- Industry: Economy; Printing & publishing
- Number of terms: 15233
- Number of blossaries: 1
- Company Profile:
A tax that is collected at source, before the taxpayer has seen the income or capital to which the tax applies. In other words, that part of the income or capital due in tax is withheld from the taxpayer, who therefore cannot easily avoid paying the tax. Withholding taxes are frequently imposed on interest and dividends.
Industry:Economy
An institution created with the IMF at Bretton Woods in 1944 and opened in 1946. The World Bank has three main branches: the International Bank for Reconstruction and Development (IBRD), the International Development Agency (IDA) and the International Finance Corporation (IFC). Collectively, it aims to promote economic development in the world’s poorer countries through advice and long-term lending, averaging $30 ¬billion a year, spread around 100 countries. Critics of the World Bank say that it often worsens the problems facing developing countries. Its advice has often been guided by economic fashion, which led it to support a centrally planned brand of development economics in the 1960s and 1970s, before switching to privatization and structural adjustment in the 1980s and then to promoting democracy and economic transparency, and attacking crony capitalism, in the late 1990s. Until recently, it has generally supported big, ¬high-profile projects rather than more economically useful smaller schemes. It has often failed to ensure that its loans have been spent on the intended project. Its willingness to pump money into struggling countries creates a potential moral hazard, in which politicians may have little incentive to govern well because they believe that, if they do a bad job, the World Bank will come to the rescue. The increase in private-sector lending to and investment in emerging markets has led to growing discussion of whether the World Bank is any longer needed.
Industry:Economy
Bête noire of anti-globalization protesters. The World Trade Organization is the governing body of international trade, setting and enforcing the rules of trade and punishing offenders. Established during the Uruguay Round of talks under the general agreement on tariffs and trade (GATT), it opened for business in 1995 with a membership of 132 countries (rising to 146 by 2003). Countries used to break GATT rules with impunity. They seem to be finding it harder to do so under the WTO. Even so, protestors complain that it does not promote fair trade but does promote the interest of rich countries over poorer one. Supporters of free trade, including The Economist, reckon that all countries are better off as part of a well-regulated international trading system, and that the WTO is the most likely source of the good regulation that is needed.
Industry:Economy
Producing output at the minimum possible cost. This is not enough to ensure the best sort of economic efficiency, which maximizes society’s total consumer plus producer surplus, because the quantity of output produced may not be ideal. For instance, a monopoly can be an X-efficient producer, but in order to maximize its profit it may produce a different quantity of output than there would be in a surplus-maximizing market with perfect competition.
Industry:Economy
The annual income from a security, expressed as a percentage of the current market price of the security. The yield on a share is its dividend divided by its price. A bond yield is also known as its interest rate: the annual coupon divided by the market price.
Industry:Economy
Shorthand for comparisons of the interest rate on government bonds of different maturity. If investors think it is riskier to buy a bond with 15 years until it matures than a bond with five years of life, they will demand a higher interest rate (yield) on the longer-dated bond. If so, the yield curve will slope upwards from left (the shorter maturities) to right. It is normal for the yield curve to be positive (upward sloping, left to right) simply because investors normally demand compensation for the added risk of holding longer-term securities. Historically, a downward-sloping (or inverted) yield curve has been an indicator of recession on the horizon, or, at least, that investors expect the central bank to cut short-term interest rates in the near future. A flat yield curve means that investors are indifferent to maturity risk, but this is unusual. When the yield curve as a whole moves higher, it means that investors are more worried that inflation will rise for the foreseeable future and therefore that higher interest rates will be needed. When the whole curve moves lower, it means that investors have a rosier inflationary outlook. Even if the direction (up or down) of a yield curve is unchanged, useful information can be gleaned from changes in the spreads between yields on bonds of different maturities and on different sorts of bonds with the same maturity (such as government bonds versus corporate bonds, or thinly traded bonds versus highly liquid bonds).
Industry:Economy
A way of comparing the performance of bonds and shares. The gap is defined as the average yield on equities minus the average yield on bonds. Because shares are usually riskier investments than bonds, you might expect them to have a higher yield. In practice, the yield gap is often negative, with bonds yielding more than equities. This is not because investors regard equities as safer than bonds (see equity risk premium). Rather, it is that they expect most of the benefit from buying shares to come from an increase in their price (capital appreciation) rather than from dividend payments. Bond investors usually expect more of their gains to come from coupon payments. They also worry that inflation will erode the real value of future coupons, making them value current payments more highly than those due in years to come. Moreover, the usefulness of the dividend yield as a guide to the performance of shares has declined since the early 1990s, as increasingly companies have chosen to return cash to shareholders by buying back their own shares rather than paying out bigger dividends.
Industry:Economy
When the gains made by winners in an economic transaction equal the losses suffered by the losers. It is identified as a special case in game theory. Most economic transactions are in some sense positive-sum games. But in popular discussion of economic issues, there are often examples of a mistaken zero-sum mentality, such as “profit comes at the expense of wages”, “higher productivity means fewer jobs”, and “imports mean fewer jobs here”.
Industry:Economy
A lender, whether by making a loan, buying a bond or allowing money owed now to be paid in the future.
Industry:Economy
Making loans. Often the amount of credit creation is subject to regulation. Lenders may have limits on the amount of loans they can make relative to the assets they have, so that they run little risk of bankruptcy (see Basel 1 and 2 and capital adequacy ratio). A central bank tries to keep the amount of credit creation below the level at which it would increase the money supply so much that inflation accelerates. This was never easy to get right even when most lending was by banks, but it has become much harder with the recent growth of non-bank lending, such as by credit-card com¬panies and retailers. Missing text.
Industry:Economy
