Business finance definitions and core terms

Throw in potential disruptions to supply chains that have been stretched across thousand of miles and country borders by globalization, and the opportunity for something to go wrong is, to say the least, worrisome. Financial executives, who have not done so already, should begin to develop a holistic risk management program or one that allows them to mitigate and manage risk on a broad front. Organizations who are tempted to short change their risk management efforts will find potential consequences can be severe, from a loss of competitiveness to, in the extreme, having to cease operations altogether.

Business finance definitions and core terms

Markets Economists study trade, production and consumption decisions, such as those that occur in a traditional marketplace.

Electronic trading brings together buyers and sellers through an electronic trading platform and network to create virtual market places. Microeconomics examines how entities, forming a market structureinteract within a market to create a market system.

These entities include private and public players with various classifications, typically operating under scarcity of tradable units and light government regulation. In theory, in a free market the aggregates sum of of quantity demanded by buyers and quantity supplied by sellers may reach economic equilibrium over time in reaction to price changes; in practice, various issues may prevent equilibrium, and any equilibrium reached may not necessarily be morally equitable.

For example, if the supply of healthcare services is limited by external factorsthe equilibrium price may be unaffordable for many who desire it but cannot pay for it. Various market structures exist. In perfectly competitive marketsno participants are large enough to have the market power to set the price of a homogeneous product.

In other words, every participant is a "price taker" as no participant influences the price of a product.

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In the real world, markets often experience imperfect competition. Forms include monopoly in which there is only one seller of a goodduopoly in which there are only two sellers of a goodoligopoly in which there are few sellers of a goodmonopolistic competition in which there are many sellers producing highly differentiated goodsmonopsony in which there is only one buyer of a goodand oligopsony in which there are few buyers of a good.

Unlike perfect competition, imperfect competition invariably means market power is unequally distributed. Firms under imperfect competition have the potential to be "price makers", which means that, by holding a disproportionately high share of market power, they can influence the prices of their products.

Microeconomics studies individual markets by simplifying the economic system by assuming that activity in the market being analysed does not affect other markets. This method of analysis is known as partial-equilibrium analysis supply and demand. This method aggregates the sum of all activity in only one market.

General-equilibrium theory studies various markets and their behaviour. It aggregates the sum of all activity across all markets.

This method studies both changes in markets and their interactions leading towards equilibrium. Production theory basicsOpportunity costEconomic efficiencyand Production—possibility frontier In microeconomics, production is the conversion of inputs into outputs.

It is an economic process that uses inputs to create a commodity or a service for exchange or direct use. Production is a flow and thus a rate of output per period of time. Distinctions include such production alternatives as for consumption food, haircuts, etc.

Business finance definitions and core terms

Opportunity cost is the economic cost of production: Choices must be made between desirable yet mutually exclusive actions. It has been described as expressing "the basic relationship between scarcity and choice ". Part of the cost of making pretzels is that neither the flour nor the morning are available any longer, for use in some other way.

The opportunity cost of an activity is an element in ensuring that scarce resources are used efficiently, such that the cost is weighed against the value of that activity in deciding on more or less of it.

Opportunity costs are not restricted to monetary or financial costs but could be measured by the real cost of output forgoneleisureor anything else that provides the alternative benefit utility.

Other inputs may include intermediate goods used in production of final goods, such as the steel in a new car. Economic efficiency measures how well a system generates desired output with a given set of inputs and available technology. Efficiency is improved if more output is generated without changing inputs, or in other words, the amount of "waste" is reduced.

A widely accepted general standard is Pareto efficiencywhich is reached when no further change can make someone better off without making someone else worse off.

Business finance definitions and core terms

An example production—possibility frontier with illustrative points marked. The production—possibility frontier PPF is an expository figure for representing scarcity, cost, and efficiency. In the simplest case an economy can produce just two goods say "guns" and "butter". The PPF is a table or graph as at the right showing the different quantity combinations of the two goods producible with a given technology and total factor inputs, which limit feasible total output.

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Each point on the curve shows potential total output for the economy, which is the maximum feasible output of one good, given a feasible output quantity of the other good.

Scarcity is represented in the figure by people being willing but unable in the aggregate to consume beyond the PPF such as at X and by the negative slope of the curve. This is because increasing output of one good requires transferring inputs to it from production of the other good, decreasing the latter.

The slope of the curve at a point on it gives the trade-off between the two goods. It measures what an additional unit of one good costs in units forgone of the other good, an example of a real opportunity cost.Jan 11,  · To start and run a business, you often need to understand business terms that may not be well defined in a standard dictionary.

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Our glossary of business terms provides definitions for common terminology and acronyms in business plans, accounting, finance, and other aspects of small business/5(25). Economics (/ ɛ k ə ˈ n ɒ m ɪ k s, iː k ə-/) is the social science that studies the production, distribution, and consumption of goods and services..

Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes basic elements in the economy, including individual agents and markets, their interactions, and the outcomes of interactions.

E-Commerce and E-Business/Concepts and Definitions - Wikibooks, open books for an open world

Business Glossary of business terms - A to Z Handy definitions of financial and economic jargon - from libor and quantitave easing to black swans and dead cat bounces.

Asia-Pacific e-commerce revenues are projected to increase from $ billion at year-end of to $ billion by the end of Is e-commerce the same as e-business? A comprehensive alphabetically ordered financial glossary with the definitions of important terms used in business, finance, investing and economics.

BUSINESS FINANCE FAO: DIRECTORS, NATURALLY FRESH PLC CONTENTS Page(s) 1. Introduction 3 2. Required Rate of Return on Equity 3 3. Beta 3 4. Capital Asset Pricing Model 4 Limitations of CAPM 4 The APT Model 4 The Three-Factor Model 4 Required Rate of Return using APT or Three-Factor 5 Model 5.

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