of computer files wailing to be printed. SPOT CHECK supervisory check on work performance or product

quality done at random intervals. Spot checks are unannounced and can occur at any lime. The purpose is to ensure acontinually high per¬ formance level on the part of employees. SPO TCOMMODIT Ycommodity traded with the expectation that it will actually be delivered to the buyer, as contrasted to ai'UTUKE-S con¬ tract, which will usually expire without any physical delivery taking place. Spot ctinimodiiies arc traded in the spot market. SPOT DEI.IVKRY MONTH nearest month of those currently being traded in which acommodity could be delivered. In late January,

therefore, the spot delivery month would be February for commodities with aFebruary contract trade. SPOT MARKET commodities market in which goods are sold for cash and delivered immediately. Trades that lake place in flture.s con¬ tracts expiring in the current month are also called spot-market trades. See cash market.

SPOT PRICE current delivery price of acommodity traded in the spot market; also called cash price.

V

SPOT

R AT E

670

SPOT RATE ihe price at which acurrency can be purchased or sold and then delivered within two business days.

SPOT ZONING rezoning aparci-l of land where all surrounding parcels are zoned for adifferent use, in particular where the rezoning creates ti use that is incompatible with surrounding land uses. Sjxil toning is generally disallowed in the courts. SPOUSAL IRA INDIVIDUAL RETlRKMl-NT ACCOUNT created in the name of

anonworking spouse. The maximum contribution to any IRA in 2011 is S5.000 for each spouse ($6,000 when acatch-up COrtTRiBunON is allowed). If one spouse has little or no compensation, however, that spouse may borrow his or her spouse's compensation to permit Ihe maximum contribution. SPREAD

Uankiiig: difference between cost of funds and lending rate. Bunds: dilference between yields on securities of the same quality hut different maturities; also difference between yields on securities ol'the

same maturity but different qualities. Stuck.s: dilference between bid and offer prices; also, difference between high and low prices of aparticular security over agiven period. Underwriting: difference between Ihe proceeds an issuer of anew

security receives and the price paid by the public for the issue. SPREADINCJ AGREEMENT agreement that extends the cou.ati-ral of aloan to include several properties. SPREADSHEET table of numbers arranged in rows and columns,

related by formulas. Spreadsheet calculations can be very tedious. Changing asingle number can affect the results in many different rows and columns. Therefore, it helps greatly to have acomputer perform

spreadsheet calculations. Microsoft EXCEL is acommonly used spread¬ sheet program. SPRINGING POWER OF ATTORNEY’ aspecial type of power of ATTORNiiv that has no effect until acertain event occurs, such as dis¬

ability of the principal. At that point. It springs into effect. SP()R rail line extending from aregularly serviced line; for example, a

spur might nm from amain rail line to amanufacturing plant for the convenience of loading and unloading cargo at the plant's door. SPYWARE any software that covertly gathers user information or mon¬ itors user activity without the user's knowledge. Spyware applications

are typically bundled as ahidden component of freeware or shareware applications; once installed, the spyware uses the user's Internet con¬ nection to transmit information to someone else, usually for advertis¬

ing purposes, but keystroke-logging software can be used to extract passwords and other private information.

S TA G G E R E D E L E C T I O N

671

SQUARE EOOTAGE area, measured in square I'eci, of somoihini; for sale or rent. Wiuil is included in square foolage can vary cunsiderahly; for instance, llie square footage of an office in an office building may or may not include acommon area adjacent to elevators. SQUATTER’S RKiHTS legal allowance to use the property of another in absence of an attempt by the owner to force KvicnoN. This right may eventually be converted to title to the property over time by AiA’ERSE PO.ssiLSsiON, if recognizcd by state law. SQUEEZE

1. light money period, when loan money is .scarce and interest rates are high, making borrowing difficult and expensive; also called a credii crunch.

2. any situation where increased costs cannot be passed on to cus¬ tomers in the form of higher prices. 3. 5fc SHORT SQUEEZE. S S I . s e e S U P P L E . M l i N TA L S E C U R I T Y I N C O M E .

S T ' A I H I T Z AT I O N

Currency: buying and selling of acountry's own currency to protect its exchange value; also called pegging. Economic.s: leveling out of the business cycle, unemployment, and prices using fiscal and monetary policies. Securities: intervention in the market by amanaging underwriter in order to keep the m;irket jtrico from falling below the public offering price during the offering period of anew issue. STACHYBOTRYS CHARTARUM atype of mold that can grow in parts

of astructure exposed to constant moisture. Many claim adverse health effects from exposure to this hazard. Called stachy for short; also known as Mack mold. S TA K E

I. in general, personnel in an organization. For example, afirm has a sM_ff'of25ll people.

2. in the concepts of line and staff, management functions of plan¬ ning, organizing, budgeting, directing, and axirdinaling an organi¬ z a t i o n . S e e a h o S TA F I ' A U T H O R I T Y.

STAFF AUTHORITY authority to advise, but not to direct, other man¬

agers. For example, apersonnel department has staff authority to advise functional managers in an organization.

ST'AGFLATION term coined by economists in the 1970s to describe the previously unprecedented combination of slow economic growth and high unemployment (smgnaiion) with rising prices {injlaiion). STAGGERED ELECTION system of electing apercentage of the board of directors of apublic corporation, usually one third, each year

S TA G G E R I N G M AT U R I T i E S

672

for aperirxl of from one to three year?;. The purpose of staggering the elections is to slow any attempts to take over the corporation. S’l'AGGERING MATURITIES technique used by abond investor to lower risk. Since long-term bonds are more volatile thtin short-term

ones, an investor can hedge against interc.st rate movements by buying short-, medium-, and long-term bonds. See also laddkking. STAGING remodeling and interior decoration to enhance the mar¬ ketability of ahouse preparatory to sale.

STAGNATION period of no or .slow economic growth or of economic decline in real (infiaiion-adjusied) terms. Economic growth of about 1%or less per year is generally taken to constitute stagnation. STAKE ownership in an enterprise. For example, an individual has a Slake in the company. The term originated in the colonial ora when one

would mark one’s property by putting stakes in the ground, thus acquiring astake in the community.

STAND-ALONE SYSTE.M workstation made up of asingle unit used by one person at atime and not connected to other systems or acom¬ puter. Examples are personal computer and automatic typewriter. STANDARD established and fixed measure used in assessing quality or performance. For example, acompany has aparticular quality standard for aproduct, which is used to measure the productivity of its workers. STANDARD ADVERTISING REGISTER two companion directories, the Standard Directory of Advertising Agencies and the Standard Directory of Advertisers, which have become an invaluable tool of the

advertising industry. The books are referred to in the advertising trade as the Red Books because of their red covers. . S TA N D A R D & P O O R ’ S / C A S E SH1LLER/S&1> HOME PRICE INDEX.

SIIII.I.ER

INDEX

see

CASE

STANDARD &POOR’S CORPORATION subsidiary of McGrawHill, Inc., providing abroad range of investment services, including rating securities, compiling the Standard &Poor's composite indexes of stocks, and publishing awide variety of statistical materials, invest¬ ment advisory reports, and other financial information.

STAND.ARD &POOR’S INDEX broad-based measurement of changes in stock-market conditions based on the average performance of 500 widely held common .stocks; commonly known as the Standard & 1‘oor'sSOO iorS&PSOO). S TA N D A R D & P O O R ' S R AT I N G c l a s s i fi c a t i o n o f s t o c k s a n d b o n d s

according to risk issued by Standard &Poor's Corporation. S&P's lop four grades, called investment grade AAA. AA, A, and BBB. indi¬ cate aminimal risk that ucorporate or municipal bond issue will

default in its timely payment of interest and principal. Bonds or stocks

S TA N D A R D O F C A R E

673

rated BB or below by Standard &Poor's are considered speculative, and fiduciaries are not allowed to invest in tliom.

STANDARD COST estimate, based on engineering and accounting studies, of what the costs of production should be, assuming normal operating conditions.

STANDARD DEDUCTION provision allowing ataxpayer to deduct, in lieu of itemized deductions, acertain amount of income from his or

her GROSS incomi;. These amounts arc indexed for infliition each year and were as follows for 2010:

Married couples filing jointly Heads of households

Single individuals Married couples filing separately

SI1.400 8,400 5,700 5,700

There are more restrictive limits on the standard deduction allowed to

those for whom adependency deduction is allowable to atiother tax¬ payer. An additional (above the amounts in the table above) is allowed for taxpayers age 65 or above or who arc blind. STANDARD DEVIATION statistical measure of the degree to which an

individual value in aprobability distribution tends to vary from the mean of the distribution. From anormal distribution, one standtird

deviation includes about 66% of the population; two standard devia¬ tions include about 95% of the population. . S TA N D A R D

ERROR

see

standard

deviation.

S T A N D A R D F I R E P O l . l C Y s e e fi r e i n s u r a n c e — . s t a n d a r d fi r e P O L I C Y.

S TA N D A R D I N D U S T R I A L C L A S S I F I C AT I O N ( S I C ) S Y S T E M

federally designed standard numbering system identifying companies by industry and providing other information. It has been used by mar¬ ket researchers, securities analysts, and others, but is being replaced by ihe north American industry ciassieication system. STANDARD MILEAGE METHOD tax method that permius an auto¬

mobile business expense deduction based on astandard mileage rate. The standard rates for 2011 were 51 cents per mile for business travel,

19 cents for medical or moving purposes, and 14 cents for mileage dri¬ ven in service of acharitable organization. Rates will increase in the

future. Parking and lolls arc allowed in addition to this standard deduction. As an alternative to Ihe standard mileage method, atax¬

payer may keep detailed records of Ihe various expenditures of abusi¬ ness automobile.

STANDARD OF CARE astaieinent of duties expressing the conduct expected of aprofessional.

V

S TA N D A R D O F L I V I N G

674

STANDARD OF LIVING sum total of amenities, quality, and quantity of goods and services consumed by consuming units within an economy. S TA N D A R D T E R M I N AT I O N . s e e T t ' . R M t N AT l O N o f a p l a n . S TA N D A R D T I M E

I. time for any given lime zone as established by the Standard Time Act (1918). There are five time zones in the United States— Eastern.Central, Mountain. Pacific, and Alaska. 2. see ALLOWED TtMK.

STANDARD WAGE RATE normal or base salary of an employee before any overtime or premium pay is computed. See also premium pay.

STANDBY FEE sum required by alender to provide astandby commit¬ ment- The fee is forfeited should the loan not be closed within aspec¬ ified time. See also STANDBY LOAN.

STANDBY LOAN commitment by alender to make available asum of

money at specified terms for aspecified period. This is generally not adesirable loan. It is intended to be replaced by another commitment.

STANDING ORDER order for repeated shipments of goods to be sent without specific reorders. Srandinf; onlers must comply with certain quantity and time limitations.

STAPLE STOCK goods that have fairly con.stimt demand over aperiod of years. There is very little seasonality to them. Retailers continually carry these goods in slock.

STARE DECISLS (Latin for "to stand by [previously] decided [cases]’’) rule by which courts rely upon judicial precedent as acompelling guide to decision of cases raising issues similar to those in previous cases. START MENU the computer menu that is called up by the Sian button on the taskbar at the bottom of the screen in windows. It provides access to Windows Help and several utilities, as well as to all the

applications installed on the computer. START-UP new business venture. In venture capjtal parlance. rM/r-up is the earliest stage at which aventure capital investor or investment pool will provide funds to an cmerpri.se. usually on the basis of abusi¬

ness plan detailing the background of the management group along with market and financial projections. See also seed money. START-UP COSTS expenditures incurred after the decision has been

made to establish aparticular business but before business operations begin. Ataxpayer who subsequently enters atrade or business can elect to amortize these expenses over aperiod of not less than 60

months, starling with the month in which the business begins. ST.4RT-UP DISK adiskette or CD used to initialize acomputer’s start¬ up process. It contains enough of the computer’s operating system to BOOT the computer in an emergency. Also called aboot disk.

S TAT E M E N T O F PA R T N E R S ' C A P I TA L

675

STAT medical term meaning immecliaiely. which has come into common usage.

S'I'ATl'' HANK bank organized under acliaricr granted by aregulatory authority in one of the 50 U.S. states, as distinguished from a NATIONAL BANK, which is federally chartered. The powers of astalechanered commercial bank are generally consistent with those of national banks since stale laws lend to conform to federal initiatives.

STATE DISTRIBUTION CENTER (SDC) main post office(s) in a stale that receives and distributes all mail for that slate to and from the

various other post offices within the stale. .STATED VALUE assigned value given to acorporation's stock for accounting purposes in lieu of par value. For example, (he staled value may be set at SI ashare, so that if acompany issued 10 million shares, the staled value of its slock would be SIO million. The stated value of

the slock has no relation to its market price. .SI'ATEMENT

1. summary for customers of the transactions that occurred over the

preceding month (or other period). For example, abank statement lists all deposits and withdrawals, as well as the running account balances.

2. document drawn up by businesses to show the status of their assets and liabilities and the results of their operations as of acertain date. See also rnancial state.me.nt.

3. in acomputer program, instructions that make up one unit of the program. Etich line of the program is a.tialemem. STATEMENT OK AFFAIRS financial report sliowing assets and liabil¬ ities at expected liquidation values, and stockholders’ equity. The .\uilemeni of affairs is prepared primarily when an actual or pending BANKKL’Krcv exists. S TAT E M E N T

OF

S TAT E M E N T

CASH

OF

FLOW

CHANGE

see

IN

cash

n.ow.

FINANCIAL

POSITION

see

SOUBCliS AND APPI.ICATION.S (USES) OH i^UNDS STATEMENT. S I ’ AT E M E N T O F C O N D T I ’ I O N

Banking: sworn accounting of abank's resources, liabilities, and cap¬ ital accounts as of acertain date.

Kinance: summary of the status of assets, liabilities, and equity of aperson or abusiness organization as of acertain date. See also BAI.ANCE

S H E E T.

S TAT E M E N T O K ' I N C O M E s e e p r o fi t a n d i . o s s s t a t e m e n t .

STATEMENT OF PARTNERS' CAPITAL on balance sheet, showing NET WORTH of each partner's interest in the business.

V

S TAT I C A N A LY S I S

676

S TAT I C A N A LY S I S e c o n o m i c m o d e l t h a t d o e s n o i c o n s i d e r o r a l l o w

for changes over lime, and within which all variables are simiiliane-

ously solved. Economisis use static analysis in supply and demand models for goods and services.

STATIC BUDGET fixed budget that does not allow for changes. See also FLEXIBLE BUDGET.

STATIC RISK choices that offer aconstant level of uncertainty regard¬ ing ihe outcome or payoff. Players of slot machines with constant pay¬ out ratios face sialic risk. S'lA'ITONERY

1. paper and envelopc.s used for correspondence.

2. by extension, atcntplate for e-mail messages including colors and graphics to give it adistinctive appearance. Usually not appropri¬ ate for business correspondence, especially if messages may be received on asmartphone.

STATISTIC descriptive measure calculated from data sampled from a population. See also test statistic.

STATISTICAL INFERENCE process of using observations of asam¬ ple to estimate the properties of the population. See also inferentiai. S TATi s n c s .

STATISTICALLY SIGNIFICANT test statistic that is as laigc larger than aprcdciennincd requirement, resulting in rejection of the a.s

NULL

or

ilYPOTHESIS.

S TAT I S T I C A L M O D E L I N G s e e s i m u l a t i o n ,

STATISTICAL PROCESS CONTROL (SPC) meihod of using staiistical chans to monitor product quality and quantity in the production process. The anempi is to maintain high quality assurance by insur¬ ing that the job is performed correctly the first time. See also total QUALITY management.

STATLSTICAL QUALITY CONTROL (SQC) monitoring statistically reprcscmalive production samples for the purpose of determining quality. Careful sample monitoring helps to improve overall quality by locating defect souree.s. The late Dr. W. Edwards deming was in.slrumcntal in assisting companies to implement SQC.

STA'l'ISTICAL SAMPLING the process of selecting elements of population for either descriptive or inferential purposes. Assume, for cxumpic. that an auditor was estimating the value of accounts receiv¬ a

ables. To determine whether ni- not every receivable was valid would

require agreat effort. Allcrnatively, an adequate number could be ran¬ domly selecied. These would make up the sample selected. The valuc.s determined for the sample would be descriptive statistically of the sample. Based on the sample, an estimate (inference) could be made as to ihe value of the entire population of reccivables.

677

S TAT U T O R Y . M E R G E R

STATISTICAL SOITVVARK computer programs ihai perform func¬ tions helpful to accountants, particularly managerial accountants. A

model base management .system produces mathematical models, and can change and store components. Examples of statistical programs are SPSS/PC and Sy.ilai. STATISTICS study of ways to analy7c data. It consists of descriptive STATISTtC.S and .STAI ISTtCAL INH-RE.SCE.

STATUS position, class, standing, or rank achieved in asociety by virtue of achievement or financial wealth.

STATUS S^'MBOL tangible mark or sign of an individual’s social sta¬ tus within asociety or organization. Expensive cars, homes, and boats are often seen as status symbols. STATUTE written law; act i>f alegislature, under constitutional author¬ ity, that becomes law. governing conduct within its scope. Statutes are

enacted to prescribe conduct, define crimes, create subordinate gov¬ ernment bodies, appropriate public monies, and in general promote the public welfare,

STATUTE OE I'KAUDS statutory requirement that certain kinds of CONTRACTS must bc in writing to be enforceable. Contracts to answer to acreditor for the debt of another, contracts made in consideration of

marriage, contracts for the sale of real estate or affecting any interest in real estate, and coniracis not to be performed within one year of their making nitrmally must bc in writing and signed by the party sought to be bound by the contract. S TAT U T E O E L I M I TAT I O N S l a w t h a t fi x e s t h e t i m e w i t h i n w h i c h

parties must take judicial action to enforce rights or else be thereafter barred from enforcing them. The statute of limitations during which the IRS may assess an additional tax or collect atax or the taxpayer can file an amended return is generally three years from the due date of the return or its filing or. if litter, two years from the dale the taxes were paid. The peritxl can be extended by agreement between the taxpayer and the IRS- It is also extended for material omissions, and the statute does not begin to run if arequired return is not filed or is fraudulent.

STATUTOR\’ AUDIT MtDir required by law. Amunicipality may bc required by its own law to have an annual audit of its financial records. STATUTORY FORECLOSURE any foreclosure proceeding not con¬ ducted under court supervision. Contrast with wdktai. kireclosure. STATUTORY ME^RfilCR legal combination of two or more corpora¬ tions in which only one survives as alegal entity. It differs from

statutory consolidation, in which all the companies in acombination cease to exist as legal cntiiies and anew corporate entity is created. See also Mi-RCii-k.

S TAT U TO RY

NOTICE

678

STATUTORY NOTICE period of time required by law to give notice of the date that something will occur. STATUTORY VOTING one-share, one-vote rule that governs voting

procedures in most corporations. Shareholders may cast one vote per .share either for or against each nominee for the board of directors, but may not give more than one vote to one nominee. See also cumula¬ tive

VOTING.

STAYING POWER ability of an investor to stay with (not .sell) an investment that has fallen in value. For example, acommodity trader with slaying power is able to meet margin calls as the commodities futures contracts he has bought fall in price. In real estate, an inve.stor with slaying power is able to meet mortgage and maintenance pay¬ ments on his properties and is therefore not forced to sell as occupancy rates rise or fall or as the properties become temporarily difficult to sell. Aslang term for staying power is deep pockets. STEADY-GROWTH METHOD subscription source technique that estimates the cost and impact on profitability of building the rate base over time via various sources of business. The cost of acquiring,

billing, and renewing subscriptions is taken into account, as well as expected pay-up, cancellation, and renewal rates. See also channel OF sales; maintenance method.

STEAMER, STEAMSHIP ship that geLs its power from steam.

Steamships may take various forms (tanker, freighter, luxury liner) and haul cargo or passengers. STEEL-COLLAR WORKER use of robots as employees on aproduc¬

tion line. It symbolizes the replacement of the blue-collar worker. STEEL INTENSIVE products or production technologies based on high amounts of steel content.

STEERING illegal practice of limiting the housing shown to acertain ethnic group. STEPPED-LT BASIS process by which aperson’s tax basis is increased to acertain level (usually fair market value) as of acer¬ tain date. Astepped-up basis generally applies to property received by an heir from adecedent.

STEP-UP LEASE see graduated lease.

STEREOTYPING classifying people because of one unique character¬ istic. Stereotyping is aform of prejudice that can form damaging images of people because of aparticular characteristic without having any knowledge of the person. STET proofreader's or editor’s direction to the primer or typesetter indi¬ cating that material marked for correction should remain as it was before the correction. The work to remain is underscored with aseries

V

STOCK EXCHANGE

679

of (Jolii. and (he uord siet is wriiicn in ihc margin. The term is Latin for "lei it siand."

STEVEDORE company or person who unloads cargo, especially from aship. S T E W A R D

1. union representative who handles day-lo-day matters affecting

workers in aunionised workplace. Asteward is also an employee in the same bargaining unit. See also shop .steward; stewardshii’.

2. male flight allcndanl.

STEWARDSHlPcxercising the responsibilities of asteward; represent¬

ing day-io-day mailers affecting workers in aunionized workplace. Sec also .steward.

STIFF failure to pay for services rendered; for example, stiffing awaiter by not leaving alip.

STIPEND. STTI’ENDIARV payment of salaries or wages for services; person who receives such payment. STIPULATED FACTS facts agreed to by the parlies ahead of time in a tax or legal dispute.

STIPUI.ATION term within awritten contract; also, any set of conditions. STOCHASTIC statistical term describing avariable with values deter¬

mined by ch.ince (a random variable). In regression analysis, the

DEPitNUENT VARIABLE is siochaslic if the model does not perfectly

explain all observations. Siochasllcs is also an important branch of technical .securities analysis. STOCK

I. ownership of acorporation represented by share.s that are aclaim o

n

the corporation's earnings and as.sets. See also common stock;

PKEKERREI) STOCK.

2. inventories of accumulated goods in manufacturing and retailing businesses. S TO C K B R O K E R s e e R E G t S T E R K D r e p r e s e n t a t i v e . STOCK BUYBACK sec share/stock repurchase pun.

STOCK CERTIFICATE written iNsnu.'Ml-xr evidencing ashare in the

ownership of acorporation.

STOCK DIVIDEND payment of acorporate dividend in the form of sirxik rather than cash.

STOCK EXCHANGE organized marketplace in which slocks, common

stock equivalents, and bonds are trailed by members of the exchange, acting Nnh as agents (brokers) and as principals (dealers or traders). Such exchanges have aphysical localiitn where brokers and dealers

meet 10 execute orders from institutional and individual investors to

Nw

S T O C K - F O R - A S S E T R E O R G A N I Z AT I O N

buy and sell securities. Sef also American stock kxchange;

680 N E W

YORK STOCK EXCHANGE; OVER THE COUNTER; NASDAQ.

S'I'OCK-FOR-ASSET REOlUJANIZATION form of reorganizaiioii in which an acquiring corporation obtains solely for all or part of ii.s voting stock (or its pareni's voting slock) substantially all of the assets of asecond corporation.

STOCK-FOR-STOCK REORGANIZATION form of reorganization in which one corporation acquires at least 809f of another corpora¬ tion’s stock in exchange solely for all or part of its own (or its parent’s) voting stock, and the acquired corporation becomes asubsidiary. STOCKHOLDER individual or organization with an ownership posi¬ tion in acorporation; also called ashakhhoi.der or share owner.

Stockholders must own at least one share, and their ownership is con¬ firmed by either astock certificate or arecord by their broker if shares are in the broker’s custody.

STOCKHOLDER OF RECORD common or preferred stockholder

whose name is registered on the books of acorporation as owning shares as of aparticular dale. Dividends and other distributions

a r e

made only to .shareholders of record.

STOCKHOLDERS’ DERIVATIVE ACTION suit by acorporation in which the grievance has been suffered primarily by the corporation,

conducted by the shareholders as the corporation's representative. Such suits are the only civil remedy astockholder has for breach of

afiduciary duty by those entrusted with the management of their corporation.

STOCKHOl.DERS’ EIJUITY balance sheet item that includes the

book value of ownership in the corporation. It includes capital stock, PAID-IN SURPLUS, and retained earnings.

STOCK INDEX FUTURE security that combines features of tradi¬

tional commodity futures trading with securities trading using c o r n ¬ posiie stock indexes. Investors can speculate on general market pcrfonnance or can buy an index future contract to hedge along er

a

short po.siiion against adecline in value.

STOf-K INSURANCE COMPANY group owned by stockholders to whom company earnings arc itaid in the form of .shareholder divi¬ dends. Under state laws, however, the interest of policyholders takes precedence over stockholder interests.

STOCKKEEPING UNIT (SKU) department or unit having supervisory

responsibility for slock inventory in amercantile house. Bar code assigned to product.

STOCKLEDGERrecordofacorporation'sslockownership.Itiskept current by recording all purchases and sales of stock.

STOCK SPLIT

681

STOCK MARKE Torganiwd murkci, such as astock exchange or an ovER-TJlE-cocNTiiR market, wlierc stocks and bonds are actively traded. STOCK OPTION

1. right to purchase or sell ustock at aspecified price within astaled period. Options arc apopular investment medium, offering an opportunity to hedge positions in other securities, to speculate in

slocks with relatively little investment, and to capitalize on changes in the market value of options contracts themselves through avari¬ ety of options strategics. See also Cai.i. Oktion; put option. 2. widely used form of employee incentive and compensation, usually for the executives of acorporation. The employee is given an option to purchase the corporation’s shares at acertain price (at or below the market price at the time the option is granted) for aspec¬ ified period of years. STOCKOUT COST cost incurred to afirm when current inventory is exhausted for one or more items. Lost sales revenue is incurred when the firm is unable to meet current orders because of aswckoui condition. STOCKEII.K

1. (n.) rc.scrvc supply of raw materials or gtxids; total available mate¬ rials not yet being used. 2. (v.) to accumulate asupply of materials in anticipation of afuture shortage. STOCK POWER ix)wi:r ok attornev form transferring ownership of a RfcGiSTttRiii) SHCDKIT Yfrom thc owner to another party. Aseparate

piece of paper from the a-HTlMCATh, it is attached to the latter when the security is sold or pledged to abrokerage firm. bank, or other l e n d e r a s l o a n a i i . t - AT K R A i . .

STOCK PURCHASE PLAN organized program permitting employees

of acompany to buy shares of its stock, sometime.s at adiscount. Is an employee benefit if the employer matches employee slock purchases. See EMPLOYEE STOCK OWNI-R.SIIIP PLAN.

STOCK RECORD control, usually in the form of aledger card or com¬ puter report, used by brokerage firms to keep track of securities held in inventory and their physical location within the firm. Securities are recorded by name and owner. STOCK RIGHTS .see suusCRimoN right or warrant.

STOCKROOM area or room where slock of goods and materials and other supplies arc maintained. S TO C K S . B O N D S . l U U S & I N I ' I AT I O N a n n u a l p u b l i c a t i o n b y IBBOTSON &ASStX'lATlis that ptovidcs long-term historical data on var¬ i o u s fi n a n c i a l i n s t r u m e n t s .

S TO C K S P L I T , v i r S P l . l T.

V

STOCK SYMBOL

682

STOCK SYMBOL abbreviaiions (mostly one to four letters) used to identify companies on the securities exchanges on which they trade; also called trading symbols. STOCK-TRANSFER AGENT see transkkr agent.

STOCK TURNOVER index of speed with which inventory moves in and out of abusiness location. Stock turnover is an indicator of sales volume.

STOCK VS. FLOW in economics, stock is avariable measured at

o

n

e

moment in time; Bow is avariable measured over agiven period of tirae.The amount of agood on hand is itnck.' the amount sold in ayear is flow.

STONEWALLING refusing to acknowledge that acondition exists

despite overwhelming evidence; refusing to cooperate, refusing to talk. STOOL PIGEON spy or police informant. Astool pigeon betrays another and their confidences to the authorities.

STOP CLAUSE in alease, amount of operating expense above which

the tenant must assume payment. Often the base amount that the lessor pays is the amount of expense for the first full year of operation under the lease. See also escai.ator clause.

STOP ORDER order to asecurities broker to buy or sell at the market

PRICE once the security has traded at aspecified price called the stop price: intended to protect aprofit or limit aloss. STOP PAYMENT revocation of payment on acheck after the check has been sent or delivered to the payee. So long as the check has not been

cashed, the writer has up to .six months in which to request astop pay¬ ment. The Slop payment right does not carry over to electronic funds transfers.

STOPWATCH STUDIES lime and motion studies performed on work procedures by management; result of Frederick W. Taylor's Scieimfic Managemem study where he advocated using astopwatch to accu¬ rately lime all the procedures in performing ajob. See also -nME-A-NDMOnON

S T U D Y.

STORE establishment used for the purpose of selling merchandise and services, usually at the retail level. Stores range in size from small boutique shops to large modem big box retailers.

STORE BRAND product such as coffee, rice, canned vegetables, that carries the store's name (Kroger, Safeway) in contrast to the manufac¬ turer's brand or national brand. Same as private label.

STOREKEEPERS BURGLARY AND ROBBERY INSURANCE

coverage for small mercantile establishments on apackage basis. Combines six layers of protection: burglary of asafe; damage caused

683

STRAIGHT

TIME

by robbery and burglary, whether aeiual or aiienipicd; robbery of a guard and burglary of Ihe business's nicrdiandise; robbery inside or

outside the premises of ihc business: kidnapping to force abusiness owner or arepresentative to open the premises of the business from the outside; and theft of securities and monies either from the home of

amessenger of the business or from anight depository of abank.

STOREKEEPERS l.IABII.ITV CNSURANCE coverage for bodily injury and property damage liability resulting from ownership, use.

and/or maintenance of the insured business's premises, completed operations, and products. Covers medical payment expenses associ¬ ated with bodily injury to another party when an accident causes ha/.-

ardous conditions on the business's premises or within the business's operation. Also covers costs in defending the insured against liability suits, even if the .suits arc without foundation.

ST03VAvcrpaid taxes from the government to the tax¬

payer. Refunds are due when the taxpayer has been over-withholding or has over-estimated income or under-eslimaled deduclimis, exemp¬ tions. and credits.

TAX RETURN form used for providing information concerning taxABl.n inco.me. To report income to the Internal Revenue Service, indi¬ viduals use FORM KWn, ifuOA.or KUOEZ; corporations use ikjrm 1120 or

M2(1a; Scorporations use form H20s; and partnerships use form 1065,

V

TA X

RETURN

P R E PA R E R

708

There may also be forms for state or other income lax. Supporting schedules may also be filed. Forms may be downloaded from the IRS

web site http;//www.irs.gov. TAX RETURN PREPARER anyone who is paid to prepare, assist in preparing, or review atax return. Paid preparers must sign the tax

returns they have prepared, assisted in preparing.or reviewed. TAX ROLL listing and description of ail taxable property within aT/tx DISTRICT. It includes assess^ value and assessed amounts. See also TA X

BASE.

TAX SA1..E sale of property after aperiod of nonpayment of taxes. The grantee receives atax deed. In most states, the delaulting party has a

redemption period during which he may pay the unpaid taxes, interest, court costs, and the purchase price to redeem the property. TAX SELLING selling of securities, usually at year end. to realize lo.sscs in aPORTFOLto, which can be used to offset CAPrrAL gains and

thereby lower an investor'.s tax liability.

TAX .SHELTER prior to October 23,2004, defined by the IRS (in brief) as any investment with agreater than 2:1 ratio of deductions plus ,150% of the credits to the amount invested or any investment whose purpose was primarily the avoidance or evasion of income taxes. Such investments were required to bo rcgi.stered with the IRS. These rules have since been repealed. After October 22.2004, each material advi¬ sor must file an information return with the IRS that includes infor¬

mation on every reportable transaction required by the IRS. TAX SHIELD deductions that reduce tax liabilities. For example, mort¬ gage interest, charitable contributions, unreimhursed business expenses, and property tax expenses can be considered lax shields if a taxpayer qualifies for the deduction. The higher tlic marginal tax RATE, the more the deduction is worth.

TAX SOFTWARE software that helps taxpayers plan for and prepare their tax returns. Programs such as Turbo Tax and TaxCut help tax¬ payers analyze their tax situation and take actions to minimize tax lia¬

bility. Different versions of tax software are appropriate for large and small businesses, partnerships, individuals, and estates. TAX STATUS ELECTION selection of filing status for slate ajid fed¬

eral income taxes. Individuals may choose single, miirried filing jointly, married filing separately, or head of household, Businesses may elect Ccorporation. Scorporation, limited partnership, or sole proprietorship status, among others. Taxpayers may simulate prepar¬ ing their tax returns under two filing status categories to find out which status is more advantageous.

TAX STOP clause in ai.kasi; that slops alessor from paying property taxes above acertain amount. See also escalator clause; stop clause.

THCHNICAL ANALYSIS

709

TAX STRADDl.K technique formerly used to postpone liability for a

year.Aninvestorwithashort-termcapitalgainwouldlakeaposition

in acommixlilies future or option so a.s to show ashort-term "arlificial" loss in the current tax year and realiic along-ierm gain the next

laxyear.Taxreformsharplycurtailedthispracticebyrequiringgains

and losses on commodity transaclions to be reponed based on values

atyearend,evenwhenthepositionsarenotdosedout.Seealsomark TO

TMli

MARKKI.

TAX TRliATIKS treaties negotiated between the United States and other countries to avoid double taxation and to prevent tax evasion. I'AX VVAIVKR ;i document issued by the stale specifically stating that

the lax department consents to the transfer of the stock being pre.sented

for transfer. Atax teaiver is often needed to settle an estate or to trans¬ fer ownership of real estate.

TAX WKlMiK in economics, the effect of taxes lhal may inhibit acer¬

tain result. For example, if alax on luxury cars results in .selling 10%

fewer cars, the tax caused awedge between the economic desires of producers and consumers. ' I ' A X Y K A U s e c c a i . i i n d a r t a x v k a r ; r. s c a l t a x v i : a k .

T.l). Treasury Decision.

TEAM mJlI-IMNG organization DKViii.op.MLNT technique for improv¬

ing awork group's performance and attitudes by clarifying its goals and its members' expectations of each other.

TEAM MANAGEMENT management of aprescribed set of activities

by an organi/.ed work group in an organization. Team managemeni includes setting goals and priorities, analyzing the group's work meth¬ ods. and examining the team's decision-making processes.

TEASIvR AD brief advertisement designed to lease the public by offer¬

ingonlybitsofinformalioiiwithoutrevealingeitherthesponsorofthe adortheproductbeingadvertised.Teaserailsarethefrontrunnersof

an advertising eampaign. and their purpose is to arouse curiosity and gel alicnlion for the campaign lhal follows. TEASER RATE interest rate, applied to amortgage loan for alimited

period of lime, lhal is lower iniiially than the r.iie jiisiified by the cur¬ rent value of the index that determines the interest rate charged on the

loan. It is commonly offered on adjustaiU-E-Rati-: .mortgages during the first year as amarketing technique. TECHNIGAI. ANALYSIS research into the demand and supply for securities ;ind commodities based on trading volume and price sludie.s.

Technical analysis use chans or computer programs to identify price trends in amarket, security, or comminlily future, which they think will forelull price movements. Conirasi with i-undamentai. A N A L Y S I S .

T E C H N I C A L R A L LY

710

TECHNICAL RALLY short rise in securities or commodities futures

prices witliin ageneral declining trend. Such arally may result because investors arc bargain-hunting or because analysts have noticed apar¬ ticularSUPTORTLEVELatwhichsecuritiesusuallybounceup. TECHNICAL SKILLS operational capabilities necessary to perform certain job specifications, woro processing is avery widely used technical skill in many organizations.

TECHNOLOGICAL OBSOLESCENCE technology becoming o u t dated due to technological advances; technology that has been passed by newer technology. For example, word processing software s u r -

ha.s made traditional typewriters obsolete.

TECHNOLOGICAL UNEMPLOYMENT s.'NEMPLOYMENT resulting

from the application of new technology, either by eliminating jobs by changing the nature of work so that those who hud performed the o

r

work no longer have applicable .skills to do so.

TECHNOLOGY developed applications for industry and the indu.strial arts; use of applied science for the development of technical applica¬ tions. For example, desktop computers represented an advance in elec¬ tronic technology.

TELECOMMUNICATION.S transmission of messages by computers, telephone, telegram, or television.

TELECOMMUTING performing job-rclatccl requirements using

TELE-

COMMUNICATIONS to iran.smil duia and textual messages to the central

organizational office without being phy.sically present. Many of die job requirements of today’s organizations involve information processing, which is the primary capability of telecommunications. Teicconumimg utilize.s telecommunications lo accomplish the.se job requirements while avoiding all of die inconvenience and expense of physically commuting to work as well as requiring less organizational overhead. TELEFACSIMILE see FACSiMii.t: transmission (fax).

TELEGRA.M message sem by iclegraphic equipment, which involves using coded signals over elecimnic wires. The message is phoned o r delivered to the receiver within hours. Still used for money transfers; information transfers are now usually made by fax; see facsimiijs TRANS.MISSION.

TELEGRAPHMONFIYORDERmethodofsendingmoney one

to

some-

m

u^ent need of cash. The sender places cash with atelegraph offiee. which then wires the telegraph ofTicc at the city of destination to disburse the cash or acceptable L*quivalent (money order).

TELEMARKF;TIN(; use of the telephone as an interactive medium for

promotion or promotion response; also known as teleselling. Telemarketing as aresponse vehicle includes receiving orders, inquiries, and donation pledges in response lo print and broadcast

TENANCY FOR YEARS

7 11

advertiscmen!!., catalogs, and direct-mail promotions, and also receiv¬ ing customer inquiries and complaints, TEI.KPHONK SWITCHING process of shifting a.sscls from one MUTUAL IVNO to another by telephone. Such aswitch may be among the stock, bond, or money market funds of asingle kamii.y oi- la^Nb-S. or it may be from afund in one family to afund in another. TELKSEI-l-ING .vce ili.kmarketing, TELEVISION SUI’I'ORT advertisement broadcast on television to

serve as asecondary part of aMUi-TiMfcDiA campaign. For example, the television nicdiiim is sometimes used to announce anewspaper insert and/or to remind the viewer to read the insert. The insert will contain

detailed information on the product or promotion not provided in the television broadcast and may include areply form,

TELEX system of national and international telecommunication whereby messages can be sent from one typewriter to another, pro¬ vided both users subscribe to the electronic service. The iv\.\ machine

has generally replaced the telex. TEMPI.ATE ptiitcm for arranging or matching things: most commonly used currently to denote aword processor file on which other docu¬ ments are based. The templaie may contain styles, images, boilerplate text, atid other fitniialling suitable for aparticular type of document, such as aIdler, report, resume, or the like. Templates are also used in prcsenuiiion, publishing, and spreadsheet applications. T E N A N C Y

1. right of possession of real property. 2, right to possess an r-s iAiT:, whether by leash or by Tni.r, 3. holding in subordination to another's title, as in the landlord-icnanl relaiionstiip. See also joint tenancy; tenancy in common. TENANCY AT .SUKEKRANCE ten.xncy established when aperson

who had been alawful tenant wrongfully remains in possession of

property after expiration of alease. Aleim/u ai sufferance may be ejected from the property any time the landlord decides to do so, sub¬ ject to the holdover provision.

TENANCY AT WILL ucense to use or occupy lands and buildings at the v»'ill of the owner. The tenant may decide to leave the property at

any lime or must leave at (he landlord's will. Agreement may be oral or written. Sec also l!^^m.liMhNT.

TENANCY 113' THE ENTIRETY estate that exists only between hus¬

band and wife with equal right of possession and cnjoymenl during their

joint lives and with the right of survivorship; that is. when one dies, the pro|>orty goes to the surviving tenant. It is recognized in some slates.

TENANCY FOR YEARS lease for afixed term, such as two months,

three years, leu years, and so on.

V

TENANCY [N COMMON

712

TENANCY IN COMMON ownership of really by two or more persons, each of whom has an undivided interest, witlioiit the right of sur¬

vivorship. Upon ihe deaih of one of the owners, ihc ownership share of the decedent is inherited by the party or parlies designated in ihe decedent's will. See also joint tenancy; partttton; syndication; ten¬ ancy

BY

THE

E N T I R E T Y-

TENANCY IN SEVERALTY ownership of properly by one person or one legal enlity (corporate ownership). T E N A N T

1. one who leases premises from the owner (landlord) oi- from aten¬ ant as asub-tenant.

2. one who holds land by any kind of title or right, whether perma¬ nently or temporarily. 3. one who purchases an estate and is entitled to possession, whether exclusive or to be shared with others.

TENANT FINISH-OUT ALLOWANCE monetary allowance given to apro.spective retail or office tenant in recognition of the tenant’s indi¬

vidual needs to acquire, build or move walls, partitions, and light fix¬ tures; usually expressed in dollars per square foot.

TENANT FIXTURES fixtures added to leased real estate by lessees, which, by contract or by law, may be removed by the lessee upon expi¬ ration of the lease.

TENANT IMPROVE.MENTS (Tls) those changes, typically to office, retail, or industrial property, to accommodate specific needs of aten¬

ant. Tls include installation or relocation of interior walls or panilions. carpeting or other floor covering, shelves, windows, toilets, etc. TENANT REIMBURSEMENTS especially in shopping centers and office buildings, amounts paid by atenant to alandlord for the tenant’s share of expenses. Frequently encountered in net leases and leases w i t h S TO P C L A U S E S .

TENANT REPRESENTATIVE broker wlio represents tenants, trying to find the best property to lease and negotiating the most favorable transaction terms.

TENDER unconditional offer to pay or perform in full an obligation to another, together with actual presentation of Ihe thing or sum owed, or some clear manifestation of ability to pay or perform. See also legal TENDER.

TENDER OF DELIVERY seller’s placement at the buyer’s disposal of goods sold to him. Aseller’s failure to lender delivery according to contract may constitute abreach unless he has alawful excuse; a

buyer’s refusal to take delivery may constitute abreach on his part. TENDER OFFER public offer made to shareholders of aparticular cor¬ poration to purchase from them aspecific number of shares of stock at

T E R M A S S E T- B A C K E D S E C U R I T I E S L O A N FA C I L I T Y

713

aspecific price. The terms of such an offer may apply only if the offerer is able to obtain the total amount of stock specified in the offer,

TENEMENT permanent and fixed property, including both corporeal and incorporeal real property. Iti modern usage, tenement applies to

any structure attached to land and also to any kind of dwelling inhab¬ ited by atenant. Also, leneim’iil is frequently used to mean dilapidated apartment dwellings. Kl-K REPORT lee f-URM lt)-K.

10-0 .ret' FORM 10-Q. TENURE

I, nature of an occupant’s ownership rights; indication of whether one IS an owner or atenant.

2. length of time one has been employed by acertain company, with important implications in cases of layoffs. 3. academic privilege granted to a.ssociatc and full professors, allowing freedom of speech (academic freedom) and conveying implications of continued employment except in extraordinary circum.siances,

T’ENURE IN I.ANI) mode in which aperson holds an fstati; in land. TEN-YEAR AVERAGING amethod of calculating income tax on a

lump-sum distribution from aqualified bf>iefit plan that reduces a beneficiary’s tax liability on the distribution. It is available only to a

participant who was 50 years of age or older before January 1, 1986, and had been aparticipant in the plan for at least five years before the year of distribution. T E R M

I. period of time during which the conditions of acontract will be

curried out. This may refer to the time in which loan payments must be madc.or the time when interest payments will be made on acer¬ tificate of deposit or abond. It also may refer to the length of time alife insurance policy is in force. See also term life insurance.

2. provision specifying the nature of an agreement or contract, as in ftT/ii.v and condilions.

TERM, AMORTIZATION period of time during which principal and

iNii-RUST payments for aloan must be made. It is generally the lime needed to fully amoni/c the loan. See also amortiza'I'ION. TERM ASSET-HACKED SECURITIES LOAN EACILITY (TALK)

funding facility under which the Federal Reserve Bank of New York will lend up to S2(K) billion on anon-recourse basis to holders of cer¬

tain AAA-rated ASSFrr-BASKi) securities (ab.s) backed by newly and

recently issued consumer and small business loans. On August 17, 2(X)9. the Federal Reserve Board and the Treasury announced that, to

promote the flow of credit to husine.sses and households and to facili-

V

TERM BOND

714

uue ihe financing of commercial properties, the TALF program would continue to provide loans against newly issued ABS and legacy com¬ mercial mortgage-backed securities (CMBS) through June 30.2010. TARP guarantees $20 billion of TALF loans. TERM BOND all the bonds of an issue mature at the .same date. If a

term bond has acall feature, it may be redeemed at an earlier date. Conira.%1 wilh serial bond.

TERM CERTIFICATE certircate of deposit with along maturity date. Such CDs can range in length from one year to ten years, though the most popular term certificates aie tho.se for one or two years. TERMINAI. device that allows auser to communicate directly with a computer. Aterminal must have akeyboard so that the user can type in instructions and input data, and ameans of displaying output, such as aMONITOR or aprinter. When aterminal cannot be used by itself as acomputer, it is called adumb terminal.

TERMINAI, VALUE the remaining value or expected remaining value of aproperty at the end of acertain period, such as income projection period. See aho reversionary value.

TERMINATION BENEFITS amounts due employees who cease to work for the employer. The amount of the termination benefit may be in the form of an annuity or lump-sum payment. TERM LIFE INSURANCE coverage that stays in effect for only a specified, limited period, if an insured dies within that period, the benERCIARY receives Ihe death payments. If the insured survives, the pol¬ icy ends and Ihe beneficiary receives nothing. TERMINATION OF APLAN either of two way.s in which apcn.sion

plan can be terminated; standard and distress. Astandard termination

can occur only if the plan has enough money to fully fund the benefits or the plan sponsor agrees to pay the unfunded amount. The sponsor can choose to purcha.se annuities from an insurance company to cover the remaining benefits or pay lump sums to the participants. Adistress termination can occur only for reasons of business necessity and is usually associated with bankruptcy.

TERM LOAN intermediate to long-term (typically two to ten years) secured credit granted to acompany by acommercial bank, insurance company, or commercial finance company, usually to finance capital equipment or provide working capital. TERMS conditions and arrangements specified in acont ract. Asales contract will generally include terms relating to the price, financing available to the buyer, contingencies based on the condition of the

properly, how to prorate closing costs, and items of personal property included in the sale.

TEST

715

MARKET

TERMS OF TRADE (he relaiionship bciwcen the prices acountry gels lor ils exports and the prices i( pays for ils imports.

Th'RRORISM non-convcnlional warlare slralegy where many types of violent acts, including bombings, kidnapping, murder, and torture, are employed against civilians. lEST

1. examination or final determination of agrade or score for measur¬ ing achievement. 2. proving, assaying, or trying aparticular concept; for example, per¬

forming amarketing lesi on the consumer reaction to apnxiuct. TICSTAMENT will, generally used to dispose of personal property after death. Common usage employs the words will, tesrameiu. and hn will KRAt. UNRMl’i.OYMbNTTax act (futa).

UNEMPLOYMENT RATE percentage of the ovii.ian lahor iorcb

activelylookingforworkbutunabletofindjobs.Therateiseotnpiled bythe'u.S.DepartmentofLabor,incooperationwiththelabordeparl-

menis in all the states, and released to the public on the first Friday of every month. UNEMPLOYMENT, SEASONAL.w si-asonaI. iini-:mi>i.oymi:NT.

UNE.MPLOYMKNT,STRUCTURAI-.vf(’STRii(TTiKAi.i)NiiMl’U)VMi:NTUNENCUMBKREI) PROPERTY real e.slale with free and clear title;

propertyownedinransimit.k.thatis.therearenotnortgage,vendor, mechanic's, or lax liens on the propcrIy.no restrictive covenants exist, n

o

easements have been granted, and no leases are in effect.

UNETHICAL

744

UNETHICAL not ethical; not in accordance with the standards of behavior followed in abusiness or profession.

UNEXPIRED COST cost left until an item has paid for itself; difference between the price paid for an item and the amount of money it has

generated. The unexpired or unused portion of the economic benefits

from an expenditure represents an asset for future usage. UNFAIR COMPETITION

I. unfair, untrue, or misleading advertising likely to lead the

c o n -

sumer to believe that certain goods arc associated with another manufacturer.

2. imitating acompetitor’s product, package, or trademark in cireum!stanccs where the consumer might be misled.

3. representations or conduct that deceive the consumer into believing that the business name, reputation, or goodwill of one person is that o f a n o t h e r.

4.piratingaproduct,suchasreproducingcomputersoftwareillegally.

5. selling in aforeign country for less than the cost of manufacture. See also DUMPING.

UNFAIR LAUOR PRACTICE illegal union or management labor practices. The national labok relations board (nlrb) determines

whetheraparticularlaborpracticeisanunfairlaborpracticesubject

to coun appeal. The waoner act and the taft-hartley act define unfair labor praaices.

UNFAIR LABOR PRACTICE (BY UNIONS) certain practices identi¬ fied by theTAKT-HAEtn.EYACTin 1947 to protect workers and employ¬

ersfromUNIONS.Thisactmadeitillegaltocoerceworkersintojoining

unions, to restrain employers from recognizing unions, to cause an employer to discriminate against any worker, or to charge e x c c s s i v e membership fees.

UNFAVORABLh- BALANCE OF TRADE value of acountry's imports exceeding the value of its exports. The United Stales has had an unfavorable balance of trade since the mid-1970s.

UNFREEZE to remove economic restrictions, usually increases or imports.

upon price

UNFUNDED with reference to apension or phoiit-shahing pla.n. fail¬ ing to meet or have aminimum funding standard. See also funded. UNiCAP RULES see uniform capitalization rules.

UNIFORM CAPITALIZATION RULES ameihod of valuing

I N V E N -

TORY for lax purposes that requires capitalization of direct costs

(such as material and labor costs) and an alkicable portion of indirect costs that benefit or are incurred because of production or resale

activities.Certainexpensesmustheincludedinthebasisofproperty

produced or in inventory costs rather than currently deducted. These V

UNINSURABLE TITLE

745

cosis ore then recoverable through ijkprkciatios or amortization or as CX)ST 01- GOOIJS SOLD-

UNIFORM COMMERCIAL CODE (UCC) code of laws governing various commercial transactions, including the sale of goods, banking transactions, secured transactions in personal property, and other mat¬

ters, that was designed to bring uniformity in these areas to the laws of the various stales, and that has been adopted, with some modifica¬

tions, in all slates (except Louisiana) as well as in the District of Columbia and in the Virgin Islands. UNIFORM ClFl'S TO MINORS ACT (UCMA) law adopted by most

states that sets up rules for the distribution and administration of assets in the name of achild. The Act provides for actstodian of the assets, often the parents, but sometimes an independent trustee. UNIFORM Rl':SOURCE LOCATOR see URl..

UNIFORM SE1TLEMENT STATE.MENT the form prescribed by

RESPA for federally related loans, which must be prepared by the per¬ son who handles aclosing, must contain certain relevant closing infor¬ mation. and must be given to buyer and seller. UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL

PRACTICE (USPAP) acode of professional standards, promulgated

bytheAppraisalFoundation,thatsiaic-ccrtinedtippraiscrsandones

belonging to certain appraisal organizations are expecicd to follow in preptiring appraisal reports. UNILATERAL CONTRACT agreement whereby one makes apromise to do. or refrain from doing, something in return for an actual perform a n c e

by the other, rather than amere promise of performance. See

a l s o B l l . AT t i R A L C O N T R A C T.

UNIMPROVED PROPERTY' land that ha.s received no development,

construction, or site preparation so that it qualifies for capital gain or loss treatment (that is, raw land). Improvemcnt.s to land cause the

property to receive ordinary income tax ircatmem as inventory of a DEALER.

UNINCORPORATED ASSOCIATION organization formed by a

groupofpeople.Iftheorganizationhiistoomanycharacteristicsofa corporation, it may be treated like one for income tax purposes. Unique corporate characteristics are: 1. 2. 3. 4.

|>erpeiual life. limited liability. free transferability of interests. centralized management.

UNINSURABLE RISK ri-sk that is so great or so difficult to calculate that no insurance company wants to insure. UNINSURABLE TITLE see insurable TiTl.k.

UNINSURED MOTORIST INSURANCE

746

UNINSURED MOTORIST INSURANCE form of insurance (hai cov¬

ers ihe policyholder and family members if injured by ahii-and-run

driver or amotorist who carries no liability insurance, assuming the driver is ai fault.

“UNINTENDED” or “UNPLANNED” INVESTMENT abuildup in inventory when sales are less th;in planned. The company invests in the excess inventory until sales ctiich up while production i.s attenu¬ ated or curtailed.

UNION employee a.ssociation designed to promote employee rights and work-related welfare. Union organizations are formally recognized

under the Railway Labor Act and waoser act as well as by related legislation. See also labor union. UNION CONTRACT see lahok acirehment.

UNION LABELidentifying mark placed on goods to .show that they

were produced by alabor union or in ashop that deals with orga¬ nized labor. It encourages patronage of these goods by other union members and supporters.

UNION RATE hourly wage rate, usually single rate for an occupation o r trade, established by coLLEcnvu bargainino. Usually it is the mini¬ mum rate that can be paid to qualified people in the job. UNION RECOGNITION recognition achieved after asecret-ballot election, supervised by the nationai. labor relations board, has been conducted, in which asuccessful BARCArNiNC agent achieves at

least .SO percent of the vote; also called union certification. After win¬

ning the election, aunion is certilied by the NLRB as the official bar¬ gaining agent for the bargaining unit.

UNION SALTING union organizing method of having o n e o r m o r e union members join anon-unionized organization as an employee for the purpose of organizing its membership.

UNION SHOP workplace where all the employees must be members of

aunion. Non-union members may work in such shops provided they agree to Join the union. See also closed shop; open shop.

UNION SHOP, MODIFIED labor agreement providing that existing employees may continue as union or nonunion members, but

new-

employees must join the union.

UNIQUEIMP.AIRMENTphraseusedinunderwritingrisks,denoting

factors that set an applicant apart from the standard applicant. For example, an applicant with unlrciiied epilepsy has aunU/iie impairmem

not

common to the general population. Tills impainnoiii may

adverselyaffectthelifeexpectancyoftheapplicant,whomightliave to pay ahighcr-than-standard premium.

UNISSUED STOCK shares of acorporation's stock authoiized in its

charterbutnotissued.Theyarcshownonthebalancesheetalongwith

UNITY OF COMMAND

747

shares ISSUED and outstandino. Unissued shares cannoi pay divi¬

dends and cannoi be voted. They are not to be confused with tri;aslry STOCK, which is issued but not outstanding because it has been reacquired. U N I T

1. any division of quantity accepted as astandard ol measurement or of e.schange. For example, in the commodities market, aunit of wheat is abushel, aunit of coffee apound, and aunit of .shell eggs adozen. The unit of U.S. currency is the dollar.

2. part of alarger busine.ss entity. For example, adivision or sub¬ sidiary might be called aunit of the business. UNI'i'ARY KLASTICITY situation where achange in the market price

of agood results in no change in the total amount spent for the gtx'd within the market. See aho price elasticity.

UNITED I'AKCKI. SERVICE (UPS) freight company that transports letters and packages. UNITED STA’I'ES DOLLAR INDEX (USDX) index that compares variances in the U.S. dollar’s value on ascale of 100 with abasket of cunencics that include the euro, the yen. the British pound sterling, the Canadian dollar, the Swedish krona, and the Swiss franc. UNITED STATES GOVERNMENT SECURITIES direct govem-

mcniobligations,tliatis.debtissuesoftheU.S.government,suchas Treasurybills,notes,andbondsandSeriesEE,SeriesHH,andSeries 1savingsbondsasdistinguishedfromgovemmem-sponsoredagency issues. See aho GOVERNMENTS.

UNITED STATES PERSON for income tax purposes, aciii/cn or res¬ ident of the United Stales, atomestic partnership, adomestic cor¬

poration, or any estati: or fbust (except certain foreign estates and trusts).

UNIT INVESTMIvN'l' TRUST (UIT) investment vehicle, registeied with the SEC under the investment company act oe 1940, that pur¬ chases afixed TORivouooE securities, such as corporate, municipal, o

r

government itosDS, mortgage-backed SEtiURiTii-s. common stock.

or preferred stock.

UNIT-LABOR COST cost of labor needed for one unit of some gtKxJ.

It is calculated so that the selling price of the unit reflects the cost of the labor necessary to produce it.

UNIT OETRADING normal number of shares, bonds, or commodities

constitutingtheminimumunitoftradingonanexchange.Forslocks,

this is usually KM) shares. For corporate bonds on the New York Suxik

Exchange,theunitforexchangetradingisSI.000or$5,000parvalue. UNITY OE COMMAND principle of management slating llim each subordinate should report to only one superior.

V

UNIVERSAL LIFE INSURANCE

748

UNIVERSAL LIFE INSURANCE adjustable life insurance under

which: (I) premiums are flexible, not fixed; (2) protection is adjustable,notfixed;and(3)insurancecompanyexpensesandother charges are specifically disclosed to apurehascr.

I'NIVERSAL PRODUCT CODE (UPC) number used to identify a

product. Tran.slated into bar codes consisting of ascries of vertical parallel bars, the UPC can be used for scan entry, by an electronic cash register, ol information for product sales and inventory tracking.

UNIVERSAI. RESOURCE LOCATOR

see

URL.

UNIVERSAI.,VARIABLELIFEINSURANCEpolicycontainingfea¬ tures of universal life insurance and variable life insurance in

that excess inieresi credited to the cash value account depends on investment re.sulis of separate ac-counts (equities, bonds, real estate, etc.). The policyowner selects the accounts into which the

premium

payments are to be made.

UNIVERSE statistical term representing all possible elements in asei. Thc universe of shoppers in the United Slates would consist of all

shoppers in the United States. Because the large number makes atotal

analysis impossible, arepresentative sample (statistical sample) is

selected for study to determine shopping habits of all shoppers. UNIX powerful operating system, developed by AT&T Bell Laboratories

in 1969, thill cun be used on many platforms and can run uwider vari¬

ety of liartlware ihiin other operating systems. More popular for work¬ station computers on networks rather ilian individual PCs; used primuriiy by universities and mid-sized businesses.

UNJUST ENRICHMENT gain or benefit that is the result of another’s

eflbrtsoractsbutforwhichthatotherhasreceivednocompensation, andforwhichtheonereceivingthebenefithasnotpaid.Apersonwho isdeemedbylawlohavebeenunjustlyenrichedattheexpenseof another is required lo make resiimiion to the other.

UNLIMITED LIABILITY risk associated with the l ! R O P R I E T O R S H I P form of business or ageneral partner, where there is no distinction

between business and personal liability. For example, abusiness liability could force the business-owner lo use personal assets lo retire the debt.

UNLISTED SECURITY swek or bond not listed on a.s'lXX'K exchange and thcrefoie traded only in the over-the-counter (otc) market. UNLOADING

Finance: selling off large quantities of merchandise inventory at

below-market prices, cither to raise cash quickly or to depress ihe mar¬

ket in aparticular product.

Investment:sellingsecuritiesorcommoditieswhenpricesaredeclin¬ ing to preclude further loss.

UNRIECOVEREDCOST

749

UNMAILAHLK MA'ITER materials that cannot be accepted b> the U.S. Postal Sors’icc because of size, weight, or contents.

UNMARRIKI) TAXPAYER ataxpayer who is single or who has obtained afinal decree of divorce or separate maintenance ora decree

of annulment by the last day of the tax year; considered unmarried for the entire year.

LNOCCUPANCY absence of people from agiven prtiperty for at least 60 consecutive days. Many property insurance policies suspend cov¬ erage after it structure has been unoccupied for 60 consecutive days

becausetheprobabilityoflossfromsuchperilsasvandalismandmali¬

cious mischief increases dramatically. Utioccupamy results in an i n c r e a s e

in hazards within the control of an insured, which gives the

insurance company the right to suspend the policy. See al.ui vacancy. U N O C C U P I E D w V A C A N T.

UNPAID DIVIDEND dividend that has been declared by the btrard of

directors of acorporation but has not reached its paymknt t)ATii. Once

aboard acts to DiiCURE adividend, it is then recognized as acorpo¬ rate LiAiiit.iTY until paid.

UNQUAIJKIKD OPINION independent auditor’s opinion that acom¬

pany'.s financial statements are fairly presented, in all material respects, in conformity with generally ACCEKtED ACCOuyriNG princi-

Pi.ici. ACLEAN iii’iNioN. The justification for the expression of the audi!|X)k’S opinion rests on the conformity of his or her audit with gcncnilly pted auditing standards and on his or her opinion. See aiw a c c e

ACCOCNTANl'S OPINION; ADVERSE OPINION; QUALII'IED OPINION.

UNRKAI.I/KD APPRECIATION the excess of an asset’s pair market VALUE over its adjusted BASi.s.for determining gains on sale or other

disposition of the asset. No income tax is due until asale occurs. Comrun xeilh UNREALIZED DEPRECIATION.

UNREALIZED DEPRECIATION the exce.ss of the ADIL'SltD basis of an asset over it.s i=air market value, for determining losses on sale or

other disposition of the asset. Contrast »irh unrealized appreciation. UNREALIZED PROKIT (LOSS) profit (loss) that has not become

actual. The gain or loss is realized when asecurity or commodity futures contract is actually sold. See also paper promt (IZtss). UNRECORDED DEED instrument that transfers title from one party

(grantor)toanotherparty(grantee)withoutprovidingpublicnoticeof

change in ownership. Recording adeed is essential In protect one s interest in real estate.

UNRECOVEKED COST imexpired book value of an asset; original COST less ACCUMULATED DEPRECIATION.

UNREGISTERED STOCK

750

UNREGISTERED STOCK see LETTER stock.

UNRELATED BUSINESS INCOME (UBJ) income from atrade or

business that is not substantially related to anot-for-profit organi/.ation's tax-exempt function and that is regularly carried on by the orga¬ nization. Annuities. interest, dividends, royalties, and rent from certain real and certain personal property are specifically excluded from the

definition of uiirelareJ business income. Acorporate lax is imposed on UBI in excess of $1,000 in order to place the tax-exempt organization on an equal footing with taxable organizations with respect to their biisinc.ss operations.

UNREPORTED INCOME the improper failure to include certain income on alax return.

UNSECURED DEBT obligation not backed by the pledge of specific COLLATERAL.

UNSKILLED describing an individual having no formal skills, training, or education. Unskilled workers are the lea.si employable and most easily replaced through automation.

UNSTATED INTEREST when no interest or low interest is provided in an iNSTALLNtENT SALE agreement, part of each payment will be treated as interest. The amount treated as interest is referred to as unstated or

imputed interest, imputed I.STERESt reduces the selling price iind increases the seller’s interest income and the buyer’s interest expcn.se. UNWIND ATRADE to reverse asecurities iran.siiction through an off¬ setting transaction. U P D A T E

1. computerized file maintenance process that applies all necessary TRANSACTIONS again.sl the old file, producing anew file reflecting all adds, deletes, and changes that have become necessary since the last update.

2. provide curreiil information to an individual or group of persons, or revise printed information according to llie mn.st current informa¬ tion available. UP

FRONT

1. money given immediately upon the completion of afinancial agreement.

2. to be frank and candid by giving full factual disclosure.

UPFRONT CHARGES fees chiu-ged to homeowners when closing a purchase; include points, recording fees, mortgage title policy, appraisal, credit report.

UPGRADERS people who currently own ahome but are seeking to buy what they consider abetter home: also called ”move-up” buyers. The "upgrade" may involve getting alarger home, amore conveniently located home, or one with special amenities. In almost all cases, the

751

URBAN

RENEWAL

upgradcr is looking lo spend more for the new home than the proceeds expected from selling the old home.

UPGRADING improving the quality or performance of something by making changes. For example, acomputer's storage capability can be upgraded by adding alarger datti storage disk. UPKEEP necessary care and management of equipment atid operations. All mechanical equipment and organizations need continual mainte¬ nance to forestall atotal system breakdown. See also Maintenance.

UPI.OAI) process of providing data from amicrocomputer to amajni-KAMt or Mi.MCOMPUTER or another microcomputer. For example, an

accountant can upload information from his or her computer to the client's computer system. See also download.

UPSET I’RICE term used in auctions that represents the minimum price at which aseller of property will cnicriiiin bids; also called re.vervf price. UPSIDE-DOWN MORTGAfJE amortgage loan whose balance is greater than the property providing the security for the loan. Ahome¬ owner with such aloan cannot .sell the home or refinance the loan

without surrendering cash. The homeowner has negative equity in the h o m e . S e e a l s o s h o r t s a l e , u n d e r w a t e r.

UPSIDE POTENTIAL amount of upward price movement an investor or an analy.st expects of aparticular slock, bond, or commodity. UP.SWINC; change to or acccleralion of economic IjKOWtii, UI’’1'1CK indicates that the latest trade in aslock is at ahigher price than

the previous trade. Azero-plus lick is atrade at the last price with the preceding different price registered as an up tick. UPTIME time in which amachine is actually operational and aworker is occupied. For example, (he computer is up. This is the opposite of DOWNTIME, when the machine is no longer operational, u.sually because of the need for repairs or maintenance. UPTRICND upward direction in llic price of astock, bond, or commod¬ ity futures contract or overall market. UPWARDLY .MOBILE description of asegmeni of the population that is attempting to move up on the socioeconomic class scale. Upwardly mobile describes atrend toward higher status in terms of income, material goods, and lifestyles. URBAN relating to cities or intensively developed areas. Contrast with rural, which refers lo sparsely developed areas, or suburh, which is a moderately developed area.

URBAN RENEWAI. process of redeveloping deteriorated section of a city, olfen through demolition and new construction. Although urban

V

URBAN SPRAWL

752

renewal may be privately funded, it is most often associated with gov¬

ernment renewal programs. The typical program attempts to demolish concentrations of dilapidated housing and attract developers of mid¬

dle-income or mixed housing. Often, urban renewal areas become sites for new public buildings, such as civic auditoriums, sports are¬ nas, and universities.

URBAN SPRAWL pejorative term for low-density development in sub¬

urban and the fringe of urban areas. Characteristics include distance from employment and commercial centers, dependence on automobile travel, and extended public tNFRASTRL'CTt.iRE. URL uniform resource locator or universal resource locator; an address¬

ing scheme u.sed by world wide web browsers to loeate resources on the Inicmet.

USB Universal 5'erial fius, atypo of serial interface for computer periph¬ erals and other electronic devices, now largely supplanting PAUAt.t.t;i, I’OR'l'.s. Most USB devices are PLUC-AND-i’t.AV: they can be connected

and disconnected without powering down the system. Also, most com¬ puters now come with several USB porl.s (as compared to asingle par¬

allel port), and several devices can be daisy-chained (connected in series) or connected separately to aUSB hub plugged into one of ihe USB ports. USB DRIVE portable plug-and-pi.ay cirmputer storage device, small enough 10 be attached to akeychain, that can be plugged into any iisn

port and is immediately recognized by the computer as an external drive. Also called /far/i drive, jump drive, memory .stick, thumb drive, etc. Capacitie.s currently range up to 8GB. Uil. CITIZEN every person born or naturalised in the United States who is subject to its jurisdiction. USEFUL LIFE period of lime over which adepreciable asset is expected to provide acompetitive return. The modified accelerated

COST RECOVERY SYSTEM allows depreciable lives for tax deduction pur¬ poses that are not necessarily related to the useful life of the property. USENET NEWSGROUPS see newscroups.

USER FEE charge usually by amunicipality to users of aservice. Municipal parks, swimming pools, and loll roads, for example, arc paid for by those who benefit rather than by broad-based taxes. USER-FRIENDLY computer hardware or software designed to be easy

for people, especially novices, to use. When computers were operated only by .specialists, little attention was paid to making programs userfriendly. However, when computers became more popular, it became

very important to write programs that could be easily understood by the people who use them.

753

U T I L I T Y, T O T A L

USER II) ihe name by which auser is ideniificd on apanicular computer NkTWORK. In order to log on to asystem, the user must supply both an ID and apassword.

U*SHAI’EI) RECOVERY snidual recovery ol' economic growth in an economy as measured by adecline and then arebound in the gross D(IMIi,STIC‘ RROHUCr (at)R). See also V-.SHAl'i;0 RKCOVKRY. USI’AI* see unjtorm standard.s of prokussional appraisal praciick. U-S. SAVINGS BOND see savings liONi).

USUFRUCTUARY RIGHT right that allows the use of properly that belongs to another. The owner of land that bounds or contains anat¬ ural water channel has ausufrucliiary ri/ilu to use of the water. The water itself is considered to be held by the public with all adjacent property owners holding rights to its use. Restrictions on that use vary under state law.

USURY cltarging arate of interest greater than that petmitted by state hiw. In most states, usury limits vary according to the type of lender and the type of loan. Federal laws have been pas.sed to pre-empt cer¬ tain usury limits under certain conditions.

UTII.ITAKIAMSM field of the teleological theory of ethics staling that decisions .should be made on the basis of achieving the greaiesi gixxJ for the greatest number without making an intrinsic value judgment about the decision itself. Uriliruriunism is sttmetimes called aconse-

qucniialisi theory in that the primary consideration is the consequence of the decision. U T T M T Y

I. .service, such as water, sewerage, gas, oieciricily. and telephone.s. Iltal is gcnenilly required to operate abuilding. 2. computer program chat provides aspecific function to assist in the operation of the computer, such as checking for viruses, defrag¬ menting the hard disk, or compressing data. Conlrasi with appi.ICAHON

SOPTWARE.

U'lTI.rn’ EASEMENT use of another's property for the purpose of laying gas. electric, water, and sewer lines. Aproperty owner grants a uiiliiy eiisemeiu to the electric power company lo extend power lines to the owner's home.

UTILITY I’OSSimLITY FRONTIER acurve on agraph with the axes showing utility for two difl'crem consumers. The curve shows how redistributing income from one Ki the itlher would affect the max¬ imum ulilily of each. UTILIT)', 'I'O'I'AL sum of benefits derived from consumption of a good. Conlrasi whh marginai. uni.irv.

754

VA

V VA Department of Veterans Affairs {formerly Veterans Administration), agovernment agency that provides certain services to discharged ser¬ vicemen- See also va loan.

VACANCY, VACANT unoccupied. An empty structure.

VACANCY RATE percentage of all units or space that is unoccupied or not rented. On apro-forma income statement, aprojected vacancy rate is used to estimate the vacancy allowance, which is deducted from POrENTlAL GROSS INCOME (PCI) tO derive EFFECTIVE GROSS INCOME (BGl). See also ABSORmoN rate: break-even’ point, occupancy level.

VACANT LAND land not currently being used. It may have utilities and off-site improvements. See also raw land. VA C AT E

Real estate: to move out. For example, atenant vacates an apartment

by terminating occupancy and removing all possession.s. The tenant is responsible for rent to the end of the lease term. Law: to avoid or annul, as to vacate an order.

VACATION HOME it dwelling used by the owner occasionally for

recreational or reson purposes. It may be rented to othens foi’ aportion of the year. Income tax deductions pertaining to vacation homes depend on the frequency of use by the owner. Generally, abusiness loss cannot be claimed on avacation home for income tax purposes. VACATION PAY any amount paid to employees while they are on vaca¬

tion. It includes amounts paid even if the employee chooses not to take avacation.

VALID having legally binding force; legally sufficient and authorized by law. See also null and void; voidable. VA L L E Y s e e t r o u g h .

VA LOAN home loan guaranteed by the U.S. Department of Veterans Affairs (VA) under the Servicemen's Readjustment Act of 1944 and later. The VA guarantees restitution to the lender in the event of

default. The amount of guarantee available has been raised on aregu¬ lar basis. The home must be the borrower's principal residence. VALUABLE CONSIDER.ATION type of promised payment upon

which apromisee can enforce aclaim against an unwilling promisor. It includes money, extension of time, and other equivalents for the grant, and is distinguished from good consideration, which may be love and affection toward arelative, generosity, and the like. VA L U AT I O N

I. estimated worth or price. 2. act of estimating the worth of athing. See also appraisal.

755

VA M O R T G A G E

VALUE wonli of ull ihe riyhls arising from ownership; quantity of one thing that will be given in exchange for another. Of course, acenain property may liave acertain value ii> its owner {value in use) equal to the

amount of other property (typically cash) that the owner would be will¬ ing to accept in exchange for the property witlioui feeling aloss in wealth or well-being. The same properly may have adifferent fair markkt VALUE (viiliie ill cMluiime) equal to the amount of other property when many typically motivated buyers and sellers arc allowed to interact.

\’ALUE ADDED the value of aprtxJucl or output less the costs of raw materials used in production. Biusically the amount of value increase

created by the manufaettiring process, that is, the application of capi¬ t a l a n d l a b o r.

VALUE-ADDED TAX (\'AT) tax imposed at each step in the produc¬ tion process, levied upon the difference between the purchase cost of

the asset to the taxpayer and the price at which it may be resold—the value added to it. The VAT is aprimary source of tax revenue in cer¬ tain European countries but has not been extensively used in the United States, although certain presidents have studied the matter. VA L U E

D AT I C

I. In banking,official date when money is transferred.that is,becomes gtx)d funds to the depositor. The value dale differs from the eniry dale when items arc received from Ihe depositor, since Ihe items

must then be forwarded to the pay ing hank or otherwise collected. 2. In Eurodollar and foreign currency irtinsaclions. synonymous with Stnn.l-MliNT

DAIIi

or

Dlil.lViJtV

U AT l . .

VALUE IN EXCHANGE amount of other goods and services for which aunit of aspecific gtxKl can be exchanged in amarket. The money price often is one measure of value in exchange. VA L U E I N U S E , \ e e v a u u . .

VALUE INVESTING in'cslment philosophy that focuses on buying stocks that are trading ;it bargain prices ba.sed on fu.sda.mestal ANALYSIS, then holding them until they become fully valued. Slocks with low PRtCE/iiARNINO RATIOS. Il>w PRiCTt/BtXlK RATIOS, or high DIVI¬ DEND STELD arc likely to attract value inve.slors. VALUE .lUDGMENT judgment reflecting values and opinions. Avalae judgment is abia.sed opinion.

VALUE LINK INVESTMENT SURVEY investment advisory service that ranks htmdreds of .stock for 'Timeliness" and safely. Using acom¬ puterized model based on acomptiny's earnings momentum, Value

Line projects which stixtks will have the best or worst relative price performance over the next 12 months. VA M O R T f J A G l i . v c i ' v i r r u K A N S a i t - a i r s , d e p a r t m e n t o t s

V

VA R I A R l . E

756

VARIABf-K data item that can change its value; also called afactor or an element. VA R l A B U i A N N U I T Y l i f e i n s u r a n c e a n n u i t y w h o s e v a l u e fl u c t u a t e s

with that of an underlying securities portfolio or other index of per¬ formance. The variable annuiiy contrasts with aconventional or 1‘ixi-D ANNUIT Y, whose rate of return is constant.

VARIABLE COST cost that changes directly with the amount of pro¬ duction, .such as direct material or direct labor needed to complete a product. See also fixed COST. VA R I A B L E C O S T I N G s e e d i r e c t c o s t i n g . VA R I A B L E C O S T S o r E X P E N S E S b u s i n e s s c o s t s t h a t i n c r e a s e w i t h

production or sales. Contrast n'iih nxilD costs. VARIABI-E INTEREST RATE timounl of compensation to alender

that is allowed to vary over the maturity of aloan. The amouni of vari¬ ation is generally governed by an tippropriate index. See also A D J U S TA B L E - R AT E M O RT G A G E ; F L O AT I N G - R AT E N O T E .

VARIABLE LIEE INSURANCE policy under which the face value (death henefii) can fluctuate. It increases or decreases in value, but

never below aguaranteed minimum, based on the investment perfor¬ mance of aseparate account in which the premiums are placed by the policyowner. For example, one account might be composed of equi¬ ties, another of bonds. As with conventional whole life insurance, pie-

miums are level and the policy has loan and surrender values. VARIABLE PRICING mtirketing slralegy that allows adifferent price to be chtifged to different customers or at different times. This type of pricing i.s common among airlines, hotels, street vendors, antique deal¬ ers, and other businesses but is not practical for most retailers.

VARIABLES SAMPLING sampling de.signed to predict the value of a given variable for apopulation. The variables under audit are typi¬ cally the lolat population or the arithmetic mean. An example is the CPA's estimation of the cost of agroup of inventory components. Conira.'n attribute sampling.

VA R I A N C E

Accounting: difference between actual cost and standard cost in the

categories of direct material, direct labor, and direct overhead. Finance: (! 1difference between corresponding items on acompara¬ tive balance sheet and profit and lo.ss statement; (2) difference between actual experience and budgeted or projected experience in any financial category.

Stalistics: measure of the dispetsion of adistribution. It is the sum of die squaicsof the deviations from the mean. See also sta.ndard deviation. Zoning: exempdon from the application of azoning ordinance or reg¬ ulation, permitting ause that varies from that otherwise permitted. The

757

V E R T I C A L A N A LY S I S

exception is granted by the appropriate authority in special circum¬ stances to proicel against undue hardship wrought by strict enforce¬ ment. Sec also noncosformi.sg use.

VARIETY STORE retail store carrying avariety of items in the low and jxipular price ranges, targeted for the family market. Variety stores Ciirry items such as apparel, women’s accessories, gift items, and stationery. VAT s e e v a u ' e - a d d e d t a x .

VAULT CASH cash that abank keeps on hand to meet its day-to-day transactions needs; it is iillowed to be included in the reserves required by the Federal Reserve. VEEI’.vee VICE-PREStDEST.

VELOCITY OF MONEY turnover of money, that is, the number of times adollar is spent in agiven period of time. The gross domestic

PROtti.cr is the product of total moni;y suppi.v and velocity. VENDEE buyer, especially in aCONikait for the sai.f. of real estati-:. VENDOR .seller, especially aperson who sells real estate; also sup¬ plier, retailor, or street peddler.

VENDOR’S LIEN collateral granted to the seller of property as security for aPROMISSORY note taken by the seller as part of the selling price.

VENTURE business undertaking emailing adegree of risk. Abusiness venture is an entrepreneurial activity in which capital is exposed to the risk of loss for the possibility of reaping aprofit reward. VKNTURE CAPITAL important source of financing for stakp-up comjtaitics or others embarking on new or Tt;RNAROUND ventures iliai

entail some investment risk hut offer the poiemial for above-average fill lire profits; also called risiircapital. Proniinetil among firms seeking

veiiiKte capital are those classified as emerging growth or high tech¬ nology companies.

VENTURE TEAM inanagemenl team assembled for the purpose of a new business operation. Aventure team supervises and manages a start-up business, attending to all the details from raising vesture CAPlTAt. 10 managing the initial operations. VERBATIMS research reports that are wonl-for-word duplications tif interviews, without editorial comment. VERTICAL ANALYSIS financial statement item that is used as abase

value. All other accounts on the finaneial statement are compared to it. In the balance sheet, for example, total assets equal 100%. Each asset is staled as apercentage of lota! assets. Similarly, total liabilities and stockholders' equity are assigned IIX)% with agiven liability or equity account stated as apercentage of the total liahilities and stockholders' equity. See aho horizontal analysis. ux)MMON size.

VERTICAL CONFLICT

758

VERTICAL CONFLICT conflict occurring between two or more different hierarchical members of achannel ol' distribution. For exam¬

ple. aretail distributor may refuse to carry

V

VOTING STOCK

762

VOTING STOCK shares in acorporation that entitle the shareholder to voting and proxy rights. V O T I N G T R U S T C E R T I F I C AT E t r a n s f e r a b l e c e r t i fi c a t e o f b k n e i - i -

CtAL INTEREST in avoting trust, alimited-life Irtisl set up to center con¬

trol of acorporation in the hands of afew individuals, called voting trustees. Tlie usual purpose for such an anangement is to facilitate reorganization of acorporation in financial difficulty by preventing interference with management. VOUCHER document that acknowledges aliability and provides autliorizalion to pay the debt. VOUCHER REGISTER book where vouchers are listed, generally chronologically and numerically. V-SHAPED RECOVERY sharp rebound in economic activity as mea¬

sured by aprecipitous decline and then surging recovery, as measured by the gross domestic product (gdp). See also u-shaped recovery. VULTURE FUND type of limited partnershii’ that invests in depressed property, usually real estate, aiming to profit when prices rebound.

763

WAGE PROTECTION LAWS

w WACC .W WiilGHTED AVERAGE COST OE CAPITAI-

WAGE iiciuiil remuneration paid to an employee for services rendered. Minimum wages are established by the federal I-AIR i.abor standards A C T.

WAGE AND SALARY ADMINISTRATION administrative procedure

of establishing and supervising wage levels and operations in an orga¬ nization. In most oiganizations, irage iiiul siilary admiiiiitraiion is performed in the personnel department, tilihough laiger organizations often have apayroll or wage and salary iidminislralion department. WAGE AND .SALARY SUR3'E\' survey conducted with other employ¬

ers in the same labor maihet to determine pay levels for specific job categories. Generally wage and salary siirt-eys are conducted in the surrounding community or metropolitan area for the purposes of comparability. WAGE ASSIGNMENT voluntary transfer of earned wages to athird

parly to pay debts, buy savings bonds, pay union dues, or contribute to apension fund.

WAGE BRACKET range of salaries for aparticular occupation. Hi/ge brackets are often set by seniority and experience levels. For example, grade 1may be for those having less than one year's experience, while grade 13 may be for those having 20 years' experience or more. See also WACiE SCALE.

WAGE CEILING highest pay possible w'ilhin aparticular wage bracket. Aii'rtgc ceiling is agreed upon as the upper range of awage bracket. WAGE CONTROL control establishing the extern to which wages can

he incroiisod. usually in percentage terms. VVogc controls usually occur during it period of govemmcnliil wage ;md price restraini.s. Wage con¬ trols are established to achieve aparticular national priority, often the restraining of inelation.

WAGE FLOOR minimum wage esliiblished either by law or by an agreed-upon wage bracket.

WAGE INCENTIVE method of motivating the worker to increase his productivity by paying increased wages for the higher output. See also P I E C E R AT E .

VS'AGE-I’RICK SPIRAL amacroeconomic situation in which rising

prices push wages higher; the rising wages then increase production costs that lead to further price incretises. etc. See also ineuxtion. WA G E P R O T E C T I O N L AW ' S s e e j u d g m i - . n i p k o o e .

WA G E - P U S H I N F L AT I O N

764

WAGE-PUSH INFLATION inflalionury situation in which increasing wages are not offset by increasing productivity. Thus costs rise and the result is higher prices for goods produced.

WAGE KATE established pay rate for aparticular job during agiven period of lime, usually on an hourly basis. Minimum wage rates are established by the federal fair i.AfiOR standards act.

WA(JE SCALE wage rate .structure for all employees in adepartment, division, or company. Wage sc ales are determined by the type of job. iLs duties and responsibilities, and the general labor market, and are distributed within the range of wage brackets. 5een/rw wage bracket.

WAGE STABILIZATION when wages cease to change rapidly; also a collection of policies intended to bring about an end to inflationary wage increases.

WAGNER ACT legislation of 1935 that significantly .strengthened labor’s bargaining power; also called national labor rf.i.atioss act.

The act created the national labor relations board (ni.rb). and pro¬ hibited ami-labor practices by management. In 1937. the Supreme Court declared the Wagner Act constitutional.

WAITING FOR THE OTHER SHOE TO DROP wailing for arelated announcement or event to occur after an initial announcement or situ¬

ation. When wailing far the other shoe to drop, one expects apending siluiilion to occur that is dependent upon an initial event; for example, wailing for apresidential nominee to indicate his vice-presidential preference.

WAIVER intentional and voluntary surrender of some known right, which generally may either result from an express agreement or be inferred from circumstances.

WAIVER OF PRE.MIUM clause in an insurance policy providing that all policy premiums will be waived if the policyholder becomes seri¬

ously ill or disabled, either permanently or temporarily, and therefore is unable to pay the premiums. Some policies include awaiver-ofpremium clause automatically, whereas in other cases it is an optional feature that requires ahigher premium.

WALKOUT sudden work stoppage by employees for the purpose of obtaining an improvement in working conditions. See also wii.dcat s t r i k e .

WALLFLOWER stock that has fallen out of favor with investors. Such stocks lend to have alow PRiCK-iiARNiNGS ratio.

WALLPAPER worthless SECURn ili.s. The implication of the term is that

certificates of stocks and bonds that have gone bankrupt or defaulted have no other use than as wallpaper. However, there may be some slight value in the worthless certificates themselves for eollcciors who

V

765

WA S H I L D U P

prize rare or hislnrically sigiiificani certificates. Also, in computers, a picture or other graphic design used as background for ilte DK-SKitH’ i n s t e a d o f a s o l i d c o l o r. ^ ^■A I . L

STREET

1 . c o m m o n n a m e f o r t h e fi n a n c i a l d i s t r i c t a t t h e l o w e r e n d o f

Manhattan in New York City, where the New York and American

slock exchanges and numerous brokerage firms are headquartered; also referred to as »/ic Sired.

2. investment community, such as in "Wall Street really likes the prospects for that company" or "Wall Street law finn," meaning a firm specializing in securities law and mergers. WARKIIOlJSKa structure designed for storage of commercial iiivcniory. WAREHOUSE CLUBS low-price retail outlets .selling annual member¬

ships to consumers and bu.sincsses. These stores arc normally estab¬ lished in warehouse-type buildings where merchandise is displayed without any frills. Perhaps the best known are SAM's Club, adivision of Wal-Mart Stores, Inc., and Costco.

WAREHOUSE RECEIPT document listing goods or commodities kept

for SAniKi-KPtNG in awarehouse. The receipt can be used to transfer ownership of that commodity, instead of having to deliver the physi¬ cal commtxiily.

^VARES goods, merchandise; manufactured goods of the same kind used in combination, such as glassware. WARRANT see .suH-scKirriON Ricitri.

WARRANTY guarantee given by aseller to abuyer that the gotxis or services purchased w-ill perform as promised, or arefund will be given, an exchange made, or arepair done at no charge. Warraiilkw usually become effective when the manufacturer receives awarranty application from the buyer (not at the date of purchase) and are effec¬ tive for alimited period of time. Warranties usually include limitations that exclude damage or defects not caused by the manufacturer. WARKANT\' DIcEl) Dt-t-t) conveying real estate ownership that war¬

rants that the grantor has the title he claims he has. It puiptoris to con¬ vey property free and clear of all ENCUMBRANCh-S. As aguarantee of title, the warranty deed creates liability in the grantor if the title trans¬ ferred is defective. Conirasi wiih qlttclaim oi-.rd.

WA R R . A N T Y o k h a b i t a b i l i t y i m p l i e d a s s u r a n c e g i v e n b y a

LANDi.ORi) that an apartment offered for rent is free from safety and health hazards.

WARRANTY OK MICRCHANTABILITY warranty that the goods

are reasonably 111 for the general purposes for which they are sold. W A S H E D U P . ( ( '

WASH SALE

766

WASH SALE asale or other disposition of stock or securities at aloss accompanied by apurchase of substantially identical stock or securi¬ ties during aperiod beginning 30 days before ihc dale of sale or other

disposition and ending 30 days after that dale —a total of 61 days. The taxpayer is denied atax deduction for any loss incurred on awash sale.

If the disposition during the 6!-day period is ul again, it is not awash sale, and the gain will be taxable. W A S T E

In general: unwanted result of aprocess, further called hazardous waste, nuclear waste, or solid waste.

Real estate: unauthorized use or neglect of property by aparty with the right to possession when asecond party owns an interest in the prop¬ erty. The second parly may be atenant, amortgagor, or alife tenant. WASTlNt;

ASSET

1. ftxed as.sei. other than land, that has alimited useful life and is

therefore subject to depreciation. 2. natural resource that diminishes in value because of extraction of

oil. ores, or gas, the removal of timber, or similar depletion.

W'ATCII LIST list of securities singled out for special surveillance by a brokerage firm or an exchange or other self-regulatory organization to spot irregularities. Firms on the watch list may be takeover candi¬ dates, companies about to issue new .securiiics. or others that seem to have attracted an unusually heavy volume of trading activity. WATER DAMAGE INSLILANCE protection in the event of accidental

discharge, leakage, or overflow of water from plumbing systems, heat¬ ing. air conditioning, and refrigerating systems, and rain or snow

through broken doors, open doors, windows, and skylights resulting in damage or de.siruclion of the properly scheduled in the policy. WATERED STOCK slock issue offered to public investors by founders and promoters of acompany at agreatly inflated price compared to book value or cost; stock acompany issues for property that is worth less than the stock. The term was possibly derived from the cattle

industry, where the animals were cncour:igcd to drink water before being weighed for sale. WATS, WATS LINE see wide area telephone .service.

WAYBILL paper prepared by acommon carrier at the start of aship¬ ment that details the route the goods will follow to their final destina¬

tion and Stales the transportation cost. The »mhill typically accompa¬ nies the shipment to its destination.

WEAK DOLLAR dollar that has fallen in value against foreign curren¬ cies. This means that those holding dollars will get fewer pounds, yen,

marks, francs, or other currencies in exchange for theirdoilars. Await dollar makes it easier for U.S. companies to export their goods to other countries because it cnhance.s foreigners' buying power. S .

WEIGHT

767

WEAKEST LINK THEORY sequence of cvcnls or objects dependent on the support of the whole. Tlic whole is only as reliable as the weak¬ est member or link.

WEAK MARKET market characterized by apreponderance of sellers over buyers and ageneral declining trend in prices. WEALTH the value of all assets owned net of all debt; see tilso nct

woR'i'il. Wealth is astock measure of material well-being, whereas I N C O M E i s a fl o w m e a s u r e .

WEALTH EFFECT an increase in spending that accompanies an increase in wealth, whether real or perceived.

WEAR AND TEAR physical deterioration of property as the result of use, weathering, and age.

WEAROUT FACTOR condition that may apply to the point at which an ADvtRnSRMENT or advertising campaign is no longer effective. The Keuroul factor depends on the frequency of communications, the tar¬

get market, the quality of the advertising copy, the novelty of the cam¬ paign, and the variety of messages used. Some ads or campaigns wear out in arelatively short time, whereas others last for years. WEB see world wide web. WEB .ADDRESS see URL.

WEB BROWSER computer software that allows the user to read in Mt. in files or on the world wide web. The two most popular Weh browsers are Microsoft Internet Explorer and Mozilla Firefox. WEBCAM camera attached to acomputer that distributes alive image to the Web.

WEBMASTER the person in charge of administrating aweb srrE. By convention, the Webmaster of Internet domain v,'ww.foo.com can be reached at the e-.mail address [email protected]. WEB PAGE an HTML document made available for viewing on the WORLD wide WEB and seen by the user as apage on the screen.

WEB SERVER acomputer that is connected to the Internet and contains WEB PAGES (HTML files) than can be viewed using aweb browser.

WEB SITE avirtual location managed by asingle entity that provides information such as text, graphics, and audio files to users, as well as connections (hyperie.xi links, hyperlinks, links) to other Web sites. Every Web site has ahome page, the initial document seen by users, which often provides atable of contents to other offerings available at the siie. W E I G H T

Advertising:

1. number of exposures of an advertising message.

WEIGHTED AVERAGE COST OF CAPITAL (WACO

768

1. number of gross rating points an adveriiser wants lo place in a market (ADI [area of dominant influence] or DMA [dtiinniiied market area]). 3. see MEDIA WEIGHT.

Paper stock: method by which agrade of paper is detennined. The weight of paper stock is caiciilaied by the ream (300 sheets) in terms of any one of three standard sizes: bond (writing) paper— 17" x22"; book paper—25" x38"; and cover stock—20" x26". Hence, 20-pound paper means that aream of bond paper measuring 17"x 22" weighs 20 pounds.

Physical; Although most of the rest of the world has converted to met¬ ric weights and metisures. the United Stales continues lo use the

English system, under which the weight of most objects is given in ounces, pounds, and tons avoirdupois. For gold, silver, and other pre¬ cious metals. TROY weight is used.

Print advertising: size as well as color, shape, and degree of black¬ ness of an element in an ad.

WEIGHTED AVERAGE COST OF CAPITAL (WACC) method of

deriving the average cost of aeoiporaiion's capital by weighting each component:

Source of Capital Rate

Percentage

Weighted

o f To t a !

Rail-

Common Stock Preferred Stock

.15

X

.50

.075

.12

X

.10

Debt

.08

X

.40

Less:

r=.33 X.08

.012 .0.32 -.0156

X

.40

To t a l

.1034

The WACC rate is iO.34%.

I=income tax savings from interest expense deduction.

WELFARE STATE country in which gtivcmmcnl provides many ser¬

vices to its population, particularly in the areas of medical care, mini¬ mum income guarantees, and retiremcnl pensions.

WELL-HEELED having plenty of money.

WELLNESS PROGRAMS employee-centered program.s I'caiuring pro¬ active personal fitness program.s, including physical examinations, substance abuse and group coun.seling, and individualized diet and exercise programs. Wellness programs have been el'feclivc in improv¬ ing employee productivity while reducing absenteeism and health care c o s t s .

WESTERN UNION company that dominates telegraph services in the United States.

WETLANDS land, such as swamps, marshes, and bogs, normiilly satu¬ rated with water. Development may be prohibited because it could

769

WHITE

ELEPHANT

dislurb ihc un\ironmem. The U.S. Army Corps of Engineers (COE) und ihe U.S. Environmental Proieciion Agency (EPA) have adopted a regulaion- definition for administering the Section 404 permit progratn ol' the Clean Water Act (CWA) as follows: “those areas that arc

inundated or saiunited by surface or groundwater at afrequency and duration .sufficient to support, and that under normal circumstances do support, aprevalence of vegetation typically adapted for life in .satu¬ rated soil conditions.”

W-4 lORM EMPLOYEES WI'I iUIOLDING ALLOWANCE CEK-

TIEICATK certificate used by new employees and existing employ¬ ees who wish to change Ihe number of personal exemptions claimed fur lax withholding purposes.

WHAT. HOW. AND FOR WHOM? Ihe central economic question of any economy: what to produce, how to prtxluce it, and for whom to produce it. W H AT I K s e e s e n s i t i v i t y a n a i . v. s i s ,

WHEEL OF RETAILING retail marketing process wliereby original low-price di.scounters upgrade their services and gradually increase

prices. As they evolve into full-line depamncni stores, acompetitive opportunity develops for new low-price discounters to develop, and the prublicalion of the National Quotation Bureau that details the bid and asked prices and firms that make amarket in

corporate bonds traded inihcovER-THE-couN7i;K (ore) market. Yellow sheets are to bonds what pink sheets are to unlisted slocks. YIELD

In general: return on an investor’s capital investment. Apiece of real estate may yield acertain return or abusiness deal may offer apartic¬ ular y/eW.

Agriculture: agricultural output in terms of i|uantiiy of acrop per acre.

!V

YIELD CURVE

780

Bonds: (I) coupon rate of inleresl divided by the purchase price, called currem yield; (2) rule of return on abond, taking into account

the total of annual interest payments, the purcha.se price, the redemp¬ tion value, and the amount of time remaining until maturity; called nuilurily yield or yield to moiiiriiy. See also yield to average life.

Lending: total money earned on aloan, that is, the annual percentage

rate of interest multiplied by the term of the loan. Stocks: pemeniage rate of return paid on acommon or prefetred stock in dividends. For example, astock that sells for S20 and pays an annual div¬ idend of 52 per share has ayield, also called adivideml yield, of 10%.

Taxes: amount of revenue received by agovernmental entity

as

a

result of atax.

YIELD CURVE graph showi:ig the term structure of interest rates by plotting the yields of all bonds of the same quality with maturities ranging from the shortest to the longest available. See also inverted YIELD curve; positive yield curve.

YIELD EQUIVALENCE rate of interest at which alax-cxernpc bond and ataxable security of similar quality provide the same after-tax return. To convert ataxable yield to atax-exempt yield, reduce the taxable yield by the investor’s marginal lax bracket. For example, a taxable yield of 7.5% is equivalent to atax-free yield of 5% for an invc.stor in the 33% marginal tax bracket.

YIELD .SPREAD difference in yield between various issues of securi-

tie.s. In comparing bonds, it usually refers to issues of different credit

qualities since issues of the same maturity and quality would normally have the same yields, as with U.S. Treasury securities, for example. YIELD TO AVERAGE LIKE yield calculation used, in lieu of yield

TO MAtURiTY or YIELD TO CALL, whcrc bonds are retired systemati¬ cally during the life of the issue, as in the case of asinking fund with contractual requirements.

YIELD TO CALL yield on abond assuming the bond will be redeemed by the issuer at the first call date specified in the indenture agreement. YIELD TO MATURITY (YTM) calculation of yield on abond, from the current date until it is scheduled to be retired, that takes into

account the capital gain on adiscount bond or capital loss on apre¬ mium bond- In the case of adiscount bond, YTM is higher than the current yield or the coupon yield. The reverse is true for apremium

bond with YTM lower than both current yield and coupon yield. YJC. (YUGEN-K.AJSHA) Japanese designation for acorporation. YOUTUBE popular video-sharing site where users can upload and watch video clips of all lype.s. Since 2006. YouTube has been owned

and maintained by Google. Although many videos are homemade, many contain copyrighted content, sometimes pirated hut increasingly posted by companies as online commercials.

781

ZIP+ 4

YO-YO STOCK stock that lluciuaies in avoLATll.F. manner, rising and

fulling quickly like ayo-yo. YUPPIE acronym for young urban professional. The term was popular¬ ized during the 1980s to describe young career people having rela¬ tively high incomes and education, seeking instant success and gratification.often beyond their financial means. ZERO-BASE BUDGKTINC (ZUB) method of setting budgets for cor¬

porations and government agencies that requires ajustification of all expenditures, not only those that exceed the prior year's allocations. Thus all budget lines arc said to begin at azero base and are funded according to merit.

ZERO COUPON BOND security that makes no periodic interest pay¬ ments but instead is sold at adeep discount from its face value. The buyer of such abond receives the rate of return by the gradual appre¬ ciation of the security, which is redeemable at face value on aspeci¬ fied maturity dale. See also CERTIFICATE of accrual os treasury SECURITIES (CAT.S); (XKIPON ROND; DEEP DISCOUNT BOND; ORIGINAl. ISSUE D I S C O U N T.

ZERO ECONOMIC GROWTH when national INCOME neither grows

nor falls. Afew groups advoc;iic zero economic growth as asolution to problems of pollution, resource depletion, and .so on. ZERO INVENTORY aterm used to describe ajust-IN-time inventory

CONTROL system where emphasis is placed on reducing inventory to minimal levels to reduce costs and promote organizational effective¬ ness.This can result in sizable prolil increases. Z E R O P O P U I - AT I O N G R O W T H ( Z l ' G ) f o r e c a s t o f n o f u n h e r

increase in the populalioti of the United Slates. Demographers study fertility rates to determine whether the United Slates will experience ZPG; economic and business implications arc significant. ZERO-SU.M GAME sum of the amounts won and lost by ail parties,

when tallied, is zero. Whatever is gained in azero-sum game is always achieved at the expense of the other participants. ZIP CODE five-digit numerical code defined by the U.S. Postal Service

to simplify and expedite mail distribution. The United States is

divided into 10 large geographical areas, with Ihe first ZIP code digit 0in the northeast and 9in the west. The second and third digits are used to divide slates; the fourth and fifth digits represent local deliv¬ ery areas.

ZIP +4four additional digits added to the five-digit ZIP codes to improve efficiency for business mailers. The first two numbers repre¬ sent asector such as acertain group of streets, the last two are a smaller unil such as one lloor in an office building. The use of ZIP -t4is voluntary.

V

ZOMBIES

782

ZOMBIES companies ihat continue to operate even though they are insolvent and bankrupt.

ZONE OF EMPIX)YMfINT physical area within which injuries to an employee are compensable by workers' compensation laws. It denotes the place of employment and surrounding areas, including the means of entrance and exit, that are under control of the employer. ZONING legisladve action, usually on the municipal level, ihat divides municipalitie.s into districts for the purpose of regulating the use of pri¬ vate property and the construction of buildings within the established zones. Zoning is part of the state police power, and therefore must be

for the furthering of the health, morals, safety, or general welfare of the community.

ZONING MAP map of the local Jurisdiction that indicates current zontNO designations.

ZONING ORDINANCE act of city or county or other authorities spec¬

ifying the type of use to which property may be put in specific areas. Atypical zoning ordinance defines: (1) the purpose for which the ordinance is adopted; (21 the various zoning classifications and per¬ mitted uses within each; (3) restrictions, such as height limitations; (4) the procedure for handling nonconforming uses; (5) the procedure for granting amendments, variances, and hearing appeals; (6) penalties for violation of the ordinance. See also zoning.

Z S C O R E 1.

in STATISTICS, the standard normal variate that standardizes anor¬

mal distribution by converting an x-scale to die z-scale. 2.

score produced by Altman’s bankruptcy prediction model, which is as follows:

Z=

+ 1.4*X2 +3.3‘X3-(-0.6*X4-p0.999»Xs

where X, =working capital/total assets, Xj =retained earnings/ total assets, X3 =earnings before interest and taxes/total assets, X4 =market value of equity/book value of debt, and X5 = sales/tolal assets. The Zscore is known to be about 90 percent accurate in forecasting business failure one year in the future and

about 80 percent accurate in forecasting it two years in the future.

APPENDIX

783

Appendix A B B R E V I AT I O N S A N D A C R O N Y M S

A

AAA American Automobile Association AAlI American Association of Individual Investors ABA American Bankers Association; American Bar Association A B O a c c u m u l a t e d b e n e fi t

obligation AHS asset-based securities ABV Accredited in Business Va l u u l i u n

ACE Active Corps of Executives ACEE Association of Certified fraud Examiners

ACI Advertising Council, Inc.. T h e

ACR.S accelerated cost recovery system ADA Americans with Disabilities Act

AMA American Maiiugemcnl Association AMEX American Slock

Exchange AMI altcmaiivc mortgage instrument

AML adjustable mortgage loan A M V l A m e x M a r k e t Va l u e Index

AMW average monthly wage ANOVA analysis of variance ANSI American National Standards Institute AOL America Online

APB Accounting Principles Board

APBO accumulated

posiretirement benefit obligation

API, aprogramming language APR annual percentage rate ARM adjustable-rate mortgage

ADEA Age Discrimination in

ASA American Society of

Employment Act of 1967

Appraisers ASAP as soon as possible

ADI area of dominant influence

ADP automated data processing ADR alternate dispute resolution;

ASCII American standard code

American Depositary Receipt;

for information interchange ASO administrative services only

asset depreciation range

ASP application service provider

AEA American Economic.s Association

AT M a u t o m a t e d t e l l e r m a c h i n e AV M a u t o m a t e d v a l u a t i o n m o d e l

AEI.-CIO American Federation of Labor-Congress of Industrial Organizations AFY additional first-year depreciation AGI adjusted gross income AI artificial intelligence also Appraisal Institute A I C PA A m e r i c a n I n s t i t u t e o f C e r t i fi e d P u b l i c A c c o u i i l a i i l s

ALGOL algorithmic language

B

BASIC Beginner’s All-Purpose

Symbolic Instruction Code BBA Bachelor of Business Administration

BBB Better Business Bureau

BBS bulletin board system be blind copy l)cc blind carbon copy BEA Bureau of Economic

Analysis

\ .

APPENDIX

784

BFOQ bona fide occupaiionai qualiflcation

CCH Commerce Clearing House CCR conditions, covenanis. and

BFP bona Tide purchaser

restrictions

BLS Bureau of Labor Statisdes BMIR bciow-markei interesi rate

CD certificate of deposit;

BOP businessowners poliey BOV broker’s opinion of value BOY beginning of year BPPCF business and personal

CD-ROM compact disk read¬

property coverage form

bps bits per second

compact disc only memory CEA Council of Economic Advisers

CEBS certified employee benefit speeialists

BRIC Brazil. Russia. India.

CED Committee for Economic

China B2B business to business B2C business to consumer

C E O c h i e f e x e c u t i v e o f fi c e r

C

CAD computer-assisted design C&F cost and freight CAE computer-assisted education; computer-assisted engineering

CAFR Comprehensive Annual Financial Report CAGR compound annual growth rate

Development CERCLA Comprehensive Environmental Response, Compensation, and Liability A c t

CES Current Employment Statistics

CETA Comprehensive Employment and Training Act of 1975

CFA Chartered Financial Analyst C F C c h a r t e r e d fi n a n c i a l consultant

CAI computer-assisted

CFE Certified Fraud Examiner

insirviction C A M c c i t i fi e d a d m i n i s t r a t i v e

C F O c h i e f fi n a n c i a l o f fi c e r

CFPcortitled financial planner

manager; computer-aided manufacturing

CITC Commodities Futures

CapEx capital expenditure CAP.M capital asset pricing

CCLcomprehensive general

model

CAR computer-assisted retrieval CAT computer-assisted tran.scripiion CATS certificate of accrual on

Treasury securities; Computer Assisted Trading System CATV community antenna telcvUion (cable TV) CBD central business district

CBOE Chicago Board of Options Exchange CBSA Core Based Statistical Area

cc carbon copy

Trading Commission liability (insurance) ChFC Chartered Financial Consutiani

CIF cost, insurance, and freight CIM computer-integrated manufacturing CLO computerized loan origination CI.IJ Chartered Life Underwriter

CME Chicago Mercantile Exchange

CMO collateralized mortgage obligation

CMSA consolidated metropolitan statistical area

APPENDIX

785 COBOL common

businessoricnicd language COBRA Consolidated Omnibus

Budget Reconciliation Act

DES Data Encryption Standard DFOR deductions for adjusted gross income DFROM deductions from

COD cash on delivery;

adjusted gross income

canecllaiion of debt CODA cash or deferred

DIF data interchange format

arriingemeni

COLA cost-of-living adjustment COMECON Council for Mutual Economic Assi.stiincc COMEX securities and

commodities exchanges CONUS contiguous United

DINKS dual-income, no kids DISC domestic internationa!

sales corporation DJIA Dow Jones Industrial Average DK

don’t

know

DMA Direct Marketing Association

also designated market area

Slates

COO chief operating officer CP/M control program for microcomputer CPA certified public accountant

CPCU chanered property and casually underwriter CPI consumer price index

cps characters per second CPS certified professional secretary

DOC drive other car insurance

DOS disk-operating system dpi dots per inch DR debit

DSL digital subscriber line DSS decision support system DST Daylight .Saving Time D'I'C depository trust company

DTP desktop publishing DUS dollar unit sampling

CPSC Consumer Products Safety E

Commission

CPU central processing unit CRC camera-ready copy CR credit

agent; environmental a s s e s s m e n t

CRM customer relationship management CSI Commissioners Standard

Industrial Mortality Table CSO Commissioners Standard

Ordinary Mortality Table CST Central Standard Time CUSIP Committee on Uniform S e c u r i t i e s I d e n i i fi e a i i o n Procedures

e WA C l e a n Wa t e r A c t I)

D&B Dun&RradsIrcel

DBA doing business as DCF discounted cash flow

DCR debt (service) coverage ratio

EA enrolled actuary, enrolled

EAI enterprise application integration

EAP employee assistance program

EBIT Earnings Before Interest a n d Ta x e s

EBITDA Earnings Before

Interest. Taxes. Depreciation, and Amortization

ECB Eoropean Central Bank E-COM electronic computer-

originated mail ECI Employment Cost Index ECN electronic communication network

E C PA E l e c t r o n i c

Communications Privacy Act

V

APPENDIX

ECU European currency unii EDGAR Electronic Data

Gathering, Analysis, and

786

EXIMBANK export-import bank

EZ Empowerment Zone

Retrieval

EDI electronic data interchange EDP electronic data processing EEC European Economic Community EEOC Equal Employment Opportunity Commission EESA Emergency Economic Stabilization Act of 2008

EFS electronic Eling system EFT electronic fund transfer

EGl effective gross income EIN employer identification number

EIS environmental impact statement; executive information service EITC earned income tax credit

EMS European monetary

F

FA A F e d e r a l Av i a t i o n Administration FAIR fair access to insurance

requirements

FAQ frequently asked qtiestion(s) FAS free alongside ship FASB Financial Accounting Standards Board

FAVR fixed and variable rate allowances

FCBA Fair Credit Billing Act FCC Federal Communications Commission

FCIC Federal Crisis Inquiry Commission

FD.A Food and Drug Administration

system EOM end of month

FDIC Federal Deposit In.surance

EOQ economic order quantity EOY end of year

Fed Federal Reserve Sy.stem FERC Federal Energy

E PA E n v i r o n m e n t a l P r o t e c t i o n

Regulatory Commission FF&E furniture, fixtures, and equipment

Agency

EPS earnings per share ERA Equal Rights Amendment

ERISA Employee Retirement Income Security Act ERO electronic return originator ERP enterprise resource planning

ERTA Economic Recovery Tax Act of 1981

ESA Education Savings Account also Economics and Statistics Administration

ESOP employee stock ownership plan

Esq. Esquire EST Eastern Standard Time E T I N E l e c t r o n i c Tr a n s m i l l c r I d e n t i fi c a t i o n N u m b e r

EU European Union

Corporation

FFO funds from operation FHA Federal Housing Administration

FHFA Federal Housing Finance Agency FHLMC Federal Home Loan

Mortgage Corporation FICA Federal Insurance Contributions Act FIFO first in, first out

FINRA Financial Industry Regulatory .Authority FIRPT.A Foreign Investment in Real Property Tax Act of 1980 FIRREA Financia! institutions

Reform, Recovery and Enforcement Act

FLP family limited partnership

APPENDIX

787

FLSA Fair Labor Standards Act FmHA

Fanner’s

Home

Administration

F.MJ^A Family and Medical l^ave

GIM gross income muliiplier GIS geographic informaiion systems GNMA Government National

Mortgage Association

Act

FMRR financial management

GNP gross national product

rate of return FM V f a i r m a r k e t v a l u e FNMA Federal National

GOB going-out-of-business sale GPM graduated-payment

Moilgiige Association FOR free on hoard FOIA Freedom of Information

mortgage

GI’O Govcrimient Printing Office

GI’R guaranteed premium reduction insurance

GRAT grantor-retained annuity

A c t

K O K fi l l - o r - k i l l o r d e r

KOMC Federal Open Market Committee

trust

GRIT grantor-retained interest t r u s t

4GI-S fourth-generation

GRM gross rent multiplier GRP gross rating point

languages FPC Federal Power Commission

GRL'T granlor-rviained unitrust

FPM flexible-payment mortgage FRB I'ederal Reserve Board

GSA General Services Administration

FSA Fellow, Society of Actuaries

GSE government-sponsored

KSC foreign sales corporation

enterprise GTC good-till-eaneeled order

FSLK? F'cdcnil Savings and Loan Insurance Corporation

GUI graphical user interface

F T C F e d e r a l Tr a d e C o m m i s s i o n FTP File Transfer Protocol F T S F e d e r a l Te l e c o m m u n i c a t i o n

HCFA Health Care Financing

System FU’TA Federal Unemployment

HI)

H

Administration harddisk

HDD hard disk drive

Ta x A c t

FYl for your information G

GAAP generally accepted accounting principles GAO General Accounting Office also Government

Accountability Office ATT Gciieriil Agreement on

H J PA A H e a l t h I n s u r a n c e

Portabiliiv and Aceouniability Act

of

19%

HMO health maintenance

organization HOW Homeowner Watraniy Plan HPI home price index HRM human resource

GAVV guaranteed atiiiual wage

managemetu HSA health savings account HSIA high-speed Internet access

GDP gross domestic product

HTML Hypertext Markup

Ta r i f f s a n d T r a d e

GD.S genera! depreciation system

Language-

GEM growing-equity mortgage

http Hypertext Transfer Protocol

GIC guaranteed income contract GlFGraphics Interchange Format GIGO garbage in. garbage out

HUD Housing and Urban

Development (Department oO

A P P E N D I X

788 1

lASB International Accounting Standards Board

I/O input/output

IBM-PC IBM personal computer IBNR incurred but not reported IBRD Inlemalional Bank for Reconstruction and

Development ICC Interstate Commerce Commission

LCD liquid crystal display LCL less than carload

LDC less developed country LEXIS Legal Exchange Information Service LIBOR London inlerbank offered rule

Lie Life Insurers Conference LIFFE London International

Financial Futures Exchange LIFO last in, first out

IDA International Development Association

LLC limited liability company LIMRA Life Insurance

IDB industrial development bond IDC intangible drilling and development costs IFPS integrated financial planning system

Marketing and Research Association LOI letter of intent

l.OMA Life Office Management Association

IFRS Intemiitional Financial

l,,P linear programming

Reporting Standards IMF International Monetary Fund

LTC long-term care

IPO initial public offering

LTL less than truckload LT V l o a n - t o - v a l u e r a t i o L U PA C L i f e U n d e r w r i t e r Political Action Committee

IRA individual retirement

LUTC Life Underwriting

IMM Incemationai Monetary Market

Training Council

a c c o u n t

IRR internal rale of return IRS Internal Revenue Service

ISDN Integrated Services Digital Network

M M A C R S m o d i fi e d a c c e l e r a t e d cost recovery system

ISO Insurance Service OfTice; incentive stock option

MAGI modified adjusted gross

ISP Internet service provider

M&IE meals and incidental

J JEC Joint Economic Committee

MBA Master of Business

of Congress JIT just-in-time inventory control

MBO management by objectives

income

expense

JPEG Joint Photographic Experts

Administration degree MBWA management by walking around

MFD multifunction device

Group

JTPA Job Training Partnership A c t

I, L/C letter of credit

LAN local area network

LASH Lighter Aboard Ship LBO leveraged buyout

MFP multifunction product MGIC Mortgage Guarantee Insurance Company MIME Multipurpose Internet Mail Extensions

MIS management information system

MLM multilevel marketing

APPENDIX

789

MLP master limited partnership MLS multiple listing service

NLA net leasable area

MNC multinational corporation MO modus operandi M.O. money order

NLRA National Labor Relations

MPC marginal propensity to

NLQ near letter quality Association

NI.KR National Labor Relations Board

MPr modem portfolio theory

NOI net operating income NOL net operating loss NOW negotiable order of

MRP material requirements planning

NPV net present value

c o n s u m e

MI'S marginal propensity to save

MS-DOS Microsoft disk

operating system

MSA Metropolitan Statistical

withdrawal NR not rated NSF not sufficient funds

NYSE New York Stock Exchange

Area

MSRP manufacturer's suggested retiiil price M S T M o u n t a i n S t a n d a r d Ti m e ; M u l t U l a l e Ta x C o m m i s s i o n MTM meihods-timc

O

O A G O f fi c i a l A i r l i n e G u i d e OAR overall rate of return

OASf old-age and survivors insurance OB or better

m e a s u r e m e n t

MUD municipal utility district N

NAA National Apartment Association NAARS nation.il automated

accounting research system N A C VA N a t i o n a l A s s o c i a t i o n o f

Certified Valuation Analysts N A F TA N o r t h A m e r i c a n F r e e

Trade Agreement NAHB National Assc«ialion of Homebuilders NAIC National Association of Insurance Commissioners

NAICS North American industry Classification System NAR National Association of Realtors

NASD Nalioiuil Association of Securities Dealers

NASDAQ N.itional Association of Securities Dealers

Automated Quotations NAV net asset value

NDA nondisclosure agreement NDPnct domestic prtxiticl

OBRA Omnibus Budget Reconciliation Act

OCONUS ouLside contiguous United States

OCR optical character recognition OECD Organization for Economic Cooperation and Development OEM original equipment manufacturer

OID original issue discount OILSR Office of Interstate Land

Sales Registration O.IT on-lhe-job training OLE object linking and embedding OMB Office of Management and Budget OPEC Organization of Petroleum Exporting Countries OPIC Overseas Private

Investment Corporation

0PM option pricing model, other people's money OR operations research

V

A P P E N D I X

790

ORE, OREO other real estate, other real estate owned

OSHA Occupational Safety and Health Administration

OTB opcn-io-buy OTC over the counter

OTS Office of Thrift Supervision

PITI principal, interest, taxes, and insurance payment PM push money PMA primary market area PMI private mortgage insurance

PM.SA primary meiropolilan statistical area

PnPPlug and Play P

P-AC political action committee

PAL passive activity loss PAP personal automobile policy P&I principal and interest payment

P&L profit and loss statement PBGC Pension Benelii Guaranty Corporation

PBX private branch exchange PC personal computer; politically correct; professional corporation

PC-DOS personal computer disk operating system

PDA personal digital assistant (computer); Pregnancy Discrimination Act PDF Portable Document Format

POA power of anomey POM production and operations management

POS point-of-sale (system) PPl producer price index ppm pages per minute

PPM parts per million PPO preferred-provider organization PPP Poinl-to-Point Protocol

PR public relations PR&D product research and development

PS postscript PSA public-service announcement PST Pacific Standard Time

l*l!D planned unit development PV present value

PE price-eamings ratio

PEFCO Private Export Funding Corporation

PEO Professional Employer

Q

QC quality control Q-TIP qualified terminable interest trust

Organization PEP pension equity plan PERT program evaluation and review technique

Q’TP Qualified Tuition FTogram QWL quality of work life

PF programmable function key PFS Personal Financial Specialist PGI potential gross income PHC personal holding company

R&D research and development RAM random-access memory; reverse annuity mortgage RAN revenue anticipation note

PIA primary insurance amount PIG passive income generator PIK payment in kind PIM personal information manager (software) PIN personal identification number

PIRG public inieresl research group

R

REIT real estate investment trust

REMIC real estate mortgage investment conduit REO real estate owned

REPO; RP repurchase agreement

RESPA Real ^tale Settlement Procedures Act

RFP request for proposals RGB rcd-green-blue

791

A P P E N D I X

UlC regulated invcstmenl company

RICO Rackcicer-Intluenced and

Corrupi Organizations Act ROG receipt of goods ROI return on investincm

SG&A selling, general, and administrative expenses SiBOR Singapore Interbank O ff e r e d R a t e SIC standard industrial classirication

ROM read-only memory ROP run of paper ROR release on recognizance

SIMKX Singapore International Monetaiy Exchange

ROS run of schedule

Pnticclion Corporation SKU stockkeeping unit SLIP specialized lines of industry practice SLMA Student Loan Marketing

RI’G role-playing game. Report Program Generator RR registered representative

RSS really simple syndication, rich site .summary RT C R e s o l u t i o n Tr u s t

SIPC Securilics Investor

Association

SMA separately managed account

SMP special mullipcril policy

Corporation R T F R i c h Te s t F o r m a t

SMSA standard metropolitan statistical area

S

SNA Systems Network

S&P Standard &Poor's

Architecture S O H O s m a l l o f fi c e / l i o m e o f fi c e

SAAR sea.sonully adjusted annual

SOL statute of limitation, [sorely!

S&L savings and loan association

r a t e

SAM shared-appreciation mortgage

SarhOx Sarbanes-Oxley Aei of 2002

SARSEP salary reduction SEP SBA Small Busines.s

Administration SBIC small business investment company

SCLP simplified commercial lines portfolio (insurance policy) SCM supply chain management SCORE Serviee Corps of Retired

out of luck

SOP standard operating procedure SPC statistical process control SPDR

Standard

&Poor’s

Depositary Receipt SPE special-purpose entity SQC statistical ijualiiy control SWIFT Society for Worldwide Interbank Financial Te l e c o m m u n i c a t i o n s

SWOT strengths, weaknesses, opportunities, threats SYI> sum-of-lhc-ycars' digits

Exeeutive.s

T

SDC state distribution center

T&E travel and entertainment

SDR special drawing rights SEC Securities and Exchange

TAB tax anticipation hill

Commission

SKCA Self-Employment Comrihutions Act

SFIM shared-equity mortgage

SEP simplified employee pension

TA L E t e r m a s s e t - b a c k e d

securities loan facility TAN tax anticipation note TAO Taxpayer Assistance Order TA R P Tr o u b l e d A s s e t s R e l i e f

Program

V

APPENDIX

792

TCE Tax Counseling for the

U S PA P U n i f o r m S t a n d a r d s o f

Elderly

Professional Appraisal Practice

T C P / I P Tr a n s m i s s i o n C o n t r o l Proiocol/lntemei Protocol

TCMP Taxpayer Compliance Measurement Program T.D, Treasury Decision TDA tax-deferred annuity TOR transfer development rights TETRATax Equity and Fiscal Responsibility Act of 1982 TIC tenancy in common

TIN taxpayer identification

USPIRG U.S. Public Interest

Research Group V

VA Ve t e r a n s A d m i n i s t r a t i o n VAT value-added tax

VEBA Voluntary Employees Beneficiaty Association V I TA Vo l u n t e e r I n c o m e Ta x Assistance VoIP Voice over Internet Protocol

\T vice-president VRM variable-rate mortgage

number

TIPS Treasury inflation-protected securities

W

WACC weighted average cost of

TIs tenant improvements TL truckload

capital

TQM total quality management TSE Tokyo Slock Exchange; Toronto Slock Exchange U

Retraining Notification Act service

l a x

IJDDI Universal Description, Discovery, and Integration Uniform

WARN Worker Adjustment and WATS wide area telephone

UHI unrelated business income UBIT unrelated business income

U D I T PA

WAN wide area network

Division

of

Income for Tax Purposes Act UCC Uniform Commercial Code

WCB will call back

WPI wholesale price index wpm words per minute wrt with regard to WT

warrant

^VTO World Trade Organization WWW World Wide Web W T S I W Y G W h a t Yo u S e e I s W h a t Yo u G e t

UGMA Uniform Gifts to Minors Act

W Y S I W Y P W h a t Yo u S e e I s What You Print

LIT unit investment trust UMLER

Universal

Machine

Language Equipment Register UPC Universal Product Code UPS United Parcel Service URAR Uniform Residential

Appraisal Report URI. uniform resource locator;

X

XC Xerox copy Y

YTD year-to-date VTM yield to maturity Y'2K Year 2000

universal resource locator

USB Universal Serial Bus U S I T C U . S . I n t e r n a t i o n a l Tr a d e Commission

Z

ZBB zero-base budgeting ZPG zero population growth