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D. Murali

ZAKAT means `purification' and `growth', and it is the practice among Muslims to make an annual donation to charity. This is one of the last entries in The Economist Essential Finance by Nigel Gibson, distributed by Viva Books P Ltd (www.vivagroupindia.net).

"If Rip Van Winkle had gone to sleep in the early 1970s and woken up 30 years later, he would recognise little of today's financial landscape," states the initial chapter titled, `the changing face of markets.' The world of money and finance is getting complex with newer products and terms. Let me take you on a tour of A-Z.

Audit trail may remind you of Holmes gathering evidence at the scene of crime, but when a market regulator steps in to question the ultimate beneficiary of a transaction, "a trail is more likely to be a taped conversation, an e-mail or some other computer record than a piece of paper," explains Gibson. Aval is not a light snack for idle mouths, but a French word meaning endorsement. "The bank usually signs or stamps its name under the words Pour aval or Bon pour aval."

Under `bad debt' is a quote of J. P. Getty: "If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem." Doesn't that explain the NPA worries of our banks? Balloon, in finance, is not a decoration for birthday parties, but "a loan whose repayments are spread unevenly over its life."

You may be surprised that `barter' is growing fast! "Some 400 such exchanges exist in the US alone." So, how does that work?

"Hotel rooms or unoccupied office space are easily swapped over the Internet for other goods and services. At a local level, babysitting may be offered in exchange for other services." There are `blue-sky laws' to protect investors; `fruits and suits' that refer to "net-wise individuals who wear casual clothing" as fruits, and "numeric individuals" as suits; `bunny bonds' where the holder has the option "to receive interest in cash or in the form of more of the same bond"; and `tombstones', the ads that announce "the completion of a syndicated loan or a new issue of securities."

Bullet is what you bite to do something difficult, right? No, it is a loan in which "principal is repaid in one go" at the end of the term. What about Camel? It is found in Rajasthan, fine, but it's also an acronym - "for the five things that banking supervisors look for most keenly when examining a bank". You may try that on GTB as an exercise.

Capital employed means capital in use in a business, but "there is no universally agreed definition of what this includes." If you know `cash flow' you'd know that a company may be cash rich but make little or no profits, and vice versa.

Crash happens on roads; and occasionally in markets too when stocks fall precipitously. "In 1929 when the banks went bust, our coins still read `In God We Trust,'" is a quote of E. Y. Harburg to give you a clue on whom to trust when indices fall like ninepins. `Dilution' is not about reducing the concentration of alcohol in the drink, but what happens "when a company issues more shares, and sells them for less than their market price", thus reducing the value of each existing share.

The first recorded bank in history is `Egibi', informs the book. "Mr Egibi, the bank's founder, lived in Damascus (705 - 681 BC)" and a stone tablet in the British Museum is a record of perhaps the world's first loan. Useful lesson for lenders, therefore, is to store indelibly data about receivables.

Terms are hurdles, but what is hurdle rate? It is the rate of return that a business or investment opportunity needs to satisfy, to justify its existence. What is the opposite of growth investing? Not shrinkage, but value investing, where the focus is on dividends rather than capital gains. You can't see `invisibles' inside a ship bound for the high seas, though they earn forex. That's because the word refers to "services such as banking, insurance and tourism."

Gibson points out that the difference between visible and invisible trade is getting blurred: "When Sony sells a (visible) mini-disc outside Japan, the price paid for it includes a lot of (invisible) services such as patented know-how, copyright and the like."

ISBN is widely known; there is ISIN too, drawn up under the auspices of ISO. It is for International Securities Identification Number, "a 12-digit alphanumeric code that uniquely identifies each issue of securities."

A short quiz before wrapping up: How is laddering different from laundering? Give three meanings of collar and float. Remember the story of the Lutine bell? Explain the `nil basis' of calculating EPS. When is an investment fund `overweight'? Distinguish between price/book ratio and P/E ratio. When do shareholders practise `renunciation'?

Recommendation is: Read!

BookValue@TheHindu.co.in

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