CA Foundation Business & Commercial Knowledge Study Material Chapter 6 Common Business Terminologies – Test Questions

CA Foundation Business & Commercial Knowledge Study Material Chapter 6 Common Business Terminologies – Test Questions

1. A stock that provides regular dividends even during economic downturn is called
(a) Listed
(b) Crow Stock
(c) Income Stock
(d) Defensive Stock

2. Carrying forward a transaction from one settlement period to the next is known as
(a) Basket Trading
(b) Margin Trading
(c) Badla
(d) Option deal

3. Call is the opposite of
(a) Equity
(b) Bid
(c) Ask/offer
(d) Equity

4. A speculator who buys securities in anticipation of increase in prices is called
(a) Stag
(b) Bull
(c) Bear
(d) None of them

5. A bear market means
(a) A market wherein share prices are falling consistently
(b) A market wherein share prices are rising consistently
(c) A market wherein share prices are stable
(d) None of the above

6. Simultaneous purchase and sale of the same stock in two different markets is known as
(a) Basket trading
(b) Badla
(c) Arbitrage
(d) Margin Trading

7. Buying or selling all 30 scrips of sensex in pro-portion of their current weights in the sensex in one go is called
(a) Basket trading
(b) Arbitrage
(c) Badla
(d) Margin Trading

8. The relationship between the price of a share and the sensex is measurably
(a) Alfa
(b) Beta
(c) Book value
(d) Annuity

9. Combination of two or more firms into one firm is called
(a) Consolidation
(b) Yield
(c) Option
(d) None of the above

10. An option to buy a particular share at a specified price within a specified future period is known as
(a) Put option
(b) Bid
(c) Offer
(d) Case option

11. The value of a share printed on the share certificate is called
(a) Face value
(b) Market Value
(c) Future value
(d) Current value

12. Sensex is made up of how many scrips
(a) 50
(b) 30
(c) 40
(d) 20

13. Nifty consists of how many scrips
(a) 20
(b) 30
(c) 40
(d) 50

14. When a company makes first issue of shares to the general public it is called
(a) ADR
(b) GDR
(c) CD
(d) IPO

15. A textile firm enters into cement manufacturing business. It is an example of:
(a) Consolidation
(b) Diversification
(c) Liquidation
(d) Turnaround

16. The strategy used to minimize the risk and maxi-mize the return on an investment is called
(a) Hedge
(b) Index
(c) Bid
(d) Offer

17. The statistical measure of changes in prices on a stock exchange is:
(a) Dividend
(b) Index
(c) Beta
(d) Bid

18. A security whose price is derived from one or more underlying assets is a
(a) Blue Chip
(b) Derivative
(c) Hedge
(d) Index

19. Piecemeal sale of the assets of a division of the company is called
(a) Modernization
(b) Diversification

20. Total share holding of an investor is known as his/her
(a) Mutual Fund
(b) Holding Period
(c) Pastfolio
(d) Limit order

21. Dividing a share with a face value of Rs. 100 each into 10 shares with a face value of Rs. 10 each is an example of
(a) Sheet selling
(b) Liquidation
(c) Diversification
(d) Stock split

22. Paid form of non-personal promotional of ideas, goods and services by an identified sponsor is called :
(a) Adventuring
(b) Sales promotion
(c) Personal Selling
(d) None of the above

23. The process of comparing the products and services with those of best in the industry to improve quality and performance is known as
(a) Advertising
(b) After-sale-Device
(c) Benchmarking
(d) None of the above

24. Commitment of customers to a particular brand is called
(a) Brand Equity
(b) Brand recognition
(c) Brand loyalty
(d) Benchmarking

25. A combination of several firms working together to build or buy something is known as:
(a) Business Modal
(b) Business Portfolio
(c) Combination
(d) Consortium

26. The values, beliefs and traditions shared by the members of a company is called
(a) Corporate culture
(b) Consortium
(c) Cross selling
(d) None of the above

27. Giving unique identity to a product to differentiate it from rival products means
(a) Direct marketing
(b) Differentiation
(c) Diversification
(d) None of the above

28. It is the process of eliciting support for a company and its activities from its employees. Name it
(a) Internal Marketing
(b) Direct Marketing
(c) Internet Marketing
(d) None of the above

29. A company created jointly by two or more companies for mutual advantage is called
(a) Consolidation
(b) Merger
(c) Joint Venture
(d) None of the above

30. Dividing the total market into several groups on the basis of consumer characteristics is known as:
(a) Market segmentation
(b) Market Development
(c) Market Research
(d) None of the above.

31. Offering existing products or their new version to a new customer group is called
(a) Market entity
(b) Market Positioning
(c) Market Development
(d) None of the above

32. Selecting the most attractive market segment for a particular product or product line is known as
(a) Market Positioning
(b) Market Entry
(c) Target Marketing
(d) None of the above

33. It is the exploitation of small market segments, name it
(a) Direct Marketing
(b) Niche Marketing
(c) Mass Marketing
(d) None of the above

34. A product’s customer benefit that no other product can claim is known as
(a) Opportunity
(b) Publicity
(c) Unique Selling Proposition
(d) None of the above.

35. The rate at which the Reserve Bank of India lends, money to commercial banks for long period is called
(a) Repo Rate
(b) Goring Rate
(c) Bank Rate
(d) None of the above

36. The money deposit made by the buyer to the seller of real estate during negotiation stage is known as
(a) Earnest Money Deposit
(b) Fixed Deposit
(c) Current Deposit
(d) None of the above

37. The document issued by a bank on behalf of the importer promise to pay money for imported goods is called
(a) Letter of credit
(b) Debt Card
(c) Bank Draft
(d) None of the above

38. The rate of interest offered by the Reserve Bank of India on deposit of surplus funds by commercial banks is known as
(a) Bank Rate
(b) Repo Rate
(c) Reverse Repo rate
(d) None of the above

39. Jan Dhan Account is an example of
(a) Current Account
(b) Fixed Deposit Account
(c) Zero Balance Account
(d) None of the above

40. The rate of interest at which banks borrow money for short periods from the Reserve Bank of India is called.
(a) Bank Rate
(b) Repo Rate
(c) Reserve Repo Rate
(d) None of the above

41. Profits, people and planet together constitute a company’s
(a) Vision
(b) Mission
(c) Triple Bottom Line
(d) None of the above

42. Integration of national economies into a world economy is called:
(a) Globalisation
(b) Privatization
(c) Liberalization
(d) None of the above

43. Molasses in sugar industry is an example of
(a) Joint product
(b) Unique product
(c) Byproduct
(d) None of the above

44. Sale of public enterprises to private sector is called
(a) Globalisation
(b) Privatization
(c) Liberalization
(d) None of the above

45. Financial recovery of a loss making company is known as
(a) Turn around
(b) Privatization
(c) Liberalization
(d) None of the above

46. The roadmap of a company future is
(a) Mission
(b) Vision
(c) Business Module
(d) None of the above

47. The statement that defines what a company is and what it does is called
(a) Mission
(b) Vision
(c) Business Module
(d) None of the above

48. Activities involved in physical involvement of goods from the factory to market etc. is called
(a) Logistics
(b) Merger
(c) Mission
(d) None of the above

CA Foundation Business & Commercial Knowledge Study Material – Other Business Terminology

CA Foundation Business & Commercial Knowledge Study Material – Other Business Terminology

Other Business Terminology

  • Acquisition: Takeover of one firm by another.
  • Administration: The process of determining and executing the policies and programmes of an organisation.
  • Allowance: A fixed sum allowed by an employer to an employee e.g. house rent allowance.
  • Bankruptcy: A situation when a firm’s assets are insufficient to pay its liabilities.
  • Bottom line: Net profits.
  • Business environment: All forces and factors external to the firm but influence its working and performance.
  • Business facilitators: The individuals, organisations/institutions and arrangement that ease the setting up, operating and exit of business firms.
  • By products: Products recovered from material discarded in a main process e.g. molasses in sugar industry.
  • Corporate: A business entity distinct from its members e.g. a company.
  • Corporate governance: The system that ensures that a company’s operations are conducted in an ethical manner and as per the law. It consists of board of directors, independent audit and financial reporting.
  • Drawings: Cash or goods taken by the owner of the firm for personal/family use.
  • Electronic commerce: Commercial transactions conduced over the Internet.
  • Electronic filing: Fifing documents online e.g. fifing tax returns online.
  • Franchise: The license given by one company to another to use the former name and sell its product/ service in a specified territory in exchange for payment of fee.
  • Globalisation: The process of removing barriers to flow of goods, services, labour, capital and technology from one country to another leading to the emergence of a global economy.
  • Goodwill: Money Value of a company’s reputation.
  • Infrastructure: The basic facilities necessary for the operation of a society and business firms. It consists of buildings, roads, railways, posts, power supply, etc.
  • Joint sector: Business enterprises owned jointly by Government and private sector.
  • Joint products: Two or more products separated in the same processing operation which usually require further processing. For example, gasoline, lubricant, paraffin and kerosene are joint products, all produced from crude oil.
  • Liberalisation: Systematic removal of restrictions on private business operations.
  • Logistics: Movement of supplies to the production facilities (inbound logistics) and movement of products from centres of production to markets (outbound logistics).
  • Merger: Combination of two or more independent firms into a single firm.
    Mission Statement: A statement that defines the business scope (who we are and what we do) of an organisation.
  • Multinational: A company which has business operations in a country otherwise the country of its incorporation.
  • Patent: An exclusive legal right to the inventor for use of the invention.
  • Pestle: Political (P), Economic (E), Social (S), Technological (T), Legal (L) and Ecological (E) Environment.
  • Privatisation: Selling of public enterprises to public sector.
  • Private sector: All business enterprises owned and controlled by private persons.
  • Public sector: All enterprises owned and controlled by the Government.
  • Proprietorship: A business owned and controlled by an individual. Also known as sole proprietorship. Retained earnings: Undistributed profits of a company.
  • Return: Rate of earning on an investment.
  • Risk: Possibility of loss on an investment.
  • Secondary sector: Manufacturing and construction industries.
  • Subsidiary: A company owned and controlled by another company.
  • Sustainable development: Development that can be sustained over generations or development
    without compromising ecology or environment.
  • Term insurance: Insurance for a specific time period with no defrayal to the insured person and which become null on its expiry.
  • Triple bottom line: Profit, people and planet i.e. simultaneous development of economy, society and ecology.
  • Turnaround: Financial recovery of a loss making firm.
  • Vision: The roadmap of a company’s future.
  • Whole life insurance: An insurance policy the sum of which is payable after the death of the insured to his nominee.

CA Foundation Business & Commercial Knowledge Study Material – Banking Terminology

CA Foundation Business & Commercial Knowledge Study Material Chapter 6 Common Business Terminologies – Banking Terminology

Banking Terminology

  • Acceptance: A signed acknowledgement indicating the acceptance of all the terms and conditions of an agreement.
  • Accepting house: A bank or financial institution engaged in acceptance and guarantee of bills of exchange.
  • Account balance: The net amount standing on the credit/debit side of the bank account of a customer.
  • Account payee cheque: A cheque the payment of which can only be credited to the bank account of the payee.
  • Accrued interest: Interest earned but not yet paid, also known as interest receivable.
  • Administered rates: Rates of interest which can be changed through a contract between the lender and the borrower, or by the Government.
  • American depository receipt (ADR): A receipt equal to the specific number of shares issued by a company in a foreign country. ADRs are traded only in the United States of America.
  • Annuities: Periodic payments in exchange for deposit of a sum of money.
  • Automated clearing house: A nationwide electronic clearing house that administers and monitors the cheque and fund clearance between banks. Through it debit and credit balances are distributed automatically.
  • Automated teller machine (ATM): An electronic machine through which money can be withdrawn and deposited at any time and on any day.
  • Balance transfer: Transfer of funds from one account to another or repayment of a loan with the help of another loan.
  • Bank account: An account with a bank.
  • Bank draft: A cheque drawn by a bank on its own branch or on another bank. It is payable on demand and also known as demand draft.
  • Bank passbook: A book containing data of transactions between a bank and its customer.
  • Bank rate: The rate of interest at which commercial banks can draw from the Reserve Bank of India for a long time period.
  • Bank reconciliation statement: A statement prepared to reconcile the difference between balances shown in cash book and passbook.
  • Bank statement: A Statement showing transactions between a bank and its customer during a specified time period.
  • Basis point: A measure in interest rate, stock market indices and market rates. It is 1 /100 of one per cent e.g. Rs. 0.001.
  • Bearer cheque: A cheque that can be encashed by its holder on the bank counter. It is transferable by mere delivery.
  • Bill discounting: Encashing a bill of exchange at a discount before the date of its maturity.
  • Bridge finance: Finance raised to fill up the time gap between a short term loan and long term loan also known as gap finance.
  • Bounced cheque: A cheque which the bank refuses to encash due to lack of adequate balance or for any other valid reason.
  • Cap: A limit to which rate of interest can be changed.
  • Cash credit: A revolving credit arrangement under which a bank allows the customer to borrow upto the specified amount, interest is charged only on the amount actually withdrawn.
  • Cash reserve: The total amount of cash available in the bank account and can be withdrawn immediately.
  • Cashier’s cheque: A cheque drawn by a bank to make payments to the banks or any other party.
  • Cheque: A negotiable instrument that instructs the bank to pay the specified amount from the drawer’s account to the payee.
  • Certificate of deposit: A certificate of making deposit premising to pay the depositor the deposited amount along with interest.
  • Chattel mortgage: Loan against the movable assets as collateral.
  • Clearing: The process of transferring the amount of a cheque from the payer’s account to the payee’s account.
  • Clearing house: Meeting of representatives of different banks to clear and confirm balances with each other. It is managed by the country’s Central Bank.
  • Compound interest: Calculating interest on the principal amount and accumulated interest.
  • Current account: A bank account from which money can be withdrawn as many times a day as needed and overdraft can be obtained.
  • Debit card: An instrument obtained after making payment and used to buy things by swiping it. Deposit slip: A slip containing details of money deposited in a bank account.
  • Depositor: The person who deposits, money into a bank account.
  • Debt recovery: The process of recovering money from a debtor by selling of collators and other assets.
  • Debt repayment: The repayment of debt along with interest.
  • Debt settlement: The process of negotiating the amount which a lender accepts repayment below the amount of debt and accrued interest.
  • E-cash: Use of electronic networks to transfer funds and execute transactions. Also known as electronic cash, digital cash.
  • Early withdrawal penalty: The penalty charged from a customer who withdraws his/her fixed deposit the due date.
  • Earnest money deposit: The deposit made by a buyer of real estate with the seller driving negotiation stage.
  • Education loan: A loan given for the education of the borrower at a concessional rate of interest.
  • Global depository receipt: A receipt specifying the number of shares issued by a company in a foreign country. The receipt is tradable in Europe.
  • Guarantor: One who promises to repay a loan in case the borrower fails to repay.
  • Interest: The charge which a borrower pays to the lender for use of money. It is the cost of credit.
  • Internet banking: Banking transfer done by the Internet. It is also known as online banking or electronic (e)banking.
  • Letter of credit: A written promise by a bank to an exporter to pay the specified amount on behalf of the importer for the goods sold.
  • Line of credit: An arrangement under which a bank allows a borrower to borrow money from time to time without further negotiations and upto the specified limit.
  • Lock-in-period: The time period during which no change in the quoted mortgage rates will be made by the lender.
  • Market value: The value at which consumers are willing to buy and sellers are willing to sell. Decided by demand and supply.
  • Maturity: The date on which an investment/loan becomes repayable.
  • Mortgage: A legal agreement between a lender and a borrower under which real estate is used as a collactral to ensure repayment of the loan.
  • Online banking: Same as internet banking.
  • Overdraft: Withdrawal of money in excess of the balance in the borrower’s current account. Payee: The person to whom money is to be paid.
  • Personal identification number (PIN): A secret code number given to customers to perform transactions through the ATM.
  • Repo rate: The rate at which banks borrow money from the Reserve Bank of India for short periods upto two weeks by pledging government securities.
  • Reverse repo rate: The rate of interest which the Reserve Bank of India pays to banks which deposit their surplus funds for short periods.
  • Smart card: A card with a computer slip used for storage, processing and transmission of data.
  • Syndicated loan: A large amount of loan given by a group of small banks to a single corporate borrower.
  • Time deposit: A bank deposit made for a specific time period, cannot be withdrawn before the expiry of the period.
  • Value at risk (VAR): A sum the value of which is subject to loss due to changes in the rate of interest. Wholesale banking: Banks which offer services to companies, financial and other institutions.
  • Zero balance accounts: A bank account in which no minimum balance is required e.g. Jan Dhan Account.
  • Zero-down-payment mortgage: A mortgage in which the borrower makes no loan payment. The mortgage buys below the amount at the entire purchase price.

CA Foundation Business & Commercial Knowledge Study Material – Marketing Terminology

CA Foundation Business & Commercial Knowledge Study Material Chapter 6 Common Business Terminologies – Marketing Terminology

Marketing Terminology

  • Advertising: Any paid form of non-personal presentation and promotion of ideas, goods and services through mass media such as newspapers, radio, TV, Internet by an identified sponsor.
  • Advertising agency: An organization consisting of experts who render advertising services for payment in terms of fee or commission or both.
  • Advertising campaign: An organization’s programme of advertising for a specific time period. Advertising copy The advertisement containing the message, photograph and other details. Advertising media The channels (e.g. print and electronic media) used to carry advertisements. Advice note A document sent by a seller informing the buyer of dispatch of goods.
  • Agent: A person authorised to act on behalf of another (principal, like buyer and seller and do not take ownership of goods.
  • Auction: An agent who sells goods through action on behalf of his principal.
  • After sale service: The services provided by the manufacturer/dealer to the buyers after selling the product/service.
  • Barrier to trade: Something that makes trade between two countries more difficult or expensive, e.g. a customs duty on imports.
  • Barriers to entry/exit: A barrier to entry/exit of new firms in the market, e.g. economies of scale, government policy.
  • Benchmarking: The process of comparing the products / services, or business processes of an enterprise against the best firm in the industry with the objective of improving quality and performance.
  • Brand: A name, symbol, design, logo or a combination thereof to identify a product and to differentiate it from competing products.
  • Brand equity: The estimated value of a brand on the basis of brand’s loyalty.
  • Brand recognition: Customers awareness of existence of a brand as an alternative for buying.
  • Brand loyalty: Commitment of customers to a brand.
  • Business-to-business (B2B): Marketing activities between two business firms carried through Internet. Business model: A company’s approach for converting its strategy into moneymaker.
  • Business portfolio: A company’s set of businesses or products.
  • Buying behaviour: The process used by buyers to decide whether or not to buy a product/service. It depends upon several internal and external factors.
  • Cash discount: A reduction in the price of products/services given to customers who buy on cash basis.
  • Competitive advantage: An advantage which a firm has over its competitors.
  • Competitive position: The position that a firm takes to face its competitors.
  • Conglomerate diversification: Starting or acquiring businesses which have no synergy with the firm’s exiting business. For example, ITC a tobacco company diversified into hotels, garments, foods and beverages, paper and paper board and agri business.
  • Consortium: A group of several firms which work together to buy something or to build something.
  • Consumer market: The market for products and services which people buy for their own/family’s use.
  • Corporate culture: The values beliefs, traditions, rituals, etc. shared by the members of an organization.
  • Cross-selling: Selling related products to buyers of a product. For example, selling handkerchief, ‘ Socks, ties to buyer of shirts/trousers.
  • Catalogue: A small booklet containing details about the products, their prices etc. of a firm.
  • Chain stores: A group of similar stores selling same products at the same prices, e.g. Bata Stores. Also known as multiple shops.
  • Channel of distribution: The route that a product takes to move from the manufacturer to consumers.
  • Clearing agent: An agent who takes care of customs formalities for imported goods.
  • Consumers’ cooperative store: A retail stored set up by consumers as a cooperative society to get 1 products of daily use at reasonable prices by eliminating middlemen.
  • Customer demand: A customer’s ability and willingness to buy a product/service.
  • Customer need: A basic requirement which a person wishes to satisfy.
  • Customer loyalty: A customer’s inclination to buy repeatedly from the same shop or store.
  • Customer satisfaction: The ability of a product/service to meet the customers expectations in terms of quality and performance in relation to the price paid.
  • Customer wants: The desire for a product/service to satisfy the underlying need. For example,
    hunger the need whereas food is the want.
  • Departmental Store: A large retail store selling a wide range of goods under one roof, goods being
    arranged in different departments.
  • Differentiation: Giving a unique identity to a product/service so that it stands out from rival
  • Direct marketing: Selling products/services directly to consumers, e.g. telemarketing.
  • Diversify: Increasing the range of products /services which a firm produces and sells.
  • E-commerce: Business transactions made through electronic means e.g. Internet,
  • Economies of scale: Reduction in cost per unit due to large scale operations.
  • External environment: The forces and conditions that influence a company’s strategies and competitive position.
  • Factor: An agent who keeps the goods of others for sale on commission basis.
  • Fast moving consumer goods (FMCG): Products of duly use which are low priced, frequently purchased and sell in large volumes, e.g. biscuits, soaps, tooth pastes, packed juices, etc.
  • Forecasting: The process of estimating future demand on the basis of price levels, disposable incomes and other relevant factors.
  • Forwarding agent: The agent who attends to customs formalities on behalf of an exporter. Grading: Classifying agricultural products into different grades on the basis of their quality level.
  • Hire purchase: Buying goods and making payments in installments, goods considered on hire until the payment of the final installment.
  • Indent: A purchase order sent abroad for importing goods.
  • Innovators: Young and intelligent consumers who are the first to adopt new products.
  • Internal marketing: The process of earning support for a company and its activities from its employees.
  • Invoice: A written statement containing details of goods sold. It is sent by the seller to the buyer.
  • Itinerants: Retailers having no fixed place for selling. They move from place to place to sell their goods. Also known as mobile traders.
  • Joint venture: A new enterprise jointly established by two or more firms for some specific purpose and mutual benefit.
  • Labelling: Putting labels on products to indicate its name, contents, price date of manufacture and their necessary details.
  • Marketing: The process of discovering, creating and delivering value to satisfy the needs of a target market at a profit.
  • Market development: The process of offering existing or modified products to new groups of customers.
  • Market entry: Launching a new product into an existing market or a new market.
  • Market leader: A firm having control over a specific market.
  • Marketing Mix: A firm’s mix of product, price, place and promotion. In case of services it consists of three other elements people, process and physical evidence. ‘
  • Marketing plan: The plan covering the use of marketing mix to achieve the firm’s marketing objectives.
  • Market positioning: The marketing strategy for placing a firm’s products/services against competing products/services in the minds of consumers.
  • Market research: The process of systematically collecting, recording and analysing data about problems concerning the marketing of products and services.
  • Market segmentation: Dividing the total market into different parts on the basis of consumer’s characteristics to deliver tailor made offering to each part.
  • Market share: The sales of a product/brand or firm divided by total sales of similar products/ brands of firms in the industry.
  • Market targeting: The process of comparing all market segments and choosing the most attractive segment for a product/service.
  • Mass marketing: Delivering the same message through mass media to all consumers.
  • Merger: Combination of two or more firms into a single firm to expand business operations.
  • Mission: The unique purpose of a company that differentiates it from other companies in the industry, defines it scope of operations and reflects its values and priorities.
  • Niche marketing: Concentrating efforts on relatively small market segments e.g. herbal tea for health conscious consumers.
  • Opportunities: Favourable conditions in the external environment of business.
  • Packing: Designing and manufacturing suitable packages for various types of products.
  • Packing: Putting the product into its package.
  • Personal selling: Oral communication with prospective buyers to make a sale and develop relationships with them.
  • Physical distribution: Activities involved in physical movement of goods from producers to consumers e.g. transportation, warehousing, order processing and inventory control.
  • Pre-emptive pricing: Setting low prices to discourage entry of new suppliers in the market.
    Price discrimination: Charging different prices from different customers for the same product service for reasons other than costs.
  • Price elasticity of demand: Change in demand due to change in price.
  • Price sensitivity: The effect of change in price on customers.
  • Price: The value of product/service expressed in terms of money.
  • Publicity: Promotion of an organisation and its products/services in mass media without payment. Retails Traders who sell directly to customers or ultimate users.
  • Penetration pricing: Charging a relatively low price to gain quick market acceptance of new product/service.
  • Salesmanship: The process of persuading people to buy a product/service through face-to-face interaction.
  • Sales promotion: Any activity used to boost the immediate sales of a product or service e.g. free samples, price off, etc.
  • Target marketing: Using appropriate advertisements to reach out to a group of consumers having similar characteristics.
  • Tele marketing: Using telephone to contact people and sell a product service.
  • Test marketing: Testing of a new product with a sample group of customers to judge their reactions.
  • Unique selling proposition (USP): A customer benefit that no other product/service can claim.

CA Foundation Business & Commercial Knowledge Study Material – Finance, Stock and Commodity Markets Terminology

CA Foundation Business & Commercial Knowledge Study Material Chapter 6 Common Business Terminologies – Finance, Stock and Commodity Markets Terminology

Terminology or vocabulary means a set of basic terms or concepts used in a particular field or discipline. Each and every subject (e.g. Economics, Accountancy, Law, Medicine, Management, etc.) has its own terminology. Good understanding of the correct meaning of the terms used is essential to gain conceptual clarity. A student or professional working in the concerned profession cannot be efficient without understanding the terminology used in the concerned profession. A Chartered Accountant is excepted to know and understand the terminology used not only in finance and accounts but also in related areas such as marketing banking, administration, etc. This is because a Chartered Accountant comes across these terminologies in course of audit.

Finance, Stock and Commodity Markets Terminology


  • Above par: Price of a security quoted higher than its face value.
  • Absorption or acquisition: Takeover of a firm by another firm.
  • Accommodation bill: A bill of exchange drawn and accepted without receiving value in exchange. It is means of lending money.
  • Account: A record of transactions relating to one head e.g. debtors.
  • Accountancy: The held of knowledge containing principles and techniques used in preparing accounts. Account current: A running account summarizing business transactions during a given time period.
  • Accounting: The process of measuring, and recording transactions in the books of account.
  • Agent: (broker): One who buys and sells securities on behalf of his clients.
  • Amortize: To charge regular portion of an expenditure over a fixed time period. For example an expenditure of Rs. 50,000 may be amortized over five years, charging Rs. 10,000 per year in the account books. Also called write off.
  • Annuity: An equal amount paid at fixed intervals (e.g. every three months) for a specified period (e.g. twenty years).
  • Appreciation: Increase in the value of an asset e.g. shares purchased for Rs. 1 lakh may be Rs. 5 lakh now. There is an appreciation of Rs. 4 lakh.
  • Arbitrage: Simultaneous purchase and sale of a security/commodity in different markets to take advantage of price differences.
  • Asset: An economic resource expected to give benefit in future. It may be tangible (e.g. a machine) or intangible (e.g. a patents). Assets are of three types:
    • Current Assets: The assets which are likely to convert into cash within a year e.g. book debts and stock of finished goods.
    • Fixed Assets: The assets which generate revenue and last more than one year e.g. building, vehicles, machinery.
    • Intangible Assets: Assets having no physical shape e.g. patents, trademarks and copy-rights.
  • Ask/Offer: The lowest price at which the owner is willing to sell his securities.
  • Audit: The careful review of financial records to verify their accuracy.
  • Auditor: The qualified Chartered Accountant authorised and appointed to conduct an audit.
  • Authorised capital: The amount of share capital with which a company is registered. It is mentioned in the company’s Memorandum of Association.


  • Backwardation: The charge paid big a bear speculator to a bill for postponement of settlement of a transaction.
  • Bad debts: The debts which are not recoverable and are written off as a loss.
  • Badla: Carry forward of a transaction from one settlement period to the next without any payment or delivery.
  • Balance of payments: A statement of all money flows in and out of a country.
  • Balance of trade: A statement of a country’s exports and imports during the year.
  • Balance sheet: A statement containing the assets, liabilities and capital of an organisation. It shows the financial position on a specific date.
  • Base price: A security’s price at the beginning of a trading day. It is used to determine the day’s lowest/highest price and the price range.
  • Basket trading: The facility which enables investors to buy/sell in one go all the 30 scripts of Sensex in proportion of their current weights in the Sensex.
  • Bear: A pessimist who expects prices to fall and sells quickly before the value of his holding declines. Bear market: A market situation when share price are continuously falling.
  • Beta: A measurement of the relationship between the price of a security and the price movement of the whole market.
  • Bid: The highest price a buyer is willing to pay for a share. It is the opposite of ask/offer.
  • Blue chip: Shares of a large, well established and financially sound company. It can provide high capital gains.
  • Bond: A long-term promissory note issued by a company or government. It shows the amount of the debt, rate of interest and the due date.
  • Bonus shares: A free allotment of shares out of accumulated reserves to the existing shareholders in proportion to their current holding.
  • Book closure: The period during which a company keeps its register of members closed for updating prior to payment of dividend or issue of new shares/debentures.
  • Book value: The value of an asset recorded in the books of account. It also means the difference between total assets and total liabilities.
  • Brokerage: The commission charged by brokers.
  • Break even point: The number of units that must be sold to generate revenue equal to total expenses. Sale above this point create a profit and sales below it create loss.
  • Budget: A detailed plan expressed in quantitative terms for a specific future period.
  • Bull: One who expects prices to rise and buys in anticipation.
  • Bull market: A market situation in which share prices continuously rise.
  • Business days: The days on which stock markets are open – Monday to Friday, excluding public holidays.
  • Business risk: The risk inherent in the operations of a firm which uses no debt.
  • Buyer: The trading member who has placed on order for the purchase of securities.


  • Call: The demand for payment by the company which has issued shares.
  • Call option: The right (not obligation) to buy a particular share at a specified price within the specified time period.
  • Capital budgeting: The process of planning expenditure on fixed assets.
  • Capital gain: The increase in the value of a security.
  • Capital market: The financial market for shares, debentures and long-term debt.
  • Closing price: The price of a security at the end of a trading day.
  • Commercial paper: Short term and unsecured promissory note issued by a large firm with an interest rate below the prime lending rate of commercial banks.
  • Commodity: Products used for commerce and traded on authorized commodity platforms.
  • Convertible security: A preference share, debenture, a bond that can be converted into equity shares at the option of the holder.
  • Consolidation: Business combination of two or more firms.
  • Credit period: The length of time for which credit is granted.
  • Creditor: The individual/organization who owes money on a particular date.


  • Debenture: An instrument acknowledging debt raised by a company/corporation.
  • Debtor: An individual/enterprise who owes money, shown as an asset in the balance sheet. Defensive stock: A stock that provides constant dividends even during economic down turn. Depreciation: An expense allowance made for wear and tear of an asset over its estimated useful life.
  • Derivatives: A security whose price is derived from one or more underlying assets such as shares, bonds, commodities, currencies, etc.
  • Diversification: Spreading the investment risk by purchasing shares of different companies operating in different sectors. Also used to refer to a company investing in several related or unrelated business.
  • Dividend: A part of the company’s earning paid to shareholders.
  • Devaluation: Reducing the value of a currency in relation to other currencies, decided by the government.
  • Disinvestment: Selling a part of the share holding of a public enterprise to private sector.


  • E-commerce: Doing business transactions over the internet.
  • Economic activity: Any activity undertaken to earn money.
  • Equity capital: Funds provided by holders of equity shares.
  • Equity: Equity capital, free reserves, retained earnings and preference capital.
  • Exchange rate: The rate at which one currency can be purchased for another currency. Ex-dividend: Shares on which dividend declared after their purchase is not payable.


  • Foreign company: A company incorporated outside India but having business operations in India.
  • Forward trading: Buying and selling without the intention of delivery and payment, aim is to earn from fluctuations in price.
  • Futures: The right to buy or sell at a future date and at the specified price.
  • Face value: The price at which a share/bond/debenture is issued. Also known as par value.
  • Financial instrument: A written document sharing an agreement or a transaction e.g. share, debenture, cheque, etc.
  • Financial intermediary: One who acts as a link between buyers and sellers of securities, e.g. share brokers, banks.


  • Goodwill: The estimated money value of a firm’s reputation.
  • Government bonds: A security issued by a government to raise debt.
  • Government company: A Company in which government owns 51 per cent or more of the share capital.


  • Hedge: A strategy used to minimise the risk and maximize the return on investment.
  • Holding period: The time period during which an individual/corporation holds/owns an asset. This period is considered while pledging the asset as collateral.


  • Income stock: A security that offers dividend higher than that on common stock. It has a solid record of dividend payments.
  • Index: A statistical measure of change in the security market/economy. It is usually calculated as a percentage change in the base value overtime.
  • Initial public offer (IPO): A company’s first issue of shares to general public.
  • Internet trading: Buying and selling securities over the internet. SEBI approved it in January 2000. Interim dividend: A dividend declared prior to the close of the financial year.


  • Joint venture: A partnership between two or more independent firms resulting in the creation of a third enterprise.
  • Journal: Datewise records of transactions, a book of original entry.


  • Lame duck: A speculator struggling to honour his commitment due to unexpected fluctuations in the price of a security on the stock market.
  • Lease: A legal right for the use of an asset.
  • Ledger: A book of account in which entries are posted from the Journal into various accounts. Lien: A legal claim to property until repayment of debt.
  • Limit order: An order to buy or sell a share at a specified price. It specifies the minimum price the seller is willing to accept or a maximum price the buyer is willing to pay.
  • Liquidation: Piecemeal sale of the assets of a division of the company.
  • Listed stock: The shares of a company that are eligible for trading on the stock exchange.


  • Margin trading: Buying securities on a stock exchange after keeping a deposit with the broker. Market capitalization: The total market value of a company’s out standing shares.
  • Minimum subscription: The minimum amount of share capital a company must receive in cash before making allotment of shares. It is equal to 90 per cent of issued capital.
  • Money market: Market for raising short-term funds.
  • Mutual funds: A pool of money managed by experts for investing in shares, debentures and other securities. .


  • Nominee director: A director nominated by the financial institution from which the company has raised a loan.


  • Odd lot: Shares less than the trading lot and held by a small investor.
  • One sided market: A market having only potential buyers or only potential sellers.
  • Out-of-the money (OTM): In case of call options, it means the share price is below the strike price. In case of put options, it means the share price is above the strike price.


  • Par value: The value of a share printed on the share certificate.
  • Portfolio: Various types of securities of different companies held by an investor.
  • Preliminary expenses: Expenses incurred for the formation of a company.
  • Pre-opening session: Time duration from 9.00 am to 9.15 a.m. during which order entry, modification and cancellation are done before the start of trading on stock exchange.
  • Price earning (PIE) ratio: The market price of a share divided by the earning per share. Prospectus: A document issued by a Company to sell shares/debentures to the general public.
  • Proxy: A written authority given by a member of a company to some one to attend the meeting on his/her benefit.


  • Right shares: Equity shares issued by a company to the existing shareholders in proportion to their current holding.


  • Securities: A transferable certificate of ownership of shares, debentures, etc.
  • Share: A part in the share capital of a company.
  • Stock: Fully paid shares of a company.
  • Strike price: The price at which the shareholder can buy (in case of call option) or sell (in case of put option) a security.
  • Stock split: Splitting one share into several shares to increase the availability of existing shares e.g., splitting a share with face value of 100 into 10 shares with face value of Rs. 10 each.


  • Thin market: A market with a few bids to buy or offer to sell, the prices in such market vary highly. Trading session: The time period during which the stock market is open for trading.


  • Underwriting: Guarantee to subscribe to an issue of shares in case public does not subscribe to it.


  • Working capital: The capital used in day-to-day business activities, also called circulating capital.


  • Yield: Percentage return on investment in case of shares it is calculated by dividing the annual dividend with the current price of the share.
  • Yield-to-call: The rate of return earned on a bond when it is called before the date of maturity.


  • Zero coupon bond: A bond sold at a discount below par but paid back at face value. No interest is payable on it.