Comparisons For Bank VIVA_Hemal Jamiul Hasan_2015_BCB Group.pdf

[Dedicated To My Mother]

Banking Career in Bangladesh

COMPARISONS FOR BANK VIVAHEMAL JAMIUL HASAN

[Dedicated To My Mother]

Hemal’s Speech………… 01.10.2015

‘In the name of ALLAH, the infinitely Compassionate and Merciful’

Banking Career in Bangladesh (BCB) is a platform that helps us to

develop ourselves through making friendship, sharing our knowledge,

thoughts, values to each other. I think, it is not only a group of

thousands but also a bonding of family. We, Admin Panel, always try

to give our best efforts to make the group more effective day by

day. Here, one point must be mentioned that without your inspiration

& co-operation it is never possible and it will be not………

‘Comparisons For Bank VIVA’ is a book that helps you to take better

preparation for Bank VIVA. It contains ‘349 Comparisons’ and if

you go through this book you will know about around 1000 terms those

are very much important for Bank VIVA as well as for Real Job

Practice. When making this E-Book, I always considered the necessity

of both- Jobseekers and Jobholders so that they can cut a good figure

in every stage of Bank VIVA.

Wishing success in Bank VIVA.

Hemal Jamiul Hasan

MBA (AIS) & BBA (AIS), RU

Administrator, BCB Group

[email protected]

01918-756-456 (8 P.M.–10 P.M.)

Banking Career In Bangladesh (BCB) Comparisons For Bank VIVAHemal Jamiul Hasan

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AASB 150

Absolute Advantage 135

Absorption Costing 140

Absorption Costing 201

Accountability 281

Accounting 225

Accounting 19

Accounting 20

Accounting Profit 120

Accounts Payable 149AccountsReceivable 149

Accreditation 294

Accrual 204

Accrual BasisAccounting 157

Accruals 147

ACH 256

Acquisition 296

Acquisition Method 160

Activity BasedCosting 203

Advertisement 78

Advertising 74

Advising Bank 340

Advising Bank 341

Agenda 293

Aggregate Demand 98

Agreegate Demand 41

Agreegate Supply 41

AIS 20

AIS 291

Allocation 171

Amortization 217

Amortization 154

Annual Report 212

Annuity 174

AOA 90

Apple 15

Apportionment 171

Approach 285

Arbitrage 317

Arbitrage 318

Arbitration 89

Area 30

Assessment 284

Assets 179

Assets 151

Auction 85

Audit 276

Back To Back LC 334

Bad & Loss Loan 11

Bai-Istisnaa 331

Bai-Muajjal 330

Bai-Murabaha 330

Bai-Salam 331

Balance Of Payment 93

Balance Of Trade 93

Balance Sheet 144

Bank Guarantee 241

Bank In Panic 46

Bank In Run 46

Bank Loan 245

Bank of America 251

Bank Overdraft 245

Bank Rate 234

Bank Rate RepoRate 4

Banks NBFIs 5

Barter 92

Basel I 348

Basel II 348

Basel III 348

Basic EPS 25

Bidding 85

Bill Discounting 148

Bill of Exchange 249

Biodata 58

Black Money 126

Blue Collar 61

Book Value 214

Bookkeeping 225

Borrow 235

Boss 273

Brand 79

Branding 73

Breakeven Point 139

Broad Money 3

BS 42

Budget Deficit 111

Business Risk 265

Call Option 325

Capital 186

Capital Account 338

Capital Expenditure 195

Capital Gain 175

Capital Gains 176

Capital Goods 124

Capital Intensive 275

Capital Lease 189

Capital Market 324

Capital Market Line(CML) 316

Capitalism 101

Cartel 99

Cash BasisAccounting 157

Cash Discount 168

Cash Dividend 326

Cash Flow 181

Cash Flow Projection 146

Cash Flow Statement 141

Cash Flow Statement 146

Central Bank 7

Central Bank 231

Centralisation 283

Certification 294

Chart 35

Cheque 226

Cheque 248

Cheque 249

Circle 36

Classical Economics 105

Classical Economics 114

Close Market 128

Code of Conduct 280



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Code of Ethics 280

Collateral 315

Collateral Security 339

Combination 33

Commercial Bank 7

Commercial Bank 8

Commercial Bank 230

Commercial Bank 231

Commercial Bill 232

Commercial Invoice 81

Commercial Paper 232

Commercialization 301

Commodity Money 117

Common Stock 308

ComparativeAdvantage 135

Compensation 48

Composite Number 37

Compound Interest 185

Condition 87

Confirming Bank 341

Consumer Goods 124

Content Theory 50

Continuous Loan 193

Contracting 297

ContractionaryMonetary Policy 18

ContractionaryMonetary Policy 342

Contribution Margin 155

ConventionalBannking 343

Copyright 75

Copyright 305

Corporate Banking 45

Corporate Banking 229

Correlation 32

Cost 22

Cost Accounting 192

Cost Accounting 166

Cost Center 158

Cost Centre 202

Cost Control 196

Cost of Capital 184

Cost of Capital 167

Cost of Capital 178

Cost of Equity 167

Cost of Equity 177

Cost Pull Inflation 40

Cost Reduction 196

Cost Unit 202

Coupon Rate 306

Covariance 32

Cover Letter 57

Credit 198

Credit Balance 180

Credit Card 258

Credit Note 246

Credit Risk 349

CRR 9

CS RS SA BS 42

Currency 100

Current Account 338

Current Account 227

Current Assets 161

Custom Duty 222

CustomerSatisfaction 70

Customer Value 70CV (Curriculumvitae) 304

Debit 198

Debit Balance 180

Debit Note 246

Decentralisation 283

Decision Making 292

Deferral 204

Deferred LC 337

Deficit Budget 17

Deflation 131

Deflation 94

Demand 98

Demand Draft 226

Demand Draft 242

Demand Loan 193

Demand Pull Inflation 40

Depreciation 113

Depreciation 217

Expansion 125

Derivatives 314

Devaluation 113

Diluted EPS 25

Direct Cost 24

Direct Costs 165

Direct Marketing 69

Direct Tax 14

Direct Tax 263

Discount Rate 228

Diseconomies ofScale 108

Dismissal 60

Dividend 175

Doubtful Loan 11

Dow Jones (DJIA) 309

Duty 16

Duty 223

Duty 261

E-Banking 244

EBIT 172

EBITDA 172

Economic Capital 47

Economic Profit 120

Economics 123

Economies of Scale 108

Economies of Scale 121

Economies of Scope 121

Efficiency 300

EFT 255

Elastic 116

Elasticity of Demand 103

Elasticity of Supply 103

Ellipse 36

Equity 170

Equity 179

Equity 186

Equity 314

Evaluation 284

Evaluation 286

Excise 221

Excise Duty 222



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Excise Duty 264

Exempt (VAT) 260

ExpansionaryMonetary Policy 342

ExpansionaryMonetary Policy 18

Expected Return 312

Expense 22

Expense 328

Explicit Cost 216

Export LC 335

Extrinsic Motivation 66

Factoring 148

Fair Value 162

FASB 206

Fiat Money 117

Final Dividend 307

Finance 19

Finance 123

Financial Accounting 166

Financial Accounting 192

Financial Leverage 190

Financial Risk 265

Financial Statements 212

Financing 26

Fiscal Deficit 111

Fiscal Deficit 106

Fiscal Policy 1

Forward 313

Forward 322

Franchising 303

Free Market 102

Free Trade 102

FTA 130

Fund Flow 181

Funding 26

Future Value 143

Futures 321

Futures 322

GAAP 208

GAAP 207

GAAP 219

GAAP 220

GAAS 208

Gain 327

GATT 28

GDP 134

GDP GNP 2

Giffen Goods 104

Globalisation 107

GNP 2

GNP 134

Going ConcernConcept 188

Goldman Sachs 250

Goods 83

Gross Income 183

Gross Margin 155

Gross Profit 199

Gross Profit 23

Gross Profit 163

Gross WorkingCapital 211

Group 68

Guarantee 91

Guaranty 39

Hedge Funds 320

Hedgers 127

Hedging 317

Herzberg Theory 49

Hiring 54

HRD 52

HRM 52

Human Capital 147

Human Capital 53

Human Capital 173

Human ResourceManagement 63

Human Resources 53

IAS 220

IAS 218

IASB 206

IASB 207

IBAN Code 243

ICT Risk 347

IFRS 219

IFRS 150

IFRS 218

IFSC Code 247

Impairment 154

ImperfectCompetition 109

Implicit Cost 216

Import LC 335

Income 176

Income Statement 141

Indemnity 91

Independent Events 34

Indirect Cost 24

Indirect Costs 165

Indirect Marketing 69

Indirect Tax 14

Indirect Tax 263

Inelastic 116

Inferior Goods 80

Inferior Goods 104

Inflation 131

Inflationary Gap 344

Inspection 276

Integration 187

Interest Rate 306

Interest Rate 228

Interim Dividend 307

Internal Audit 205

Internal Control &Compliance Risk 347

Intrinsic Motivation 66

Inventory 151

Inventory 209

Investment 233

Investment 319

Investment Bank 12

Investment Bank 230

IRR 224

IRR 311

Islamic Banking 343

ISO 17025 282

ISO 27001 271

ISO 27001 270



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ISO 27002 271

ISO 9001 270

ISO 9001 272

ISO 9001 282

ISO 9002 272

J.P. Morgan Chase 250

J.P. Morgan Chase 251

Jareep Khatiyan 43

Job Analysis 65

Job Description 55

Job Enlargement 62

Job Enrichment 62

Job Evaluation 65

Job Specification 55

Journal 197KeynesianEconomics 114

Labour Intensive 275

Layering 187

LC 240

LC 241

Leader 273

Leadership 289

Lease 299

Ledger 197

Lessee 88

Lessor 88

Levy 262

Liability 170

Liability 200

Liberalisation 107

License 298

License 299

Licensing 303

Liquidity 142

Loan 235

Loan 239

Loan againstImportedMerchandize (LIM)

336

Loan against TrustReceipt (LATR) 336

Long Run 95

Loss 328

Macroeconomics 138

Management 21

Management 289

ManagementAccounting 192

ManagerialFunctions 268

Managerial Roles 268

Margin 82

Margin of Safety 139

Marginal Cost 210

Marginal Costing 201

Marginal Utility 96

Market Economy 122

Market Risk 349

Market Value 162

Market Value 214

Marketing 77

Marketing 73

Marketing 76

Marketing Concept 71

Markup 82

Maslow Theory 49

Mass Marketing 72

Master Card 257

Master LC 334

Merchant Bank 12

Merchant Banking 233

Method 285

MICR Code 238

Microeconomics 138

Microsoft 15

Minutes 293

MIS 21

MIS 291

Mission 290

Mixed Economy 122

MOA 90

MOA 86

Monetary Policy 1

Money 100

Money Market 324

Monitoring 286

MonopolisticCompetition 118

MonopolisticCompetition 115

Monopoly 99

Monopoly 115

Monopoly 132

Monopoly 133

Monopsony 133

Mortgage 239

Motivation 56

Motto 295

MOU 86

Mudaraba 329

Mudaraba PostImport (MPI) 332

Murabaha Import Bill(MIB) 332

Murabaha TrustReceipt (MTR) 332

Musharaka 329

Mutation KhatiyanSurvey/JareepKhatiyan

43

Mutual Funds 320

Mutually ExclusiveEvents 34

NASDAQ 309

NASDAQ 310

NBFIs 5

Need 137

NEFT 236

Negotiation 89

NeoclassicalEconomics 105

Neoliberalism 101

Net Income 183

Net Income 145

Net Profit 23

Net Profit 164

Net Profit 199

Net working Capital 211

Niche Marketing 72

Nominal ExchangeRate 97



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Nominal GDP 112

Nominated Bank 340

Non Scheduled Bank 6

Non Tariff Barriers 129

Noncurrent Assets 161

NOPAT 145

Normal Goods 80NormativeEconomics 136

NPV 224

NPV 191

NYSE 310

Occupation 59

Off Shore Bank 13

Oligopoly 110

Oligopoly 132

On Shore Bank 13

One Way ANOVA 29

Online Banking 244

Open Market 128

Operating Lease 189

Operating Leverage 190

Operating Profit 163

Operating Profit 164

Operational Risk 349

Operations Manager 269

Opportunity Cost 210

Options 321

Outsourcing 297

Patent 305

Patent 302

Pay Order 242

PayPal 258

Peak Of BusinessCycle 345

Perfect Competition 109



Perimeter 30

Period Concept 188

Period Cost 194

Permit 298

Permutation 33

Perpetuity 174

PersonnelManagement 63

PESTEL Analysis 266

Physical Capital 173

Placement 187

Policy 278

Population Variance 31

Positive Economics 136

Post ShipmentFinance 333

Pre ShipmentFinance 333

Preferred Stock 308

Prepayments 147

Present Value 143

Primary Markets 323

Primary Security 339

Prime Number 37

Privatization 301

Problem Solving 292

Process Theory 50

Procurement 287

Product Cost 194

Productivity 300

Profession 59

Profit 156

Profit Center 158

Profit Maximization 44

Profitability Index 191

Proforma Invoice 81

Program 279

Project 279

Project Manager 269

Promissory Note 248

Promotion 76

Provision 169

Provision 200

PTA 130

Public Relations 74

Public Relations 84

Publicity 78

Publicity 84

Purchase 287

Purchase Method 160

Put Option 325

Qualitative Data 38

Quality Assurance 288

Quality Control 288

Quantitative Data 38

Quota 119

Rate of Return 178

Real Exchange Rate 97

Real GDP 112

Realization 213

Recession 94

Recession 125

Recessionary Gap 344

Recognition 213

Recruiting 51

Recruitment 67

Recruitment 54

Relevant Cost 152

Remuneration 48

Repo Rate 4

Repo Rate 234

Required Return 312

Reserve 169

Reserved Money 3

Responsibility 281

Resume 57

Resume 304

Resume 58

Retail Banking 45

Retail Banking 229

Return on Equity 177

Revenue 327

Revenue 182

Revenue Deficit 106

Revenue Expenditure 195

ROA 215

ROCE 153

ROE 153

ROE 215

Routing Numbers 253



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RS 42

RTGS 236

RTGS 237

SA 42

Salary 64

Sales 159

Sales 182

Sales Tax 264

Sample Variance 31

Satisfaction 56

Saving Account 227

SBLC 240

Scheduled Bank 6

Secondary Markets 323

Secured Loan 27

Secured Loans 252

Security 315

Security Market Line(SML) 316

Selection 67

Selling 77

Selling Concept 71

Services 83

Short Run 95

Simple Interest 185

SituationalLeadership 274

Slogan 295

SLR 10

SLR 9

Social Capital 47

Solvency 142

Sort Code 254

Specialized Bank 8

Speculation 318

Speculation 319

Speculators 127

SRR 10

Staffing 51

Statement of Affairs 144

Statutory Audit 205

Stock 209

Stock Dividend 326

Strategy 278

Sub Standard Loan 11

Sunk Cost 152

Supply Chain 277

Surplus Budget 17

Survey Khatian 43

Swap 313

SWIFT 237

SWIFT Code 254

Swift Code 238

Swift Code 243

SWIFT Code 253

Swift Code 247

SWOT 267

SWOT Analysis 266

Table 35

Takeover 296

Tariff 119

Tariff 261

Tariff Barriers 129

Tax 16

Tax 223

Tax 262

Tax Avoidance 259

Tax Evasion 259

Team 68

Termination 60

Tier 1 Capital 346

Tier 2 Capital 346

Tier 3 Capital 346

Total Utility 96

TOWS 267

Trade 92

Trade Discount 168

Trademark 75

Trademark 79

Trademark 302

Traditional Costing 203

TransformationalLeadership 274

Trough Of BusinessCycle 345

Turnover 156

Turnover 159

Two Way ANOVA 29

Unsecured Loan 27

Unsecured Loans 252

Usance LC 337

Value Chain 277

Variable Costing 140

VAT 221

Visa Card 257

Vision 290

WACC 311

Wages 64

Want 137

Warranty 39

Warranty 87

Wealth Maximization 44

Weighted AverageCost of Capital 184

White Collar 61

White Money 126

Wire Transfer 256

Wire Transfer 255

WTO 28

Zero Rated (VAT) 260



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1 Fiscal Policy VSMonetary Policy

In economics and political science, Fiscal Policy is the use of government revenuecollection (mainly taxes) and expenditure (spending) to influence the economy. The twomain instruments of fiscal policy are changes in the level and composition of taxation andgovernment spending in various sectors. These changes can affect the followingmacroeconomic variables, amongst others, in an economy: i) Aggregate demand andthe level of economic activity, ii) Savings and Investment in the economy, iii) Thedistribution of income. Monetary Policy is the process by which the government, centralbank, or monetary authority of a country controls (i) the supply of money, (ii) availability ofmoney, and (iii) cost of money or rate of interest to attain a set of objectives orientedtowards the growth and stability of the economy. Monetary policy is maintained throughactions such as increasing the interest rate, open market operations, or changing theamount of money banks need to keep in the vault (bank reserves).

2 GDP VS GNP

Gross domestic product (GDP) is the market value of all officially recognized final goodsand services produced within a country in a given period of time. Gross nationalproduct (GNP) is the market value of all the products and services produced in one yearby labor and property supplied by the residents of a country. Unlike Gross DomesticProduct (GDP), which defines production based on the geographical location ofproduction, GNP allocates production based on ownership.

3 Broad Money VSReserved Money

Broad money refers to sum of currencies outside banks and deposits (time deposit anddemand deposit) held in banks. Reserve money refers to sum of currency issued (currenciesoutside banks and currencies in tills) and deposits held in Bangladesh bank. Broad Money=Reserve Money × Reserve Money Multiplier.

4 Bank Rate VS RepoRate

Bank rate is the interest rate at which a nation's central bank lends money to domesticbanks. Often these loans are very short in duration. Managing the bank rate is a preferredmethod by which central banks can regulate the level of economic activity. Repo rate isthe discount rate at which a central bank repurchases government securities from thecommercial banks, depending on the level of money supply it decides to maintain in thecountry's monetary system. Bank rate usually deals with loans, whereas, repo or repurchaserate deals with the securities. The bank rate is charged to commercial banks against theloan issued to them by central banks, whereas, the repo rate is charged for repurchasingthe securities. No collateral is involved in a bank rate. But a repurchase agreement usessecurities as collateral, which are repurchased at a later date.

5 Banks VS NBFIs

The major difference between banks and FIs are as follows: i) FIs cannot issue cheques,pay-orders or demand drafts. ii) FIs cannot receive demand deposits, iii) FIs cannot beinvolved in foreign exchange financing, iv) FIs can conduct their business operations withdiversified financing modes like syndicated financing, bridge financing, lease financing,securitization instruments, private placement of equity etc.

6Scheduled Bank VSNon ScheduledBank

The banks which get license to operate under Bank Company Act, 1991 (Amended upto2013) are termed as Scheduled Banks. The banks which are established for special anddefinite objective and operate under the acts that are enacted for meeting up thoseobjectives, are termed as Non-Scheduled Banks. These banks cannot perform all functionsof scheduled banks. There are 56 scheduled banks in Bangladesh who operate under fullcontrol and supervision of Bangladesh Bank which is empowered to do so throughBangladesh Bank Order, 1972 and Bank Company Act, 1991. Scheduled Banks areclassified into following types: i) 6 state owned commercial banks, ii) 2 specialized banks,iii) 39 private commercial banks (31 conventional + 8 shariah based), iv) 9 foreigncommercial banks. There are now 4 non-scheduled banks in Bangladesh which are: i)Ansar VDP Unnayan Bank, ii) Karmashangosthan Bank, iii) Probashi Kollyan Bank, iv) JubileeBank.



9

7 Central Bank VSCommercial Bank

There are certain basic differences between a central bank and a commercial bank. Theyare: (i) The central bank is the apex monetary institution, which has been speciallyempowered to exercise control over the banking system of the country. The commercialbank, on the contrary, is a constituent unit of the banking system. (ii) The central bank doesnot operate with a profit motive. The primary aim of the central bank is to achieve theobjectives of the economic policy of the government and maximize the public welfarethrough monetary measures. The commercial banks, on the other hand, have profitearning as their primary objective. (iii) The central bank is generally a state-ownedinstitution, while the commercial banks are normally privately owned institutions. (jv) Thecentral bank does not deal directly with the Public. The commercial banks, on the contrary,directly deal with the public. (v) The central bank does not compete with the commercialbanks. Rather it helps them by acting as the lender of the last resort. (vi) The central bankhas the monopoly of note-issue, whereas the commercial banks do not enjoy such right.(vii) The central bank is the custodian of the foreign exchange reserves of the country. Thecommercial banks are only the dealers in foreign exchange. (viii) The central bank acts asthe banker to the government, the commercial banks act as bankers to the general public.(ix) The central bank acts as the bankers' bank: (a) The commercial banks are required tokeep a certain proportion of their reserves with central bank; (b) the central bank helpsthem at the time of emergency; and (c) the central bank acts as the clearing house forthe commercial banks. But, the Commercial banks perform no such function.

8Commercial BankVS SpecializedBank

Commercial bank is a financial institution that provides services, such as acceptingdeposits, giving business loans and auto loans, mortgage lending, and basic investmentproducts like savings accounts and certificates of deposit. Specialized bank is establishedfor specific objectives like agricultural or industrial development.

9 CRR VS SLR

The cash reserve ratio (CRR), reserve requirement is the minimum fraction of customerdeposits and notes that each commercial bank must hold as reserves or place in currentaccount maintained with the central bank rather than lend out. The day-end balance ofthe account maintained with the central bank in the Bangladesh Taka (BDT) is consideredas the CRR. The conventional banks are allowed to maintain the SLR in the form of assetsin cash or gold or in the form of un-encumbered approved securities. However, the Islamicbanks and financial institutions may now meet their SLR through Islamic bonds as per IslamicBond Regulation 2004. The banks are now allowed to maintain the CRR at 6.0 per cent ondaily basis, but the bi-weekly average has to be 6.5 per cent. The conventional banks willhave to maintain SLR at minimum 13 per cent with the Bangladesh Bank (BB) while theShariah-based Islamic banks must maintain minimum 5.50 per cent SLR with the centralbank.

10 SLR VS SRR

The conventional banks are allowed to maintain the SLR in the form of assets in cash orgold or in the form of un-encumbered approved securities. However, the Islamic banksand financial institutions may now meet their SLR through Islamic bonds as per Islamic BondRegulation 2004. The conventional banks will have to maintain SLR at minimum 13 per centwith the Bangladesh Bank (BB) while the Shariah-based Islamic banks must maintainminimum 5.50 per cent SLR with the central bank. As per Section 24 of the Bank CompanyAct 1991 (Amendment upto 2013), 20% of current year’s profit of the Bank is required to betransferred to Statutory Reserve until such reserve together with share premium accountequals to its paid up capital.

11Sub Standard LoanVS Doubtful Loan VSBad & Loss Loan

Any continuous loan will be classified as: i) ‘Sub-standard’ if it is past due/overdue for 03(three) months or beyond but less than 06 (six) months. ii) ‘Doubtful’ if it is past due/overduefor 06 (six) months or beyond but less than 09 (nine) months iii) ‘Bad/Loss’ if it is pastdue/overdue for 09 (nine) months or beyond. Any Demand Loan will be classified as: i)‘Sub-standard’ if it remains past due/overdue for 03 (three) months or beyond but not over06 (six) months from the date of expiry or claim by the bank or from the date of creation offorced loan. Ii) ‘Doubtful’ if it remains past due/overdue for 06 (six) months or beyond butnot over 09 (nine) months from the date of expiry or claim by the bank or from the date ofcreation of forced loan. Iii) ‘Bad/Loss’ if it remains past due/overdue for 09 (nine) monthsor beyond from the date of expiry or claim by the bank or from the date of creation offorced loan. In case of Fixed Term Loans: - i) If the amount of past due installment is equalto or more than the amount of installment(s) due within 03 (three) months, the entire loanwill be classified as ''Sub-standard''. ii) If the amount of past due installment is equal to ormore than the amount of installment(s) due within 06 (six) months, the entire loan will beclassified as ''Doubtful". Iii). If the amount of 'past due installment is equal to or more thanthe amount of installment(s) due within 09 (nine) months, the entire loan will be classifiedas ''Bad/Loss''. The Short-term Agricultural and Micro-Credit will be considered irregular ifnot repaid within the due date as stipulated in the loan agreement. If the said irregularstatus continues, the credit will be classified as 'Substandard ' after a period of 12 months,



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as 'Doubtful' after a period of 36 months and as 'Bad/Loss' after a period of 60 months fromthe stipulated due date as per the loan agreement.

12 Investment Bank VSMerchant Bank

Investment banks specialize in large and complex financial transactions such asunderwriting, acting as an intermediary between a securities issuer and the investingpublic, facilitating mergers and other corporate reorganizations, and acting as a brokerand/or financial adviser for institutional clients. A merchant bank is a financial institutionthat provides capital to companies in the form of share ownership instead of loans. Amerchant bank is a bank that deals mostly in (but is not limited to) international finance,long-term loans for companies and underwriting. Merchant banks do not provide regularbanking services to the general public.

13 On Shore Bank VSOff Shore Bank

Onshore banking simply refers to a bank that is located in your country of residence. InOnshore Banking the account and the holder of the account are subject to the laws, taxand foreign exchange rules of the country in which it is held. An offshore bank is a banklocated outside the country of residence of the depositor, typically in a low-tax jurisdiction(or tax haven) that provides financial and legal advantages.

14 Direct Tax VSIndirect Tax

A direct tax will refer to any levy that is both imposed and collected on a specific group ofpeople or organizations. An example of direct taxation would be income taxes that arecollected from the people who actually earn their income. Indirect taxes are collectedfrom someone or some organization other than the person or entity that would normallybe responsible for the taxes. A sales tax, for instance, would not be considered a direct taxbecause the money is collected from merchants, not from the people who actually paythe tax (the consumers).

15 Apple VS Microsoft Apple- Software & Hardware, Microsoft- Software.

16 Tax VS Duty

i) Both duty and tax are the revenues generated by a government for its effectivefunctioning. Duty in broader terms is a kind of tax only. But there are differences betweenthe two entities. ii) Duty is levied upon goods only, whereas tax is levied on both goods andindividuals. iii) Tax is a term used in respect of income such as property tax, wealth tax,income tax etc., whereas duty is used in terms of goods only such as customs duty, exciseduty. iv) Duty is generally a tax levied on good going out or coming inside a country. Dutiesare sometimes referred to as border taxes. v) Higher duties are levied on some categoriesof products to discourage people from using them. Taxes are mostly progressive in nature

17 Surplus Budget VSDeficit Budget

i) A deficit budget situation means that the expenses of a government has exceeded thetax income during that period, whereas a surplus budget scenario means that the taxincome of a government exceeds its expenses. ii) In general, budget deficit is verycommon, while budget surplus occurs rarely. iii) During periods when budget surplus occurstax reduction may be granted, but which is not available during budget deficit periods. vi)Interest rate on and treasuries and securities will be high during the period of budgetsurplus, which is not common during budget deficit period. v) Spending of a governmentwill be high when there is a budget surplus, whereas saving, cost cuttings, and borrowingwill be high when there is a budget deficit.

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ContractionaryMonetary Policy VSExpansionaryMonetary Policy

An expansionary monetary policy (e.g., decrease in interest rates) increases the supply ofmoney. An expansionary monetary policy might be used during a recession to encouragebanks to extend credit to consumers and entrepreneurs. A contractionary monetary policy(e.g., increase in interest rates) would conversely shrink the money supply, and might beused to prevent or control inflation during a period of economic growth.

19 Accounting VSFinance

Accounting and finance are both forms of managing the money of the business, but theyare used for two very different purposes. One of the ways to distinguish between the two isto realize that accounting is part of finance, and that finance has a much broader scopethan accounting. Accounting is the practice of preparing accounting records, includingmeasuring, preparation, analyzing, and the interpretation of financial statements. Theserecords are used to develop and provide data measuring the performance of the firm,assessing its financial position, and paying taxes. Finance, on the other hand, is the efficientand productive management of assets and liabilities based on existing information.

20 Accounting VS AIS

Accounting is a systematic process of identifying, recording, measuring, classifying,verifying, summarizing, interpreting and communicating financial information. It revealsprofit or loss for a given period, and the value and nature of a firm's assets, liabilities andowners' equity. An accounting information systems combines traditional accountingpractices such as the Generally Accepted Accounting Principles (GAAP) with moderninformation technology resources.



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21 Management VSMIS

Management in businesses and organizations is the function that coordinates the efforts ofpeople to accomplish goals and objectives by using available resources efficiently andeffectively. Management includes planning, organizing, staffing, leading or directing, andcontrolling an organization to accomplish the goal. Resourcing encompasses thedeployment and manipulation of human resources, financial resources, technologicalresources, and natural resources. Management information system, or MIS, broadly refersto a computer-based system that provides managers with the tools to organize, evaluateand efficiently manage departments within an organization. In a managementinformation system, modern, computerized systems continuously gather relevant data,both from inside and outside an organization. This data is then processed, integrated, andstored in a centralized database (or data warehouse) where it is constantly updated andmade available to all who have the authority to access it, in a form that suits their purpose.

22 Cost VS Expense

The terms 'cost' and 'expense' are commonly used words in the fields of business,economics and accounting. Most often these terms can be used interchangeably withoutissue. In accounting however, the terms have quite different meanings. Basically, sacrificingresources (money) to acquire products is called a cost. Using up the value of thoseproducts to generate revenue for a business is called an expense.

23 Gross Profit VS NetProfit

For a company, gross profit equates to gross margin, which is sales minus the cost of goodssold. Thus, gross profit is the amount that a business earns from the sale of goods or services,before selling, administrative, tax, and other expenses have been deducted. For acompany, net profit is the residual amount of earnings after all expenses have beendeducted from sales. In short, gross profit is an intermediate earnings figure before allexpenses are included, and net profit is the final amount of profit or loss after all expensesare included.

24 Direct Cost VSIndirect Cost

Manufacturing costs may be classified as direct costs and indirect costs on the basis ofwhether they can be attributed to the production of specific goods, services, departmentsor not. Direct costs can be defined as costs which can be accurately traced to a costobject with little effort. Cost object may be a product, a department, a project, etc. Directcosts typically benefit a single cost object therefore the classification of any cost either asdirect or indirect is done by taking the cost object into perspective. A particular cost maybe direct cost for one cost object but indirect cost for another cost object. Costs whichcannot be accurately attributed to specific cost objects are called indirect costs. Thesetypically benefit multiple cost objects and it is impracticable to accurately trace them toindividual products, activities or departments etc.

25 Basic EPS VS DilutedEPS

The basic earnings per share is a total amount of earnings per share that is calculated onthe basis of a number of shares issued at that time. The basic EPS is calculated accordingto the following formula: Basic EPS = (Net Income – Preference Dividend) ÷ number of issuedshares. It is also used in the calculation of price-earnings ratio. Basic EPS represents themeasure of profitability of a business, and represents the true price of a share. However, anindividual must know that if two companies generate same EPS, it doesn’t mean they arerepresenting the same financial performance. It is possible that one company may haveefficiently used its equity, while the other company may have issued more shares in orderto arrive at the same amount of basic EPS. On the other hand, the diluted EPS showsearning per share a business could earn, if all the warrants, stock options, convertibles, andother exercisable dilutive securities were taken into account along with the additionalnumber of shares issued at that time. As you can see that diluted EPS is calculated byaccounting for the warrants, convertibles (stocks and bonds), stock options and all otherfinancial instruments that can be converted into shares. It shows the amount of EPS afterdilutive financial instruments are exercised. If you look at it from the investors’ perspective,diluted EPS is not considered favorable, because it shows the EPS after conversion of all thedilutive securities into shares while no change in the net income occurs.



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26 Funding VSFinancing

Every company requires capital to run its business, and it is impossible to continue businesswithout injection of money from time to time. There are different ways to collect moneyand keep the business running. Sometimes, companies borrow loan from banks and otherfinancial institutions, or they can also take funds from investors in the form of share capital.Retained earnings are also utilized for this purpose. No matter what way they use for tocollect money, it can be done either by funding or financing. Generally, funding andfinancing are interchangeably used in the financial world, but there is a differencebetween these two terms. Funding is actually the money provided by companies or by agovernment sector for a specific purpose, whereas, financing is a process of receivingcapital or money for business purpose, and it is usually provided by financial institutions,such as, banks or other lending agencies. Funding is an amount of money provided by theorganization or government on the basis of an agreement. It is usually free of charge. Theremay be certain contractual requirements in that agreement, but there are norequirements to pay back the capital. The most common facilitators that normally fulfill thefunding needs of an organization are the donations made by governments, orphilanthropists. Financing, on the other hand, is an amount of capital or the sum of moneyprovided to an organization with the expectation to repay, and organizations are liable topay back the capital amount along with a certain percentage of interest. Therefore, therepayment also includes an interest component. It is usually provided by financialinstitutions like banks, or investors like venture capitalists, business angels, shareholders, etc.

27 Secured Loan VSUnsecured Loan

The first and most prominent difference between a secured or unsecured loan is using acollateral against the loan. In case of a secured loan, a bank keeps an asset as a collateralagainst the amount of loan issued to a borrower. The asset can be anything that aborrower owns, such as, a house, car, financial instruments, or any other property that canbe converted into cash. On the other hand, as the name suggests, no collateral is requiredfor an unsecured loan. It is usually issued to a borrower on the basis of his good creditstanding or a good credit history. No asset or property of a borrower is kept as a collateralin case of an unsecured loan. This is the reason why the rate of interest charged onunsecured loans is higher as compared to secured loans. The higher rate is charged tominimize the risk of loss that a financial institution faces. The term period of a secured loanis longer than a term period of an unsecured loan, and again, this is done to reduce therisk by offering a short time period on an unsecured loan. In case of a secured loan, youcan write off an interest charge for tax purposes. This can be done if a primary property,such as a house, is secured as collateral against the loan. However, it is important tounderstand that you will be risking your property if you are unable to repay the loan. Onthe other hand, you cannot write off the interest charge for tax purposes in case ofunsecured loan, because there is no collateral involved.

28 GATT VS WTO

The General Agreement on Tariffs and Trade (GATT) was a multilateral agreementregulating international trade. It was created in 1948 and lasted until 1993. World TradeOrganization (WTO) was formed as a replacement for GATT in 1995 with the purpose ofsupervising and liberalizing international trade. WTO has a more permanent structurecompared to GATT. WTO also monitors trade in services and trade-related aspects ofintellectual property rights, in addition to trade in goods. There are various bodies oragreements that have been made around the world in order to maintain peace andjustice among the different countries. The main purpose of such bodies is to regulate talks,trade and other rules and regulations among the different countries of the World. The mostpopular bodies are the United Nations and the World Trade Organization. Though thereare a few similarities between the GATT and the WTO, they are distinctly different from eachother. The General Agreement on Tariffs and Trade (GATT) was a multilateral agreementregulating international trade. It was created in 1948 with a purpose of “substantialreduction of tariffs and other trade barriers and the elimination of preferences, on areciprocal and mutually advantageous basis.” It was originally placed under the ITO(International Trade Organization), which was supported by the United Nations (UN). Whenthe ITO failed to ratify, GATT evolved into the World Trade Organization (WTO). There a fewmajor flaws in the GATT structure such as not enough enforcing power, which led to manydisputes among the members. Also, the rules and regulations that were created underGATT were temporary in nature. World Trade Organization (WTO) was formed as areplacement for GATT in 1995 with the purpose of supervising and liberalizing internationaltrade. The organization deals with regulation of trade between participating countries, italso provides a framework for negotiations and formalizations of trade agreements. It isalso responsible for enforcing trade laws, agreements and resolving disputes. The WTO wascreated with the purpose of being a stronger and having a more permanent frameworkcompared to the previous GATT. It also monitors trade in services and trade-relatedaspects of intellectual property rights, in addition to trade in goods. The WTO has a total of157 member countries.



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29One Way ANOVAVS Two WayANOVA

Anova refers to analysis of relationship of two groups; independent variable anddependent variable. It is basically a statistical tool that is used for testing hypothesis on thebasis of experimental data. We can use anova to determine the relationship between twovariables; food-habit the independent variable, and the dependent variable healthcondition. The difference between one-way anova and two-way anova can be attributedto the purpose for which they are used and their concepts. The purpose of one-way anovais to see whether the data collected for one dependent variable are close to the commonmean. On the other hand, two-way anova determines whether the data collected for twodependent variables converge on a common mean derived from two categories. One-way anova is used when there is only one independent variable with several groups orlevels or categories, and the normally distributed response or dependent variables aremeasured, and the means of each group of response or outcome variables arecompared. When there are two independent variables each with multiple levels and onedependent variable in question the anova becomes two-way. The two-way anova showsthe effect of each independent variable on the single response or outcome variables anddetermines whether there is any interaction effect between the independent variables.Two-way anova has been popularised by Ronald Fisher, 1925, and Frank Yates, 1934. Yearslater in 2005, Andrew Gelman proposed a different multilevel model approach of anova.

30 Area VS Perimeter

Area is a physical quantity that expresses the extent of any two-dimensional shape orfigure, or planar lamina in a plane. To understand it better consider the thickness to begiven or constant, then the area would be the amount of material needed to fashion amodel of a particular shape. In contrast to this, perimeter is a measure of the length of thepath that surrounds a two-dimensional shape or figure. To understand it better, think ofmeasuring the length of the outline of a shape. The perimeter is important in cases wherethe length of the boundary is important. 1. Area-expresses the extent of any two-dimensional shape or figure, or planar lamina in a plane, consider the thickness to be givenor constant, then the area would be the amount of material needed to fashion a modelof a particular shape; perimeter is a measure of the length of the path that surrounds atwo-dimensional shape or figure, think of measuring the length of the outline of a shape.The perimeter is important in cases where the length of the boundary is important. 2. Unitsof area are squared, such as cm2, m2; units of perimeter are not squared such as cm, m.3. Area needed when the enclosed region needs to be considered, such as plot size;perimeter needed when the length of the boundary is needed, such as when building afence.

31Sample VarianceVS PopulationVariance

Variance is a numerical value that shows how widely the individual figures in a set of datadistribute themselves about the mean. That is how far each number is from the mean, andthus from each other. A variance of zero value means all the data are identical. More thevariance, more are the values spread out about mean, hence from each other. Less thevariance, less are the values spread out about mean, hence from each other, andvariance can’t be negative. Population variance refers to the value of variance that iscalculated from population data, and sample variance is the variance calculated fromsample data. Due to this value of denominator in the formula for variance in case ofsample data is ‘n-1’, and it is ‘n’ for population data. As a result both variance andstandard deviation derived from sample data are more than those found out frompopulation data.



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32 Covariance VSCorrelation

Covariance and correlation are two concepts in the field of probability and statistics. Bothare concepts that describe the relationship between two variables to each other. Also,both are tools of measurement of a certain kind of dependence between variables.“Covariance” is defined as “the expected value of variations of two random variates fromtheir expected values” while “correlation” is “the expected value of two random variates.”To simplify, a covariance tries to look into and measure how much variables changetogether. In this concept, both variables can change in the same way but withoutindicating any relationship. Covariance is a measurement of strength or weakness ofcorrelation between two or more sets of random variables while correlation serves as ascaled version of a covariance. Both covariance and correlation have distinctive types.Covariance can be classified as positive covariance (two variables tend to vary together)and negative covariance (one variable is above or below the expected value comparedto another variable). On the other hand, correlation has three categories; positive,negative, or zero. Positive correlation is indicated by a plus sign, a negative sign fornegative correlation, and “0” for uncorrelated variables. Both covariance and correlationhave ranges. Correlation values are in the scale of -1 to +1. In terms of covariance, valuescan exceed or can be outside of the correlation range. In addition, correlation values aredependent on units of measure of “X” and “Y.” Another notable difference is that acorrelation is dimensionless. In contrast, a covariance is in units, which is formed bymultiplying the unit of one variable to another unit of another variable. Covariance focusesthe relationship of two entities such as variables of sets of data. In contrast, correlation caninvolve two or multiple variables or data sets and their relationships.

33 Permutation VSCombination

“Combination” is defined as the selection of objects, symbols, or values from a wide varietylike a large group or a certain set with underlying similarities. In a combination, theimportance is made on the choice of the objects or values themselves. One combinationcomprises one value plus another value (as a pair) with or without additional values (or asa multiple). Values or objects in a combination do not require order or arrangement. Thecombination can also be random in nature. Also, the values or objects can be consideredas alike or the same in comparison with each other. A combination, with relation topermutation, can be several in numbers while permutation can be less or single incomparison. On the other hand, permutation is also the selection of objects, values, andsymbols with careful attention to the order, sequence, or arrangement. Aside from givingan emphasis on these three things, permutation gives the values or objects’ destinationsby virtue of assigning them into a specific placement with each other. For example, acertain value or a combination of values can be assigned as the first, second, and so on.

34Mutually ExclusiveEvents VSIndependent Events

“Independent events” means that the occurrence or outcome of one event does notinfluence the occurrence of another event. “Mutually exclusive” events means that theoccurrence or presence of one event entails the non-occurrence of the other.Independent events are expressed mathematically as pr (x and y) = pr (x) . pr (y) whilemutually exclusive events are expressed as pr (x and y) = 0.

35 Table VS Chart

A table is the representation of data or information in rows and columns while a chart is thegraphical representation of data in symbols like bars, lines, and slices. A table can be simpleor multi-dimensional. While there are several types of charts, the most common are piecharts bar charts, and line charts. Texts are seldom used in charts while they are often usedin tables. A chart is used to help understand a large amount of data and its componentswhile a table is used to keep track of information such as quantities, numbers, names,addresses, and other details.

36 Circle VS Ellipse

A circle is basically a line which forms a closed loop. In a circle, the set of points areequidistant from the center. It is a closed curve which has an interior and an exterior. It isattained when the plane intersects the right circular cone perpendicular to the cone axis.A circle is a two-dimensional figure whereas a disk, which is also attained in the same wayas a circle, is a three-dimensional figure meaning the interior of the circle is also includedin the disk. The eccentricity of a circle is zero. An ellipse is attained when the plane cutsthrough the cone orthogonally through the axis of the cone. A circle is a special ellipse. Inan ellipse, the distance of the locus of all points on the plane to two fixed points (foci)always adds to the same constant.

37 Prime Number VSComposite Number

In natural numbers, which are one to infinity, that is, [1, 2, 3, 4, 5… infinity]; those numberswhich can have only two factors, one is the number 1 and the other is the number itself,are called prime numbers. Simply put, those numbers which can be divided only by 1 andthemselves are called prime numbers. All the numbers other than prime numbers, except1, are composite numbers because they have more than two factors. That is, compositenumbers can be divided by 1, themselves, and some other numbers also.



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38 Qualitative Data VSQuantitative Data

Qualitative data collection is a method in which the characteristics, attributes, properties,qualities, etc. of a phenomenon or thing is described. It is the description of data in alanguage rather than in numbers. This method does not measure the characteristics butdescribes them. Quantitative data collection is a method in which data that can benumerically counted or expressed is collected. This data is useful for experiments,manipulated analysis, etc. and is represented by histograms, tables, charts, and graphs. Itdeals with measurements like height, length, volume, area, humidity, temperature, etc.

39 Warranty VSGuaranty

The necessity of a guarantee emerged as a means of protection to safeguard the right ofthe consumer. With the strength of the guarantee, a seller is liable to make the completereplacement of the purchased item, incase it was found to be below the prescribedstandard. This is given by the seller or the manufacturer of a product to the customer andremains valid for a fixed period. The guarantee is a legal instrument irrespective of whetherthe customer paid for the article or not. Likewise, the warranty is also an instrument tosafeguard the rights of a consumer. It requires payment on the part of the customer tomake it legally viable as in the case of an insurance policy. With the strength of thewarranty, the seller or the manufacturer is liable to face the judicial courts if the seller or themanufacturer fails to comply with the provisions of the warranty on their part. Warranty isonly relevant to the repairing of articles. A guarantee is generally given by manufacturerswhereas the warranty is provided by most of the retail sellers or distributors. In a case ofmotorcycle purchase, there is the guarantee from the manufacturer and the seller has toprovide the warranty on the vehicle from his part.

40Cost Pull Inflation VSDemand PullInflation

Aggregate supply is the total volume of goods and services produced by an economy ata given price level. When there is a decrease in the aggregate supply of goods andservices stemming from an increase in the cost of production, we have cost-push inflation.Cost-push inflation basically means that prices have been "pushed up" by increases in costsof any of the four factors of production (labor, capital, land or entrepreneurship) whencompanies are already running at full production capacity. With higher production costsand productivity maximized, companies cannot maintain profit margins by producing thesame amounts of goods and services. As a result, the increased costs are passed on toconsumers, causing a rise in the general price level (inflation). Demand-pull inflation occurswhen there is an increase in aggregate demand, categorized by the four sections of themacroeconomy: households, businesses, governments and foreign buyers. When thesefour sectors concurrently want to purchase more output than the economy can produce,they compete to purchase limited amounts of goods and services. Buyers in essence "bidprices up", again, causing inflation. This excessive demand, also referred to as "too muchmoney chasing too few goods", usually occurs in an expanding economy.

41Agreegate DemandVS AgreegateSupply

In macroeconomics, aggregate demand (AD) or domestic final demand (DFD) is the totaldemand for final goods and services in an economy at a given time. It specifies theamounts of goods and services that will be purchased at all possible price levels. Ineconomics, aggregate supply (AS) or domestic final supply (DFS) is the total supply ofgoods and services that firms in a national economy plan on selling during a specific timeperiod. It is the total amount of goods and services that firms are willing and able to sell ata given price level in an economy.

42 CS VS RS VS SA VSBS

CS Khatiyan : This khatiyan was prepared under Bengal Tenancy Act 1885. This is known asCadastral Survey. This survey started from ramu of Cox’s Bazar upazila on 1888 and endson 1940.RS Khatiyan : After 50 years of CS survey another survey was held on. This survey was knownas Revisional Survey and the khatiyan made from this survey is known as RS Khatiyan. Thepurpose of this survey is to update the amount of land, owner’s name and possessor’sname. It is more authentic than the CS khatiyan.SA Khatiyan : This Khatiyan was prepared under State Acquisition and Tenancy Act 1950.Actually this is not a practical Survey or this is not based on field survey. This khatiyan wasmade on the information was given by the Zamindar or Landlord. SA khatiyan means Stateacquisition khatiyan or Settlement Attestation. It is also known as PS khatiyan or PakistanSurvey Khatiyan. This is not an authentic khatiyan.BS Khatiyan : This is the more authentic khatiyan than all other khatiyan. A survey wasstarted on 1970 which is continuing till now. This survey is known as Bangladesh Survey andthe khatiyan made from BS survey is known as BS Khatiyan or Bangladesh Survey Khatiyan.

43Mutation KhatiyanVS Survey/JareepKhatiyan

Mutation Khatiyan: Normally Khatyan is made through jareep. But jareep does not alwaystake place. Property may be transferred in-between two jareeps. Then the change ofownership needs to be reflected in the Khatiyan. Such kahtiyan done through mutationproceedings is known as mutation khatiyan. AC Land office does this.



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Survey/Jareep Khatiyan: Khatiyan is prepared through land survey. This survey isconducted by Land Record and Survey Department situated at Tejgoan. It has its ownpress to print Khatiyan. Khatiyan are given nomenclature according to the name of thesurvey i.e. CS khatiyan, RS Khatiyan SA Khatiyan etc

44Profit MaximizationVS WealthMaximization

Financial Management is concerned with the proper utilization of funds in such a mannerthat it will increase the value plus earnings of the firm. Wherever funds are involved,financial management is there. There are two paramount objectives of the FinancialManagement: Profit Maximization and Wealth Maximization. Profit Maximization as itsname signifies, refers that the profit of the firm should be increased while WealthMaximization, aims at accelerating the worth of the entity. The major differences betweenprofit maximization and wealth maximization are: 1. The process through which thecompany is capable of increasing is earning capacity is known as Profit Maximization. Onthe other hand, the ability of the company in increasing the value of its stock in the marketis known as wealth maximization. 2. Profit maximization is a short term objective of the firmwhile long term objective is Wealth Maximization. 3. Profit Maximization ignores risk anduncertainty. Unlike Wealth Maximization, which considers both. 4. Profit Maximizationavoids time value of money, but Wealth Maximization recognizes it. 5. Profit Maximizationis necessary for the survival and growth of the enterprise. Conversely, Wealth Maximizationaccelerates the growth rate of the enterprise and aims at attaining maximum market shareof the economy.

45 Retail Banking VSCorporate Banking

The banking industry is divided into two major banking components known as retailbanking and corporate banking. Retail banking and corporate banking services areoffered mostly by commercial banks who maintain separate divisions for their retailcustomers and corporate clients. In some instances, commercial banks team up withinvestment banks to provide a number of investment banking capabilities to their businessclients. Retail banking serves the needs of individual customers and includes services suchas accepting deposits, maintaining savings and checking accounts, and providing loansto individuals for a variety of purposes. Corporate banking serves the needs of businesscustomers and offers savings accounts, checking accounts, loan facilities, credit facilities,trade finance, foreign exchange, etc. solely for companies and businesses.

46 Bank In Run VSBank In Panic

A situation that occurs when a large number of bank or other financial institution'scustomers withdraw their deposits simultaneously due to concerns about the bank'ssolvency. As more people withdraw their funds, the probability of default increases,thereby prompting more people to withdraw their deposits. In extreme cases, the bank'sreserves may not be sufficient to cover the withdrawals.

47Economic CapitalVS Social Capital VSHuman Capital

In finance, mainly for financial services firms, economic capital is the amount of risk capital,assessed on a realistic basis, which a firm requires to cover the risks that it is running orcollecting as a going concern, such as market risk, credit risk, legal risk, and operationalrisk. It is the amount of money which is needed to secure survival in a worst-case scenario.Firms and financial services regulators should then aim to hold risk capital of an amountequal at least to economic capital. Typically, economic capital is calculated bydetermining the amount of capital that the firm needs to ensure that its realistic balancesheet stays solvent over a certain time period with a pre-specified probability. Therefore,economic capital is often calculated as value at risk. The balance sheet, in this case, wouldbe prepared showing market value (rather than book value) of assets and liabilities.SocialCapital is an economic idea that refers to the connections between individuals and entitiesthat can be economically valuable. Social networks that include people who trust andassist each other can be a powerful asset. These relationships between individuals and firmscan lead to a state in which each will think of the other when something needs to be done.Along with economic capital, social capital is a valuable mechanism in economic growth.Human capital is the stock of knowledge, habits, social and personality attributes, includingcreativity, embodied in the ability to perform labor so as to produce economic value.Alternatively, Human capital is a collection of resources—all the knowledge, talents, skills,abilities, experience, intelligence, training, judgment, and wisdom possessed individuallyand collectively by individuals in a population. These resources are the total capacity ofthe people that represents a form of wealth which can be directed to accomplish thegoals of the nation or state or a portion thereof.



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48 Compensation VSRemuneration

Compensation, ideally, refers to a form of monetary payment for either the performanceof some work or service or as a recompense for a damage or injury suffered. It is, therefore,of a financial nature. In contrast, Remuneration is a broader term and refers not only tomonetary payment for the performance of a work or service, but also includes non-monetary payments such as medical insurance, family support, housing, transport, pensionschemes and/or other retirement benefits. Ideally, it is inclusive of Compensation paid toan employee for damage or injury suffered by the employee.

49 Maslow Theory andHerzberg Theory

Maslow theory talks about the needs that are to be fulfilled in order to motivate a personwhile Herzberg theory talks about the causes of satisfaction and dissatisfaction. Herzberg’stheory explains the factors that lead to motivation and demotivation. According toMaslow’s hierarchy of needs, human needs can be classified into five basic categories asphysiological needs, security needs, belongingness needs, esteem needs and self-actualization needs. According to Herzberg’s two factor theory, there are two factors ashygiene factors and motivational factors which affect the employee’s level of satisfaction.

50 Content Theory VSProcess Theory

Difference between content theory and process theory is that, content theory emphasizeson the reasons for changing the human needs frequently while process theory focuses onthe psychological processes which affect motivation, with regard to the expectations,goals, and perceptions of equity. Content theory or need theory can be identified as theearliest theories related with the concept of motivation. It outlines the reasons formotivating an individual; that means it explains the necessities and requirements that areessential to motivate a person. These theories have been developed by various theoristssuch as Abraham Maslow – Maslow’s Hierarchy of Needs, Federick Herzberg – Two factortheory and David McClelland – Need for achievement, affiliation and power. Processtheories outline various behavioral patterns of individuals in fulfilling their needs andrequirements. There are four process theories such as Reinforcement, Expectancy, Equityand Goal setting.

51 Staffing VSRecruiting

Recruitment is the process of attracting the suitably qualified set of people to apply for aparticular post in an organization while staffing involves selecting, deploying, and retainingthe employees within the organization. Staffing begins with the individuals’ entry to theorganization and continues throughout the process until the employee leaves thecompany. However, recruitment is done at the initial stage of staffing. Recruitment can beperformed through internal sources as well as through external sources, and staffing isprimarily an internal process.

52 HRM VS HRD

HRD and HRM are both practices that deal with human resources of a company. Usuallyin large organizations, there exists entire departments dedicated to HRM where trainedprofessionals work together solely towards the amelioration of this aspect, dealing withboth HRD and HRM functions. HRD is human resource development. HRM is humanresource management. HRD deals with functions such as performance development andmanagement, training, career development, mentoring, coaching, succession planning,tuition assistance, key employee identification, etc. HRM deals with functions such asemployee training, recruitment, performance appraisals as well as duly rewarding theemployees. HRD is a part of HRM. HRM deals with all HR initiatives while HRD only deals withthe development factor. HRM functions are more formal than of HRD functions.

53 Human ResourcesVS Human Capital

The terms human capital and human resources are closely linked to one another becausethey look at how current and potential human skills can be used to gain the maximumefficiency and profitability. The major difference between human capital and humanresources is that human resources are the human potential that can be drawn from a vastpool of resources. Human capital refers to the skills, expertise that are already invested andutilized. Human resources need to be hired, trained, developed and provided withopportunities and challenges in order for them to be realized. Over the time, humanresources can then be converted to human capital, which are human skills, capabilitiesand competencies that have been invested and engaged in business operations whiledelivering results and output.

54 Hiring VSRecruitment

Recruitment is carried out to entice the best available talent in the market towards the jobopenings in an organization. Hiring is a part of the recruitment process. Hiring is the finalstep in a recruitment drive where the right candidate gets chosen, and he is handed overa contract.



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55 Job Description VSJob Specification

Job description is a full description of the responsibilities and duties that a job entails.Making a job description is essential for a HR manager before the organization advertisesvacancies. This is to ensure that the right candidates apply for the job after reading the jobdescription. Candidates know in advance what their roles and responsibilities would beonce they are selected for the job as also the tasks they would be required to perform. Ajob description contains the designation, the work conditions, the nature of duty, therelationship with other employees and superiors, qualifications required, and tasks andresponsibilities expected to be done by the candidate. Job specification is a tool thatallows management to let applicants know the skills, level of experience and education,and abilities that they are required to have to be able to fit easily into a job in anorganization. In fact, a job specification enables the management to have in mind thekind of candidate they are looking for. Whenever there is a vacancy in an organization, itis this job specification that helps the management to go for recruitment as they know thetype of candidates they want in the organization. A job specification is all about the skillsand abilities required in a candidate along with a brief description of the job requirements.

56 Motivation VSSatisfaction

Motivation refers to any stimulus that controls and guides human behavior. In anorganizational setup, motivation could be anything from incentives, perks, promotion andeven encouragement from the boss on completion of a given task. There was a time whenmoney was considered to be the most important motivational factor, but today, after aseries of experiments beginning with Hawthorne studies, it is well known that motivationplays a crucial role in the behavior and performance level of the employees and moneyis just one of the myriad motivational factors. Salary, increments, promotions, etc areextrinsic motivation factors and drive behaviors and even productivity level of employees.Satisfaction refers to a feeling that people have when they have completed a job that isconsidered difficult. In fact, having done the job well is what brings satisfaction to mostpeople. The pleasure or joy of doing a job is what is called as job satisfaction. There arevery few who get job satisfaction despite getting a high salary and other perks andincentives.

57 Cover Letter VSResume

Cover letter is a tool that intends to introduce a candidate to people who matter in acompany. A good cover letter tells all about your desire and why you should be preferredover other candidates. Resume is a document that tells cold facts about your pasteducational and career experience to prospective employers. It lets the reader know thepositions you have held in the past and what responsibilities you have shouldered inprevious organizations. A cover letter is not necessary when sending your resume in acompany, but when well written, it compliments a resume. A cover letter should not be acopy of the resume and should not cover the facts already revealed in a resume. A coverletter is more of a tool that introduces a candidate to hiring authorities in a company andrequests them to consider the applicant for a particular job opening. Resume highlightsyour accomplishments and past achievements like work experience and jobs handledwhile a cover letter tells why you should be preferred over others for a particular job

58 Resume VS Biodata

Resume focuses more on educational and work experiences while Biodata focuses moreon biographical information. Resume lets a prospective employer select an individual fora particular job while Biodata is more useful for government and matrimonial services as itincludes more personal details. Biodata is used in southeast Asian countries while Resumeis used all over the world.

59 Profession VSOccupation

Profession is more respectable and higher earning than a mere occupation. Professionrequires earning a degree through higher education that imparts specialized knowledge.Occupation could be anything from driving a truck to working as a wood cutter in a factorywhile profession could mean being a doctor, lawyer, engineer or an administrator.Profession is a subset of occupation.

60 Dismissal VSTermination

Termination is usually looked down upon as it normally entails any wrongdoing on the partof the employee. Dismissal is a sort of punishment for a delinquent employee. Terminationis an end of contract, whereas, in dismissal, the employee can be acquitted of his chargesby a court and reinstated back to his job. In termination, there are no benefits for theemployee while there may be some benefits allowed by the management in the case ofdismissal.

61 Blue Collar VS WhiteCollar

In general, jobs that require people to use their brains instead of their muscle power areclassified as white collar jobs. White collar workers work in offices and have an environmentthat is different from what blue collar workers get in factories and industrial plants. Whitecollar jobs are considered higher paying, and workers get salaries and perks; whereas, bluecollared workers receive daily or monthly wages. However, this distinction between bluecollared and white collared workers is getting blurred with many jobs requiring high manualskills, and receiving high pay.



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62 Job Enlargement VSJob Enrichment

This is a process that pertains with increasing the range and scope of duties andresponsibilities of a job. At first, this is perceived as a challenge by the employee and takenin a positive manner, however, when he sees that there is no reward associated withincreased responsibilities and no previous duty has been removed from the job, hismotivation levels go down. Job enrichment is a job design technique that is not focusedupon making the job more interesting and to reduce monotony. The focus here is to instilla sense of achievement, and provide a sense of involvement with the job and thecompany. A feeling of personal growth and a sense of responsibility is what the end goalof this job designing technique.

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Human ResourceManagement VSPersonnelManagement

HRM and PM are mostly used to explain the set of activities to match people toorganizational needs. PM has a narrow scope, which is traditional and deals mostly withroutine tasks (staffing, payroll, labour laws) – administration and static. HRM has a broadscope, which evolved from PM, but in addition to the administration tasks, contributes toan organization’s success – holistic and strategic.

64 Salary VS Wages

Wages and salary both pertain to the income of a person, though being differentconcepts. Wages are mostly associated with employees hired at hourly rates, while salaryis associated with employees who get yearly packages. Salaried employees do not getany additional money if they put in higher number of hours, but employees working onhourly wages get 1.5 times or twice their hourly rates for all hours in addition to the minimumagreed number of hours (usually 40 hours) in a week.

65 Job Analysis VS JobEvaluation

Despite being a part of the broader job evaluation process, job analysis is an importantprogram in itself. While job evaluation aims at finding the net worth of different jobs in anorganization with the aim of finding salaries and wage differentials, job analysis tries to findout everything about a specific job including the role, responsibility, working conditions,skills required, demands and hazards associated with a job. Management of anyorganization always endeavors to make the salaries and wages associated with jobsattractive so as to able to compete with other companies in luring better talent.

66Intrinsic MotivationVS ExtrinsicMotivation

Intrinsic motivation is a feeling of happiness, relaxation, achievement or accomplishment,whereas extrinsic motivators are rewards that are tangible such as money, medals, trophiesetc. However, praise or approval of others can also work as extrinsic motivation. Intrinsicmotivation comes from within whereas extrinsic motivation comes from the outside. In reallife, people need both intrinsic and extrinsic motivation.

67 Recruitment VSSelection

Recruitment is the process of searching the candidates eligible for employment. It alsoconsists in making the eligible candidates apply for the corresponding jobs. On the otherhand selection involves the various steps employed to choose the right candidate for theright job. These steps may include screening and interviewing.

68 Group VS Team

A group is usually composed of 2-4 members that work interdependently with each otherto a significant degree. They are committed to work together and willing to be handled bya leader. Though they are interdependent with each other but still they have individualresponsibility that they have to perform, and that specific accountability, when done well,can help the group accomplish their goals. A team is considered to work interdependentlyand is committed to achieve one common goal. They share the responsibilities and deliverresults until they reached the conceived output of their efforts. They are usually composedof 7-12 members and are helping each other to develop new skills to which it can helpimprove their performance. They don’t usually rely on a leader for supervision.

69 Direct Marketing VSIndirect Marketing

Direct marketing can be classified as direct communication with carefully targetedindividual customers to obtain an immediate response and for creating long termrelationships. In simple terms, direct marketing is the method of ‘directly’ reaching out tocustomers. It is an aggressive form of convincing the customers for sales to happen.Examples of direct marketing are telephone marketing, direct mailers, direct responsemarketing television (DRTV), and online shopping. If there is no direct communicationbetween the customer and the seller, it can be classified as indirect marketing. This methodis mass-media oriented, where the audience is high in numbers. Also, it is targeted andappeals to a wide array of customer segments. Indirect marketing is usually successful asreminders for customers about the product or service when customers are alreadycustomers of the product or service. Notable example of indirect marketing is advertising.



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70Customer Value VSCustomerSatisfaction

From a theoretical background, the value is the total perceived benefit exceeding thetotal perceived cost. Customers evaluate the trade-off between the benefits they areacquiring and the price they are paying for those benefits. Customer value can be shownas an equation as below: Customer Value = Total Customer Benefits – Total Customer Costs.Customer satisfaction can be classified as the match between customer expectations ofthe product and the product’s actual performance. Customer expectation and how theyunderstand the actual product performance is more emotional. Satisfaction is felt by anindividual and not thought. So, it differs from person to person and is very complex toquantify.

71 Selling Concept VSMarketing Concept

Selling concept can be classified as ‘persuading and convincing customers to purchasegoods of the firm by extensive promotional modes.’ The promotion tools used wereadvertising and personal selling. Selling concept believes that customers will not buyenough unless they are pushed to buy. Still, for certain products, selling concept is beingused. Examples are life insurance, retirement plans, and firefighting equipment. The sellingconcept has its drawbacks. This concept only advocates seller’s side. The customer’s sidehas been neglected. The drawbacks of the selling concept lead to new thinking in thebusiness world. With more options and higher disposable income customer had the luxuryto choose what they wanted. Also, their demand power increased. Therefore, a questionarose in the business community that is – what do customers want. These changes ofmindset led to the rise of the marketing concept. Marketing concept can be classified asthe collective activity of satisfying customer wants and needs while meeting theorganization objectives. Simply, it’s the process of satisfying the customers while making aprofit . Marketing concept treats the customer as the king.

72 Niche Marketing VSMass Marketing

Niche marketing strategy is defined as a marketing initiative proposed to capture arelatively small number of buyers in the market. Niche marketing strategy always intends tocapture a clearly defined target market. For example, Sensodyne as a toothpaste can beidentified as a product utilizes niche marketing strategy. The product is not catered to thesociety at large, rather it states, ‘Sensodyne for sensitive teeth’. Mass marketing strategyintends to appear in the whole market without confining into a small market segment. Massmarketing appears in the entire market and intends to capture the whole consumer base.The objective of such a strategy is to reach the maximum number of consumers as possible.In here, it is easy to identify a product’s marketing strategy. Mostly mass marketing appliesintense advertising and promotion. If a product is promoted intensely via TV commercials,billboards, etc. it depicts the product utilizes mass marketing. For an example, assume aproduct like Coca-Cola. Intense marketing activities of the company intends to capturealmost all the consumers in the world regardless of the income, lifestyle, profession, age,etc. of the consumer. Therefore, heterogeneous consumers are seen under mass marketingwith distinct needs.

73 Branding VSMarketing

Branding is a strategic decision. One way to think about it is by analogy: branding is to acompany as personality is to a person. A brand is an identity, a point of view, tone,voiceand a distinct look. Branding is more than colour scheme and a a logo, it is a philosophy.It drives everything a company does, from customer service to business development tosales to yes, marketing. Marketing, in contrast to branding, is a tactical process. It is theallocation of resources to promote awareness of your brand, products and services. Thisranges traditional marketing channels like TV ads and billboards to newer channels likesearch engine marketing (SEM) and social media efforts.

74 Advertising VSPublic Relations

Advertisement is a paid form of promotion whereas public relations (PR) is more or less afree promotional tool. Advertisement buys time slots on electronic media and space in printmedia, to carry the message across. On the other hand, there is no such buying in publicrelations. Company has control over the content of advertisement whereas it can onlyhope for a totally positive point of view from the media. There is a difference in publicperception as public relation is not seen as a deliberate effort of the company whereaspublic knows that the company has paid for time on electronic media. Whileadvertisements can be repeated many times for as long as the company desires, PRreleases are a onetime affair only.

75 Trademark VSCopyright

Copyright is used to protect intellectual products like works of art, music, songs, movies,plays, books, poems, texts etc. whereas trademark is a tool that is used to protect namesand words used by a business, to let consumers know the source of the products. It iscommon to see books and movies being granted copyrights whereas business names,slogans, and logos are given trademarks for protection. While copyright is used to preventothers from copy and reproduce literary works, trademark cannot prevent others frommaking or selling same products. All a trademark does is to identify the source of a productto allow a consumer know from where it has come.



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76 Marketing VSPromotion

Marketing consists of many activities and promotion is just a part of marketing. Marketingcan exist without the help of promotion, but promotion cannot exist independently.Promotion is all about creating a positive public awareness about the product, and itinvolves strategies like advertisement and publicity. Marketing starts from identifyingconsumer needs and continues from production and selling, to finally providing after saleservice to customers. Advancement of a product or service is at the focus of promotionwhile identification and satisfaction of customer needs is at the focus of marketing.

77 Marketing VSSelling

Marketing is a concept, a strategy that is a heady mix of many activities aimed atincreasing sales while selling is the final act of buying by the end consumer at a point ofsale. While the end result of both marketing and selling is same i.e. sale, marketing is allabout creating a favorable ground for selling to take place. Marketing requires identifyingthe needs of customers and then producing and introducing the product to satisfy theneeds and demands of the customers. Selling takes place in a one to one situation at apoint of sale whereas marketing is all the research and planning that goes into making aproduct successful. Marketing requires promotion and advertising to create a positiveawareness about the product. Selling takes advantage of marketing to close the deal.

78 Advertisement VSPublicity

Advertising and publicity are two different tools to promote a company, product, or anindividual. Advertising is paid form of marketing while publicity is a free tool of marketing orpromotion. Advertising is a controlled form of promotion where the advertiser controls thecontent and the time slot if the commercial is meant for radio or TV. Advertising issometimes not seen as reliable, and many become suspicious when they know that thearticle or program is sponsored. Publicity depends upon media relations, and good mediarelations can help in suppressing negative information about a company or a product.

79 Brand VSTrademark

A brand is developed over a course of time with consistent quality that is appreciated bycustomers. A trademark is granted by trademark and patent office, and is a legal devicethat protects the owner in case of unlawful use of the trademark. Brand helps inidentification of the product and the company, while trademark helps in preventing othersfrom copying. If a brand has not been registered, anyone can copy it, and there is noprovision of any penalty, while in case of trademark violation, there is severe penalty.

80 Normal Goods VSInferior Goods

Economists classify goods as normal or inferior depending upon change in their levels ofconsumption with increase in income levels. If consumption levels of goods go up with therise in income levels, they are grouped as normal goods. If consumption level goes downwith the increase in income, goods are categorized as inferior goods.

81Proforma Invoice VSCommercialInvoice

Sometimes also referred to as Predict Invoice, after both sides agree upon a deal, Proformainvoice serves the purpose of informing the prospective customer all about the form andcontent of the actual invoice that follows suit. Actually, importer makes a request for sucha document from the exporter that contains every detail about the transaction that is totake place such as name of the cargo, unit price, specification, pricing, total value, termsof payment. This Proforma invoice is used by the importer to apply for an import license orforeign exchange from the relevant government department. It has to be rememberedthat Proforma invoice is not final or formal, and it cannot be used for collection of money.The amount and pricing mentioned in Proforma invoice are always subject to change, andso mentioned in the Proforma invoice. This implies that Proforma invoice is at bestestimation in nature and a final invoice, called commercial invoice always gets issued afterProforma invoice. Commercial Invoice is actual bill of the transaction that takes place. It isissued by the seller to the buyer, and carries all details about the prices of the items suppliedalong with relevant taxes and customs being charged from the buyer. In most cases, thedetails contained in a commercial invoice are same as that in a Proforma invoice, butsometimes there are changes that reflect changes in the rates of cargo and customs. It iscommercial invoice that is used by a government to assess exact duties to be collectedfrom the buyer. These invoices are also used by many countries as a proof so as to keep acheck on imports. Any seller or exporter must check with the importer as to what are exactrequirements that need to be included in the commercial invoice.

82 Margin VS MarkupMark up and margin are two different ways of looking at profit in a business. Mark up is thepercentage that is added to cost price and makes up the MRP. Margin refers to thepercentage of profit a shopkeeper gets on his investment.

83 Goods VS Services

Goods are tangible while services are intangible. The quality of goods, once produced,does not vary. However, the quality of services is dependent upon the service provider andmay vary greatly. You own goods, but you utilize services. The ownership of goods istransferable. The ownership of services is not transferable. The customer involvement inservices is remarkably higher than in goods.



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84 Public Relations VSPublicity

In reality, ‘public relations’ is a sum of all activities that are undertaken to mold publicopinion in the desired direction. It works on the principle of making perception a reality inthe minds of the customers. Publicity can take many forms such as news coverage, featurearticles, talk shows on TV programs, blogs, and letters to editors and so on. The mainfunction of publicity is to draw attention of the media towards the products and servicesof the company. The goal of PR and publicity is similar and that is to attract the attentionof media towards the products of the company but publicity is just a part of the whole PRexercise that is undertaken to generate goodwill and credibility for the company in theeyes of the public (potential customers).

85 Bidding VS Auction

Auction is a very old tradition of selling or buying of goods and services which allows thehighest bidder to get hold of the product or the service. Bidding is the act ofmaking/placing bids. In ancient times, women were sold and purchased through auction.Similarly, bonded labor was also sold and purchased in this fashion. While open auction isa more popular system of auctioneering, sealed auction is the manner in whichgovernment contracts and tenders are awarded.

86 MOU VS MOA

MOA or Memorandum of Agreement is a document of agreement composed betweentwo parties to cooperate on a project that has been agreed upon previously. Also knownas a cooperative agreement, a MOA helps two entities work together to achieve agreedupon objective. It is a written agreement of understanding between two parties and canbe used between individuals, governments, communities or agencies as a convenient toolfor heritage projects. An MOU or a Memorandum of Understanding describes aconvergence of will between two or more parties. It is a multilateral or a bilateralagreement that indicates an intended common line of action. Used in instances where theparties involved cannot or do not imply a legally enforceable agreement, an MOU is alsoknown as a more formal alternative to a gentleman’s agreement. There are four legalelements, also known as the four corners in a binding contract. These elements areconsideration, offer, intention and acceptance. In private law, the term MOU is also usedas a synonym for a letter of intent.

87 Condition VSWarranty

Warranties and conditions are essential to a sale of goods contract to ensure that bothparties to the contract are fulfilling the claims or promises that were made in the contract.Conditions are terms that need to be fulfilled in order for the contract to go through. Awarranty is not as essential as the conditions; it is a guarantee that the buyer receives fromthe seller that all the information provided about the product is true. In the event thatconditions are not met, the party that suffers can terminate the entire contract, but inwarranty, this does not apply; instead, the buyer has the right to claim for damages.

88 Lessor VS Lessee

A lease agreement lays out the use/rent of an asset over a specific period. There are twoparties to a lease agreement, known as the lesser and lessor. A lessee is the party that isentitled to use the asset as per terms stated in the lease agreement for a specific period oftime, by paying an agreed upon periodic payment. A lessor is the legal owner of the assetand is the party that allows the lessee to use the asset for a specific period of time, for a setamount of rent.

89 Negotiation VSArbitration

Negotiation involves direct talking between two parties at loggerheads while, inarbitration, parties talk through their representatives in front of an arbitrator. Negotiationinvolves some give and take whereas there is no lost ground in arbitration. Negotiation isless costly than arbitration that requires services of attorneys and arbitrator.

90 MOA VS AOA

MOA and AOA stand for memorandum of association and articles of associationrespectively and are important source of information for shareholders and otherstakeholders in a company that has been duly incorporated. MOA is the Charter of thecompany that outlines the nature of the business, aims and objectives whereas AOAoutlines the rules and regulations for internal management in doing the business. WhileMOA is a must for all the companies, AOA is not so; it’s not a must for companies limited byshares to have its own AOA. MOA is the supreme document for a company AOA shall notviolate MOA. Alteration of MOA is restricted while AOA can be altered through a specialresolution. Though both AOA and MOA reveal information about the company, it is AOAthat is of particular interest for shareholders and potential investors. Taken together MOAand AOA are referred to as Constitution of the company.

91 Indemnity VSGuarantee

A guarantee is a promise to someone that a third party will meet its obligation to them. “Ifthey do not pay you, I will pay you”. An indemnity is a promise to be responsible for anotherperson’s loss and to agree to compensate them for any loss or damage on mutuallyagreed terms. For example, one agrees to pay the difference of repairs if they exceed acertain limit.



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92 Barter VS Trade

Trade and bartering are methods that have been used for the purpose of obtainingrequired goods and services over the years. Barter is a system of trade in which one partyexchanges products, goods and services in order to obtain required products, goods andservices possessed by another. In a barter system, no money exchanges hands betweenthe buyer and the seller. Trade, on the other hand, is a broader term which includes bartersystem, purchase of goods using money, international trade between countries,commodities trading, currency trading, stocks and bonds trading, etc. The main differencebetween barter and trade is that while barter trade does not involve money, other formsof trade occur with currency used as a medium of exchange. An important point to noteis that the invention of trade whether barter or otherwise has developed a useful systemunder which individuals, businesses and nations can exchange or sell off the products orgoods held in excess and purchase or obtain desired products, goods and services.

93Balance OfPayment VSBalance Of Trade

Balance of payments records all of the country’s transactions and inflows and outflows offunds between the local economy and foreign economies. All international transactionsduring the year are recorded in the balance of payments; transactions undertaken by boththe private and the public sectors are taken into account when calculating the balanceof payments. Inflows of funds to the country are recorded as credits and any outflow offunds from the country are recorded as debits. The balance of payments consists of 3 maincomponents; current account, capital account and financial account, where eachaccount tracks different types of transactions. The current account records all inflows andoutflows from the international sales and purchases of goods and services, earnings oninvestments, and unilateral transfers. The capital account records capital flows to and froma country including sales and purchases of assets, transfers of goods and assets, gifts,remittances. The financial account records all inflows and outflows of funds in relation tointernational investments, foreign reserves and gold, foreign direct investments, etc.Balance of payments records all international inflows and outflows of funds to and fromforeign countries. The balance of trade is a component of the balance of payments andis recorded under one of the main components of the balance of payments; the currentaccount. While the balance of trade shows only the difference between the value of acountry’s total imports and exports of goods and services, the balance of payments showsan overall view of the country’s financial status by taking into consideration transfers ofcapital, transfers of assets and funds, international investments, sales and purchases ofassets, remittances, gifts, unilateral transfers, changes in reserves, etc. The balance of tradeis narrower in scope as it does not take into consideration the capital and financialtransactions. The balance of payments, on the other hand, is more comprehensive as itcovers all international transactions and, therefore, offers a true and fair view of country’sfinancial status and economic performance.

94 Deflation VSRecession

Deflation and recession are similar to one another in that they both result in a period ofeconomic downturn. The outcomes of both deflation and recession are quite similar in thatthey both cause high levels of unemployment, reduction in investment, lower productoutput and thereby cause negative economic growth. In both situations, the central bankreduces interest rates to stimulate economic activity by increasing investment, spendingand output. Despite these similarities, there are a number of differences between the two.Deflation occurs when an economy experiences low price levels. It occurs as a result oflow money supply in the economy where there are insufficient funds to create demand forgoods and services to match the supply level. A recession occurs when an economyexperiences continuously low economic growth as a measure of the country’s GDP.Recession can be caused by both inflation and deflation and can result in negative growthin economic activity.



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95 Short Run VS LongRun

Short run and long run are concepts that are found in the study of economics. While theymay sound relatively simple, one must not confuse ‘short run’ and ‘long run’ with the terms‘short term’ and ‘long term.’ Short run and long run do not refer to periods of time, such asexplained by the concepts short term (few months) and long term (few years). Rather, shortrun and long run shows the flexibility that decision makers in the economy have overvarying periods of time. Short run refers to a period of time within which the quantity of atleast one input will be fixed, and quantities of other inputs used in the production of goodsand services may be varied. Production of goods and services occur in the short run. Firmscan increase output in a short run by increasing the inputs of variable factors of production.Such variable factors of production that can be increased in the short run include laborand raw materials. Labor can be increased by increasing the number of hours worked peremployee, and raw materials can be increased in the short run by increasing order levels.The long run refers to a period of time in which the quantities of all inputs used in theproduction of goods and services can be varied. In the long run, all factors of productionand costs involved in the production are variable. The long run allows firms toincrease/decrease the input of land, capital, labor, and entrepreneurship therebychanging levels of production in response to expected losses of profits in the future. In thelong run, a firm can enter an industry that is deemed profitable, exit an industry that is nolonger profitable, increase its production capacity by building new factories in response toexpected high profits, and decrease production capacity in response to expected losses.

96 Total Utility VSMarginal Utility

Utility is a term in economics used to describe satisfaction and fulfillment that a consumerderives from the consuming a particular product or service. Total utility is the aggregate ortotal satisfaction that a customer receives through consuming a specific good or service.Marginal utility refers to the additional satisfaction or fulfillment that a customer derives fromconsuming additional units of a particular product or service. As each unit of the productwill have its own marginal utility, the total of all marginal utilities and the initial satisfactionderived from consuming the product will make up the total utility of a product.

97Nominal ExchangeRate vs RealExchange Rate

Nominal exchange rate and real exchange rate show the rate at which one currency canbe purchased for another. Nominal exchange rates are the rates that are displayed atbanks and money changers. Real exchange rates are a bit more complicated and showhow many times an item of goods purchased locally can be purchased abroad. Nominalexchange rates are the rates at which the currency is exchanged for. Nominal exchangerates are the rates that you find displayed at banks and money changers, and the rate atwhich you can exchange foreign currency for local currency or vice versa. For example,let’s take the exchange rate between India and the USA as $1 = INR60, this means that atourist from the States who wants to purchase Indian currency will be able to obtain 60Indian Rupees for 1 US dollar. Exchange rates are always displayed in terms of the amountof currency that can be purchased for one unit of another currency. Real exchange ratesmeasure rate of exchange a bit differently. Real exchange rates show the ratio betweenthe local price levels and price levels in a foreign country. Real exchange rates shows howmuch of goods and services purchased in one country can be exchanged for goods andservices of another country. The equation for calculating real exchange rates are, realexchange rate = nominal exchange rate X domestic price / foreign currency. Let’s takean example to explain this clearly. You need to know the rate of 1 kg of rice between theUS and India. Let’s assume the price of 1kg of rice in India as 80 INR, and the price of 1kgof rice (of equivalent quality) in US as $4. The exchange rate is $1 = INR60. This will becalculated as, real exchange rate = 60 × 4 / 80 = 3.

98 Aggregate DemandVS Demand

Aggregate demand and demand represent the main differences between the study ofmacroeconomics and microeconomics. Aggregate demand is the total demand in aneconomy at different pricing levels. Demand is defined as ‘the desire to buy goods andservices backed by the ability and willingness to pay a price’. Aggregate demand showsthe total spending of the entire nation on all goods and services while demand isconcerned with looking at the relationship between price and quantity demanded foreach individual product. Aggregate demand is the total demand in an economy atdifferent pricing levels. Aggregate demand is also referred to as total spending and is alsorepresentative of the country’s total demand for its GDP. The formula for calculatingaggregate demand is: AG=C+I+G+(X-M), where C is consumer spending, I is the capitalinvestment, G is government spending, X is exports, and M denotes imports.



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99 Cartel VS Monopoly

A monopoly is a market in which one single large firm will control the entire market for aparticular product or service. A cartel is formed by a group of individuals, organizations, orproducers/suppliers of a particular product or service and is set up to control productionand sales and pricing. The main difference between the two is that monopolies have onlyone dominant player who single handedly controls the production, sales, and pricing of aparticular product, whereas cartels are groups of such dominant organizations that worktogether to manipulate the market to their benefit.

100 Money VS Currency

Money is a medium that can be exchanged or traded for good and services. Money canbe used to measure the value of those goods and services at the current market price.Currency is any form of money that is circulated publicly. Currency can include hardmoney such as coins made out of metal or soft money such as money bills made of paper.The main difference between money and currency is that money is the actual value thatis traded for goods and services, and currency is the paper money or coins that we carryaround to make our day to day payments.

101 Neoliberalism VSCapitalism

Capitalism is a philosophy that is dominant in the western world and is slowly becomingpopular in all parts of the world. It refers to free market economy that means nointerference or regulation from the state and markets regulating themselves being drivenby forces of demand and supply. This is a system that encourages profit motive andentrepreneurship. Ideally, there is less and less participation of the state in industries and itconfines itself with administration and maintaining law and order. Capitalism is aneconomic system that is ideally characterized by freedom or laissez-faire. It is a systemwhere rule of law is supreme, and the market is not governed by the state. Neoliberalism isa collection of economic policies that have emerged in the last 2-3 decades and whichfavor economic liberalization, open markets, free trade, deregulation, removal of licenseand quota system, and so on. Neoliberalism as a term was coined in the mid-thirties, topopularize a kind of liberalism that was different from the classic liberalism. Over a longperiod of time, Neoliberalism has come to mean many diverse things to diverse groups ofpeople.

102 Free Trade VS FreeMarket

Free market and free trade are concepts that are related to one another and they bothpromote economic freedom for buyers and sellers. A free market is a domestic market inwhich there is no government intervention and all prices, costs, decisions are based onmarket forces of demand and supply, and voluntary exchange. Free trade will eliminateall kinds of trade barriers such as tariffs, quotas, taxes, embargos, and promotes taxholidays, subsidies and other forms of support to encourage domestic production andpromote free trade between countries. The purpose of free markets is to reduce externalinfluences on prices, costs, consumer decisions, and individual/corporate freedom ofchoice, whereas the purpose of free trade is to promote international trade amongcountries.

103Elasticity ofDemand VSElasticity of Supply

Price elasticity of demand and price elasticity of supply are concepts closely related toone another as they consider how demand or supply will be affected by changes in price.Price elasticity of demand shows how changes in demand can occur with the slightestchange in price. Price elasticity of demand is calculated by, PED = % change in thequantity demanded / % change in the price. Price elasticity of supply shows how changesin price can affect quantity supplied. Price elasticity of supply is calculated as, PES = %change in the quantity supplied / % change in the price. One major difference betweenelasticity of demand and elasticity of supply is that demand and supply respond differentlyto an increase/decrease in price; demand tends to increase when price falls, and supplytends to fall when price falls.

104 Giffen Goods VSInferior Goods

Giffen goods and inferior goods are very similar to each other in that giffen goods arespecial types of inferior goods. Both these types of products do not follow the generaldemand patterns laid out in economics and are, therefore, special types of products thatare treated differently by consumers as market prices and income levels change. Giffengoods are goods for which demand will fall when price falls as people do not tend topurchase more of a giffen good even if prices are low because they will look for betteralternatives, or will spend their money on something else. As income rises people will spendless on inferior goods as they can now afford more expensive, better quality alternatives.



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105

ClassicalEconomics VSNeoclassicalEconomics

Neo classical economics and classical economics are two very distinct schools of thoughtthat define the economic concepts quite differently. Classical economics was used in the18th and 19th century, and neo classical economics, which was developed towards theearly 20th century, is followed till today. Classical economics believes in a self-regulatingeconomy with no government intervention, with the expectation that resources will beused in the most efficient manner to meet needs of individuals. Neo classical economicsoperates with the underlying theory that individuals will strive to maximize utility andbusiness will maximize profits in a market place where individuals are rational beings whohave full access to all information.

106 Fiscal Deficit VSRevenue Deficit

A revenue deficit occurs when the organization does not receive as much net revenue asthey projected earlier. Net income is the difference between the income for the periodand expenses for the period. A company’s net revenue may not reach the projectedamount when either the income for the period is lower than projected or the expenses forthe period are higher than projected. Every organization, whether a company or agovernment will monitor previous years’ incomes and expenses and project the incomeand expenses for the following year, to predict the surplus or deficit they will arrive at theyear end. A fiscal deficit occurs when the expenses for the period are higher than theactual revenue. When the organization or government suffers a fiscal deficit, there will beno excess funds to invest in the development of the organization/country. A fiscal deficitwould also mean that an organization/government will have to borrow funds to make upfor the deficit which will result in higher levels of interest expenditure. A fiscal deficit can becaused by an unexpected expenditure such as a fire destroying company premises, or anatural disaster that requires the government to reconstruct housing.

107 Liberalisation VSGlobalisation

Globalization and liberalization are concepts closely related to one another, and bothglobalization and liberalization refer to relaxing social and economic policies which resultsin better integration with an economy and between nations. Globalization is the greaterintegration among countries and economies for trade, economic, social and politicalbenefits. Liberalization generally refers to removal of restrictions; usually government rulesand regulations imposed on social, economic, or political matters.

108Economies of ScaleVS Diseconomies ofScale

Economies of scale and diseconomies of scale are concepts that go hand in hand. Theyboth refer to changes in the cost of output as a result of the changes in the levels of output.A company would have achieved economies of scale when the cost per unit reduces asa result of an expansion in the firm’s operations. Diseconomies of scale refers to a point atwhich the company no longer enjoys economies of scale, at which the cost per unit risesas more units are produced.

109Perfect CompetitionVS ImperfectCompetition

Perfect competition is where the sellers within a market place do not have any distinctadvantage over the other sellers since they sell a homogeneous product at similar prices.There are many buyers and sellers, and since the products are very similar in nature thereis little competition as the buyer’s needs could be satisfied by the products sold by anyseller in the market place. Since there are a large number of sellers each seller will havesmaller market share, and it is impossible for one or few sellers to dominate in such a marketstructure. Imperfect competition as the word suggests is a market structure in which theconditions for perfect competition are not satisfied. This refers to a number of extrememarket conditions including monopoly, oligopoly, monopsony, oligopsony andmonopolistic competition. Oligopoly refers to a market structure in which a small numberof sellers compete with each other and offer a similar product to a large number of buyers.Since the products are so similar in nature, there is intense competition among marketplayers, and high barriers to entry since most new firms may not have the capital,technology to startup.

110 Perfect CompetitionVS Oligopoly

Perfect competition is where the sellers within a market place do not have any distinctadvantage over the other sellers since they sell a homogeneous product at similar prices.An oligopoly is a market situation in which the marketplace is controlled by a small numberof sellers that offer a similar product at a comparable price level. The main difference isthat, in a perfectly competitive market place, the product is simpler and can be producedand sold by anyone; therefore, there are fewer barriers to entry. On the other hand, in anoligopoly, the product sold is more complex and requires large capital, technology, andequipment which make it difficult for new players to penetrate.



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111 Budget Deficit VSFiscal Deficit

A budget deficit will occur when an organization/government does not earn enoughrevenue to cover its expenditure. There are a number of types of budget deficits thatinclude revenue deficits, fiscal deficits and primary deficits. The main causes for a deficitto occur would be the organization’s/government’s inability to raise sufficient funds (asprojected earlier) or could also be as a result of unexpected expenditures. A budget deficitis not healthy for the government/organization as this means that additional funding willbe required to balance the deficit, for which interest will have to be paid in large sums. Thesolution to a budget deficit for a government would be to increase taxes, find new avenuesfor revenue and reduce government spending. A fiscal deficit is a type of budget deficitand occurs when the income for the year is insufficient to cover the expenses incurred.When the organization or government suffers a fiscal deficit, there will be no excess fundsto invest in the development of the organization/country. A fiscal deficit would also meanthat an organization/government will have to borrow funds to make up for the deficitwhich will result in higher levels of interest expenditure. A fiscal deficit can be caused by arevenue deficit or an unexpected expenditure such as a fire destroying companypremises, or a natural disaster that requires the government to reconstruct housing.

112 Nominal GDP VSReal GDP

GDP is one of the most commonly used economic measures that represent the strength ofan economy by showing the value of the total goods and services that are produced bya country. Nominal GDP does not take into account the changes in the prices (due toinflation/deflation) and is calculated at current market prices for that month or quarter.Real GDP, on the other hand, takes into account the effects of inflation and deflation andshows the actual value of the total goods produced.

113 Devaluation VSDepreciation

Devaluation and depreciation are both instances when the value of a currency falls interms of another currency, even though the manner in which this happens is quite distinct.Devaluation of a currency happens when a country deliberately reduces the value of itscurrency in terms of another currency. Depreciation of a currency occurs when the valueof the currency falls as a result of the forces of demand and supply.

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ClassicalEconomics VSKeynesianEconomics

Classical economics and Keynesian economics are both schools of thought that aredifferent in approaches to defining economics. Classical economics was founded byfamous economist Adam Smith, and Keynesian economics was founded by economistJohn Maynard Keynes. Classical economic theory is the belief that a self-regulatingeconomy is the most efficient and effective because as needs arise people will adjust toserving each other’s requirements. Keynesian economics harbors the thought thatgovernment intervention is essential for an economy to succeed.

115MonopolisticCompetition VSMonopoly

Monopoly and Monopolistic competition describe market situations, which are quitedistinct to each other in terms of the level of competition, level of market power, types ofproducts sold, and pricing structure. When a monopoly situation exists in the market, thismeans that there is one large seller who has the greatest market power, which results invery low levels of competition. A monopolistic market is one where there are a largenumber of buyers but a very few number of sellers. The players in these types of markets sellgoods which are different to each other; therefore, are able to charge different prices.Monopolistic markets have few barriers to entry for new firms, whereas monopoly marketshave high entry barriers because the market is controlled by one large company.

116 Elastic VS Inelastic

Elastic and inelastic are both economic concepts used to describe changes in the buyer’sand supplier’s behavior in relation to changes in price. When a change in price results in alarge change in the quantity that is supplied or demanded of a particular product, it isreferred to as being ‘elastic’. When a change in price does not greatly affect the quantitydemanded or supplied, that particular product is referred to as ‘inelastic’. Goods, whichare elastic, are usually goods which have easily replaceable substitutes, and goods, whichare inelastic, are usually necessities or goods which are habit forming.



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117 Commodity MoneyVS Fiat Money

Commodity money is very different from the type of currency that we use currently.Commodity money refers to currency that has been created out of a metal or substancethat is of value, and therefore carries a value from what it is made out of, as opposed toother forms of currency that have a value printed on its face. For example, a gold coin ismuch more valuable than a mere $1 bill since the gold itself as a commodity carries ahigher value, as opposed to a $1bill which is worth $1 because of the value that is printedon its face (and not because the paper on which it is printed on is worth anything).Commodity money is quite risky to use, as it may face unexpected appreciation ordepreciation. For example, country A’s currency is made of a precious metal silver, andthe demand for silver in the world market falls, then the currency of currency A wouldexperience an unexpected depreciation. Fiat money is the kind of money that we usetoday that is not made of any precious substance and does not carry a value of its own.These forms of currency have been passed through a government tender and do not haveany value to itself (intrinsic value). Fiat money is also not backed by any form of reservesuch as gold, and since it is not made of any valuable substance, the value of this currencyis in the faith that has been placed in it by the government and the people of the country.Since it is printed as legal tender, it is widely accepted. Fiat money can be used for anypayment within the country or region in which it is used. Fiat money is also very flexible andcan be used in the payment of a variety of amounts, large and small.

118Perfect CompetitionVS MonopolisticCompetition

Perfect and monopolistic competitions are both forms of market situations that describethe levels of competition within a market structure. A market with perfect competition iswhere there are a very large number of buyers and sellers who are buying and selling anidentical product. A monopolistic market is one where there are a large number of buyersbut a very few number of sellers. The players in these types of markets sell goods which aredifferent to each other, and therefore, are able to charge different prices. Monopolisticcompetition describes an imperfect market structure quite opposite to perfectcompetition. Perfect competition explains an economic theory of a marketplace whichdoes not happen to exist in reality.

119 Tariff VS Quota

Tariffs are taxes imposed on imported goods, to desist importers from importing them inlarge numbers as well as to provide relief to domestic producers and save them fromcompetition that may be leaning in favor of imported goods. For example, if the cost ofimported steel in a country is less than that produced by steel manufacturers in the country,the government can use tariffs to impose taxes on imported steel to make it at par or evencostlier than domestically made steel. The measure is protectionist in nature and does notprovide a level playing field to imported steel. However, the step may sometimes benecessary to encourage domestic manufacturers of steel. This is why taxes levied onimported goods are specifically kept for a certain period, to allow domestic producers todevelop and become ready to face competition from foreign producers of steel. Ifdomestic producers are still feeling the heat despite having imposed tariff on an importedproduct, the government of a country has another weapon up its sleeve in terms of quotas,also called import quotas. It can slap an import quota of the product, which implies thequantity that can enter the country though imports have been restricted for a specificperiod. Thus, imported goods, despite being cheaper than domestic products are not ableto make such a large impact than when they are freely imported inside the country. Quotacan be used in conjunction with a tariff, or it can be used alone, to restrict the quantity ofa product from foreign countries entering domestic markets. Quotas are believed toincrease corruption as some importers are prone to bribing government officials to allowtheir company to import the goods while disallowing others. Quotas also lead to smuggling,hurting domestic economy further. If government believe imported whiskey is hurtingdomestic producers, it can impose import quotas but people who get used to high qualityimported whiskey crave for it making it profitable for smugglers.

120 Accounting ProfitVS Economic Profit

Accounting profit and economic profit both denote a form of profit that a companymakes, even though their calculation and interpretation are quite different. Accountingprofit only considers the explicit costs that a firm incur while economic profit, in addition,considers the implicit opportunity cost that is incurred in choosing one alternative over theother. Another difference is that accounting profit will always be higher than economicprofit as economic profit considers the additional opportunity costs borne by a firm.Accounting profit is recorded in a firm’s income statement, whereas economic profit isusually calculated for internal decision making purposes. It is a common opinion amongeconomists that an accounting profit overestimates revenues because they do notconsider opportunity costs, and economic profits are critical to choose the option thatbrings about the highest value.



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121Economies of ScaleVS Economies ofScope

Economies of scale is about gaining benefits by producing large volume of a product,whereas economies of scope brings benefits by producing a wide variety of products byefficiently use of the operations. Economies of scale refer to reduction in average cost fora single product, whereas economies of scope refer to lowering average cost of producingtwo or more products. Economies of scale has been known for a long-time, whereaseconomies of scope is relatively new approach to business strategy. Economies of scaleuse the most efficient process, whereas economies of scope uses the same process toproduce similar products using high technology.

122 Market Economy VSMixed Economy

In the Market Economy consumers and businesses can take free decisions on what topurchase and what to produce. Whereas within Mixed Economy the production,distribution and other activities are limited for free decisions and both private andgovernment intervention is visible. Market Economy has less intervention of the governmentas opposed to the Mixed Economy.

123 Economics VSFinance

The branch of knowledge that concerns to the production, consumptions and transfer ofwealth is known as economics. That is, it analyses how the scarce resources are allocatedby the forces of supply and demand. Economics can be broadly subdivided into microeconomics and macro economics. Microeconomics analyses the behavior of individualsand firms. It, more focuses on how decision making process is taking place in individualeconomic units. Theory of demand, theory of firms, and demand for labour are some ofthe main topics that are discussed in more detail under microeconomics.Macroeconomics deals with broader concepts like unemployment, inflation, andgovernment policies. Finance means, the management of the large amount of money.The fund management revolves around the interconnection among time, risk and money.Private finance, public finance, and business finance are the main three areas of finance.Private finance deals with the income of an individual or a family. It is also known aspersonal finance. Public finance focuses more on financial activity of a country (orgovernment). It is also known as state finance. Business finance refers to financial decisionsof enterprises. Business finance is also known as corporate finance. Finance can be seenas a sub set of economics. Finance management tries to identify how a company canfinance its operations such that it would be able to find the possible mix of debt and equitythat makes the cost of capital lower.

124 Consumer GoodsVS Capital Goods

Capital goods are goods used to make more consumer goods, whereas consumer goodsare goods meant for the use of end consumers only. One buys consumer goods from retailstores for personal, family, or household use. Capital goods are bought by companiesdesirous of making the consumer goods. Machines, tools, equipments are examples ofcapital goods, whereas bread, butter, cold drinks, TV, laptops etc (in fact everything thatis used by people) are examples of consumer goods.

125 Expansion VSRecession

A sustained period in which real GDP is rising is an expansion; a sustained period in whichreal GDP is falling is a recession.

126 Black Money VSWhite Money

White money is the income that one generates after paying taxes as per the provisions andcan keep openly in his bank account and also spend it in any manner he wants. On theother hand, kickbacks, bribes, money earned through corruption, and money that hasbeen saved utilizing unfair means is called black money. As income and sale taxes havenot been paid on such money, this money needs to be kept underground.

127 Hedgers VSSpeculators

Hedgers are mostly producers of commodity. They hedge to minimize their risk at the timeof harvest as they fear they would lose out on their profit if the prices of the commodity godown. For example a corn farmer may sell corn futures prior to harvest as a hedge againstdrop in corn prices. It is hedgers who are principally responsible for setting up of futuresmarket. Speculators are players who anticipate profits by rising prices and buy futurescontract of producers. They do it thinking they are buying low and will sell when it is highlater. Speculators are not producers and are traders who add liquidity in the market byputting in money in the market. It is clear that a developed futures market requires activeparticipation of both hedgers and speculators.

128 Close Market VSOpen Market

If the market conditions are such that all economic actors have free access to participate,it is called an open market. In contrast, a market where there are barriers in the form ofduties and taxes is called a closed market or a condition referred to as protectionism. Inreality, it is hard to find a truly open market which is why economists have opted for a newterm which is free competition



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129 Tariff Barriers VS NonTariff Barriers

The purpose of both tariff and non tariff barriers is same that is to impose restriction onimport but they differ in approach and manner. Tariff barriers ensure revenue for agovernment but non tariff barriers do not bring any revenue. Import Licenses and Importquotas are some of the non tariff barriers. Non tariff barriers are country specific and oftenbased upon flimsy grounds that can serve to sour relations between countries whereastariff barriers are more transparent in nature.

130 FTA VS PTA

PTA stands for Preferential Trade Agreement, and is an economic pact betweenparticipating countries to help improve quantity of trade by gradually reducing tariffsbetween participating countries. The barriers to trade are not altogether removed, but apreference is shown towards participating countries in comparison to other countries ofthe world. There are departures from WTO in the sense that duties and tariffs are reducedsignificantly. WTO aims to have same tariffs and duties in international trade betweencountries but in the case of PTA, these tariffs are reduced much more than what GATTallows. FTA stands for Free Trade Agreement, and is considered to be an advanced stagein trade between participating countries of a trade block. These are countries that agreeto eliminate altogether artificial barriers and tariffs in trade between participatingcountries. Countries that share cultural links and geographical links are much more likely tohave a trade block of this magnitude. One such block is European Union where free tradeis practiced between the countries of the union.

131 Inflation VSDeflation

Inflation, though it leads to increase in prices and redistribution of income in favor of therich, is a lesser of the evil than deflation. Inflation does not lead to lowering of nationalincome which deflation does. Deflation causes wide scale unemployment which inflationdoes not. As deflation causes profits to tumble, pessimism sets in thus leading to a slowingdown of economy and output. It is possible to control inflation through many monetarypolicies while it is very difficult to reverse the process of deflation. In fact, mild inflation hasbeen seen as good for economy as it leads to economic development. All economistshowever feel that inflation should not be let out of control which can have devastatingeffects on economy.

132 Monopoly VSOligopoly

Monopoly is a market condition where there is only one player dominating the market, andconsumer has no options. Oligopoly is a situation where there are two or more playersdominating the market but substitute products closely resemble each other thus creatinga situation which is similar to monopoly. However, true oligopoly is ideal as it inducescompetition and brings down prices while at the same time improving the quality ofproduct.

133 Monopoly VSMonopsony

Monopoly and Monopsony are imperfect market conditions that are just opposite of eachother. While in monopoly there is one manufacturer or service provider controlling theindustry, in Monopsony, there are several producers but a single buyer. Both are not goodfor people as they allow hegemony of the producer in monopoly and that of buyer inMonopsony. Monopsony is commonly seen in the labor market where there are manylaborers but only one buyer to use their services.

134 GDP VS GNP

GDP is defined as the total value of all the goods and services produced within a countryin a given period of time which is usually taken a calendar year. It is calculated in thefollowing manner. GDP= consumption+ investment+ government spending+ (exports-imports). GNP on the other hand is the gross national product which is a figure obtainedby adding all the income generated by nationals of the country made within or outsidethe country to the GDP. Thus the major difference between GDP and GNP is that whileGDP takes into account income generated within the country, GNP takes into accountincome generated by the nationals, whether they are within the country or residing outsidethe country. The two factors of location and ownership are important to understandingGDP and GNP. If we are talking about the US, if there is an output that takes place withinthe US irrespective of the ownership, it is included in its GDP. On the other hand, GNPcalculates economic output based upon ownership. This is why it takes into account outputgenerated by American companies operating outside the US.

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AbsoluteAdvantage andComparativeAdvantage

Absolute advantage is the advantage of one country over another if it can produce highernumber of goods with the same resources than other countries. On the other hand,comparative advantage is the ability of a country to make a particular item better thanother countries. Under absolute advantage, mutually beneficial trade is not possible,comparative advantage provides for mutually beneficial trade between countries.Opportunity cost is a factor that is taken into consideration when talking aboutcomparative advantage, while it is only cost that is a factor when absolute advantage istalked about.



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136Positive EconomicsVS NormativeEconomics

Positive economics is objective and fact based, while normative economics is subjectiveand value based. Positive economic statements do not have to be correct, but they mustbe able to be tested and proved or disproved. Normative economic statements areopinion based, so they cannot be proved or disproved.

137 Need VS Want

A need is something that is necessary for the survival of a person. If the need is notavailable, then you may find it extremely difficult to survive. Hygienic water is a need forthe survival of man. This is so because without water he cannot survive for sure. Hence, it isone of the needs along with shelter and clothing. A want indicates something that a personwishes or desires to possess. In the case of a want, a person may need it either now orsometime later. It is hence understood that you can still continue to exist even in case youdo not get the want that you desired to possess. This is the major difference between aneed and a want. A need is essential for your survival, but a want is not. If the need is notavailable, then you may find it extremely difficult to survive. But a want does not pose thischallenge.

138 MacroeconomicsVS Microeconomics

Macro economics is that branch of economics that deals with the economy as a wholeand the decisions revolve around indicators such as the GDP, unemployment andconsumer prices indices. The output of a country, inflation, savings, unemployment,international economic policies and policies on export and import tend to govern themacroeconomics as macro refers to a larger picture and therefore takes into considerationthe whole economy. Macro economic policies are used by corporations and thegovernment at large to predict an outlook for their businesses or to find out feasibility forthe survival of any new business. Microeconomics is that branch of economics that studiesthe nature of individuals. By individuals, the focus is more on households and their demandand supply patterns governed immensely by prevailing interest rates, the inflationaryconditions of the economy and therefore their purchasing power. When the demand fora ‘basket of goods” or services increases, or the supply of such decreases, the priceaccordingly increases. When the demand decreases and the supply for the goodsincrease then the price decreases so that the quantities are sold out. This is how he demandand supply adjust in the economy.

139 Breakeven Point VSMargin of Safety

Breakeven point is the most vital figure that comes under breakeven (Cost-Volume-Profit)analysis. It is the sales volume at which a business covers all costs (both fixed costsand variable) from the sales revenue that earns. Therefore, at the breakeven point zeroprofit is recorded. Breakeven point can be calculated as follows: BEP (in units) = Total FixedCosts / Contribution per Unit. Where, Contribution per Unit = Selling Price per Unit – VariableCost per Unit. There is an alternative way to calculate BEP that can be illustrated as follows:BEP (in dollars) = Total Fixed Cost / Average Contribution Margin per unit. Margin of safetyis an important concept comes under breakeven analysis. This can simply be defined asthe difference between actual sales and breakeven sales. This is usually calculated in aratio form and is determined via following two formulas: MOS = Budgeted Sales – BreakevenSales or MOS = (Budgeted Sales – Breakeven Sales) / Budgeted Sales.

140 Absorption CostingVS Variable Costing

Absorption costing, which is also known as full costing or traditional costing, captures bothfixed and variable manufacturing costs into the unit cost of a particular product. Therefore,the cost of a product under absorption costing consists of direct material, direct labour,variable manufacturing overhead, and a portion of a fixed manufacturing overheadabsorbed using an appropriate base. Since absorption costing takes all the potential costsinto accounts in the calculation of per unit cost, some people believe that it is the mosteffective method to calculate the unit cost. This approach is simple. Moreover, under thismethod the inventory carries a certain amount of fixed expenses, so by showing a highlyvalued closing inventory, the profits for the period will also be improved. However, this canbe used as an accounting trick to show the higher profits for a particular period by movingfixed manufacturing overhead from the income statement to the balance sheet as closingstocks. Variable costing, which is also known as direct costing or marginal costing considersonly the direct costs as the product cost. Thus, the cost of a product consists of directmaterial, direct labour and the variable manufacturing overhead. Fixed manufacturingoverhead is considered as a periodic cost similar to the administrative and selling costs andcharged against the periodic income. Variable costing generates a clear picture on howthe cost of a product changes in an incremental manner with the change in level of outputof a manufacturer. However, since this method does not consider the overallmanufacturing costs in costing its products, it understates the overall cost of themanufacturer. The similarity between Absorption Costing and Variable Costing is that thepurpose of both approaches are the same; to value the cost of a product.



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141Income StatementVS Cash FlowStatement

Income Statement is prepared based on the accrual basis (Income and expenses of aparticular period are considered). Cash Flow Statement is prepared based on the cashbasis (Actual money flows are considered). Income Statement provides information aboutprofitability and owners’ equity. Cash Flow Statement provides information about liquidityand solvency of a business. Income Statement is an application of accounting policies,and standards and concepts are comparatively higher. Cash Flow Statement has a lessnumber of standards, policies and concepts to follow. Hence, its objectivity is high. IncomeStatement is prepared referring to various records and ledger accounts. Cash FlowStatement is prepared using income statement and balance sheet details.

142 Liquidity VSSolvency

The terms liquidity and solvency are both associated to a firm’s ability to repay theborrowed funds to its lenders or creditors. Liquidity is used to refer to a firm that has financialdifficulties but is still able to repay its loans in some manner. Liquidity may put the firm in therisk of bankruptcy, but since the firm possesses some assets they are safe and are able tocover some of their debts even if they have to sell the assets to do so. Insolvency refers toa firm that has no assets or cash and is unable to obtain borrowed funds to ease debt. Inthis case, the firm’s only option would be bankruptcy since they have no assets to covertheir debts.

143 Present Value VSFuture Value

Present value is the current value of future cash flow. Future value is the value of futurecash flow after a specific future period. Present value is the value of an asset (investment)at the beginning of the period. Future value is the value of an asset (investment) at the endof the period that is being considered. Present value is the discounted value of future sumsof money (Inflation is taken into consideration). Future value is the nominal value of futuresums of money (Inflation is not taken into account). Present value involves both discountrate and interest rate. Future value involves interest rate only. Present value is moreimportant for investors to decide upon whether to accept or reject a proposal. Future valueshows only the future gains of an investment, so the importance for investment decisionmaking is less.

144 Statement of AffairsVS Balance Sheet

Balance sheet, also known as the statement of financial position (for not for profitorganizations), is an indicator of the financial position of a given entity to a specific date.It reports aggregate balances of assets, liabilities and equity accounts as the end of acertain period, usually a year. Balance sheet measures financial health of a business entity.Therefore, by analyzing balance sheet figures, the stakeholders can arrive at variousdecisions particularly for planning volatility of future earnings. Statement of affairs (SOA) isalso identified as a record of financial position of a particular business entity at a giventime. The key purpose of SOA is to afford relevant information for the interested parties suchas shareholders, customers, employees, competitor, etc. Rather than exhibiting bookvalues of the assets and liabilities, SOA considers the amount at which the organization canrecover after selling off their assets and settling their outside obligations. When looking atthe similarities between Balance Sheet and Statement of Affairs one can say that bothstatements talk about financial position of a particular business entity in terms of liquidity.

145 Net Income VSNOPAT

Net income is the amount of funds that are left over once all expenses incurred in thebusiness have been reduced from the income for the period. The net income figureappears on the company’s income statement. As net income is derived from reducing allexpenses from income, the net income number offers a quick overview of the company’sfinancial health. NOPAT or net operating profit after tax as its name suggests removes theeffect of tax from the equation and offers an accurate look at the earnings if the companyhad no debt. NOPAT offers a clear look at the operating efficiency of unleveraged firms,as it does not include the company’s tax savings. Companies that do not have debt haveno interest expense and, therefore, their NOPAT is equal to the net profit. In other words,NOPAT is the amount of operating profit that would be available to shareholders after tax,if the company held zero in debt. NOPAT can be calculated in a few ways: • NOPAT =Operating profit x (1 – Tax Rate) or NOPAT = Net Profit After Tax + after tax Interest Expense– after tax Interest Income or NOPAT = (1-Tax Rate)* EBIT

146Cash FlowStatement VS CashFlow Projection

Cash flow statement and cash flow projection are both financial statements that areprepared with the aim of obtaining a clear picture of a firm’s financial position. While cashflow statement offers an overview of the firm’s current year’s inflows and outflows, cashflow projection, on the other hand, projects the firm’s inflows and outflows that are to beexpected in the future. While both offer managers additional information for decisionmaking, cash flow projection in particular offers detailed information for future planning.Cash flow projection aids businesses to make important decisions about the firm’ sfinances. Accurate cash flow projections are essential to the financial health of a firm.



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147 Accruals VSPrepayments

Accruals and Prepayments are essential as they show the company’s stakeholders thetypes of revenues and expenses expected by a firm, and help the company managers indecision making and planning. Accrued revenues are those that the company has alreadyearned, but has not received cash for. Accrued expenses, on the other hand, are theexpenses that have been incurred, but cash has not physically been paid out. If a customerpaid for the purchase of goods and services in advance, before the goods or service weredelivered or provided, this would be recorded as a prepaid income. On the other hand, ifthe company paid for raw material purchases in advance before these raw materials werereceived this is recorded as a prepaid expense. The main difference between accrualsand prepayments is that accrued income and expenses are those that are yet to be paidor received, and prepaid income or expenses are those that have been paid or receivedin advance.

148 Factoring VS BillDiscounting

In factoring receivables, the trader sells their unpaid invoices to factoring companies suchas banks and financial institutions at a discounted rate. Then these factoring companiesimmediately pay the trader the value of their invoices minus a fee. This is very convenientto the seller as he is not only able to recover his receivables faster , but factoring alsoimproves cash flow by releasing funds which would be tied up for an indefinite period. Inthe process of factoring receivables, factoring companies are also responsible formaintaining all credit control activities including management of the sales ledger andcollecting debts directly by contacting customers. In bill discounting, the seller of goodsdraws up a bill of exchange on the buyer of the goods and then discounts the said bill ofexchange with a bank or financial company. The seller is able to get immediate financeminus the fee charged by the finance firm. Bill discounting lets the seller recover theirreceivables faster thereby improving cash flow. Before purchasing the bill, the bank orfinancial institution has to consider a number of factors including the risk of non-paymentassociated with the bill and the amount of time remaining for the bill to become due. A billwith lower risk and shorter duration of becoming due is preferred. Once the buyer of thegoods makes the payment to the bank the transaction is settled.

149Accounts PayableVS AccountsReceivable

Accounts payable and receivable are two key accounting terms which are determinedby credit sales and credit purchases. The business organization that sells its goods to thecustomers on credit basis has the right to collect the respective amounts from thecustomers, which is known as accounts receivable, an asset. On the other hand, thebusiness organization that purchases goods and services including raw material, bears theliability to pay off the respective amount to its supplier, which is known as accountspayable, a liability of the business.

150 IFRS VS AASB

The Australian Accounting Standards Board (AASB) is the Australian governing body whoengages in developing, implementing and maintaining the accounting standards byadhering to the Australian company law. The main functions of the Board are set outaccording to the Australian Securities and Investments Commission Act 2001. InternationalFinancial Reporting Standards (IFRS) can be considered as a set of internationalaccounting standards issued by the International Accounting Standards Board (IASB) withthe objective of maintaining equal accounting standards among all the countries. Businessorganizations are following these standards when preparing the financial statements at theend of the period. The IFRS framework provides a set of principles for financial reporting.IFRS allows management a greater flexibility in preparing the financial statements of thecompany. When competing in the international market, it would be highly beneficial tohave the financial statements according to the international standards.

151 Inventory VS Assets

Assets are the resources owned by the company, and it can be categorized as financialresources (capital, shares), physical resources (buildings, furniture, machines andequipments), human resources (employees, executives, managers) , etc. For accountingpurposes, all the resources have been classified as fixed assets and current assets. Inventorycan be classified into three main categories as raw materials, work in progress and finishedgoods which are considered as current assets which can be converted into cash within ashorter period (less than one year). The turnover of inventory represents one of the primarysources of revenue generation and earnings for the company’s shareholders and theowners. Therefore, when preparing the financial statements, inventory is indicated in thebalance sheet, under the heading of current assets.



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152 Sunk Cost VSRelevant Cost

Sunk costs and relevant costs are both expenses that result in an outflow of cash andreduce a firm’s income and profitability. Since sunk costs are incurred in the past, they area type of irrelevant cost that do not affect future cash flows and, therefore, are notconsidered when making decisions about a firm’s future. On the other hand, relevant costsare costs that will be incurred in the future, as a result of a decision made presently and,therefore, must be considered in managerial decision making. It must however be notedthat when making pricing decisions for a long term, all costs including relevant andirrelevant must be taken into consideration. This is because in order for a business to beafloat in the long term the prices quoted should offer a sufficient margin to cover all costsincurred (relevant and irrelevant both). Therefore, total costs must be factored in whenmaking long-term financial decisions such as investment appraisal, expansion, newventures, selling off business units, etc.

153 ROCE VS ROE

Return on equity (ROE) is a formula very useful for shareholders and investors who invest inthe firm’s equity, as it allows them to see how much return they can obtain from their equityinvestment. In other words, ROE measures a company’s profitability as a percentage of theequity and total ownership interests in the business. Return on equity is a good measure ofthe company’s financial stability and profitability, as it measures profits made by investingshareholder’s funds. Return on equity is calculated by the following formula: Return onEquity = Net Income/Shareholder’s Equity. Return on capital employed (ROCE) displays thecompany’s ability to generate profits from all capital that it employs. ROCE shows thecompany’s profitability when taking into consideration the total equity as well as theliabilities and debt within which the company operates. ROCE is calculated as follows:ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed.

154 Amortization VSImpairment

Impairment and amortization both come together in the accrual principle of accountingthat requires a company to record assets at their fair market value. There is, however, anumber of major differences between the two. Impairment occurs when the value of theassets reduces drastically as a result of damage to the asset, an asset becoming obsolete,or other scenarios in which the asset’s value falls, which creates the need for the value ofthe asset to be written down to its true market value. Amortization is the continuous processunder which the asset’s cost is expensed over its useful life. The value of the asset is reducedby a proportionate amount, which is recorded as an expense in the income statement.This is done to show the fair value of the asset, as the value of assets reduces with time.

155 Contribution MarginVS Gross Margin

Gross margin and contribution margin are quite similar to another and are importantindicators of a company’s profitability. The gross margin (also called the gross profit margin)is the percentage of total sales that is retained by the company once all costs associatedwith producing and selling goods and services have been accounted for. The contributionmargin is calculated by reducing the variable costs of making a product from the salesrevenue to reveal what is left over to pay for fixed expenses. When calculating grossmargin, the cost of goods sold that is reduced from total revenue can include fixed costsand variable costs, whereas the contribution margin is calculated by reducing onlyvariable costs from total revenue.

156 Turnover VS Profit

Turnover and profits are both terms that appear on a firm’s balance sheet. Turnover is theincome that a firm generates through trading its goods and services. A profit is made whena firm is able to make sufficient income to surpass its expenses. Turnover is an importantcomponent used in calculating the company’s profit, as the turnover makes up the largestportion of the company’s income. High turnover is an indication that the business isgrowing, and the demand for the company’s goods and services are increasing while highprofits indicate financial stability and business success. Growth in turnover may notnecessarily mean the company is making profits since the costs may still be quite high.

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Cash BasisAccounting VSAccrual BasisAccounting

Accruals basis and cash basis are accounting methodologies used to record and report acompany’s transactions. The major difference between the two is in the timing of therevenues and expenses are recognized. According to the cash basis, revenue isrecognized only when the money is received and expenses are recognized only when thecash is paid. Accruals basis, on the other hand, records transactions as they are incurred.Revenues are recorded as soon as the business is made aware of a receivable andexpenses are recorded as soon as the business is made aware of payables.



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158 Cost Center VSProfit Center

Companies are made up of a collection of units, divisions, and sections known as operatingunits. Some units create large revenues and profits for a firm while some units result in costsand expenses. However, both types of operating units result in profits and may generateprofits either directly or indirectly. Profit centers such as sales divisions are profit centers thatare responsible for a large amount of company profits. Cost centers such as research anddevelopment, marketing, customer service, IT and maintenance result in large short termcosts but, without these departments, a company cannot make long term profits; thereforecost centers are essential to the smooth running and long term profitability and success ofbusinesses.

159 Sales VS Turnover

Sales and turnover refer to the very same thing and are used interchangeably on a profitand loss account. Sales and turnover refer to the income that is generated by the trade ofgoods and services. The sales and turnover numbers can be calculated by multiplying theunit price by the number of units sold. Figuring out the company’s sales or turnover for aperiod of time will help project future numbers, which can in turn help manage futureproduction capacity.

160Purchase MethodVS AcquisitionMethod

There are 2 accounting methods; namely, acquisition accounting and purchaseaccounting that are used in recording large transactions such as mergers and acquisitions.The purchase method in accounting is the new standard that is being used as opposed tothe older acquisition accounting method. The purchase method of accounting is quitesimilar to the acquisition method of accounting in that, in both methods, the company thatis being acquired will be listed at it’s fair value and the difference between the fair valueand purchase price will be recorded as goodwill. However, the purchase method does notallow a company to create a provision for restructuring to account for any future losses orcosts associated to restructuring that occur during the acquisition. The purchase methodis seen to be more accurate than the acquisition method as any losses that are associatedwith the acquisition must be reported immediately.

161 Current Assets VSNoncurrent Assets

Current assets and noncurrent assets are important components in a company’s balancesheet that shows the value of the total of the assets held in a firm. Current assets are thosethat can be quickly and easily converted into cash. Noncurrent assets, on the other hand,are held for longer periods of time, and usually include items that are not held with theintention to sell within a period of 12 months. Noncurrent assets also cannot be convertedinto cash quickly and are not as liquid as current assets.

162 Fair Value VSMarket Value

Fair value and market value are measures that are frequently used when determining thevalue of an asset. Even though they may sound similar, the way in which either is calculatedis quite different to one another. Market value is the value that an asset can be boughtand sold for in a market place. The market value of an asset will be determined by thedemand and supply for it. The fair value of an asset is calculated by using financial modelsthat take into consideration the total of the present value of the future cash flows that canbe generated from the asset. The fair value is not always equal to the market value, andcould be higher or lower depending on how valuable the asset is to the purchaser.

163 Gross Profit VSOperating Profit

Gross profit and operating profit are important calculations aimed at measuring theprofitability levels of the firm. Gross profit is the amount of sales revenue that is left overonce the cost of goods sold has been reduced. Operating profit is the profit that a firmmakes from its core/main operations. It is calculated by subtracting the company’s totaloperating expenses for the year from the revenue. The major difference between thesetwo is that gross profit is calculated by reducing costs directly related to producing andselling the goods and services while operating profit is calculated by reducing all otherexpenses from the gross profit figure.

164 Operating Profit VSNet Profit

Net profit and operating profit are two important components in the study of accounting.Both sound very similar to each other and are, therefore, consistently confused to meanthe same thing. In simple terms, operating profit is the profit that a firm makes from itscore/main operations and does not include extraordinary items that do not occur in thenormal course of business, in its calculation. Net profit is calculated by includingextraordinary expenses/income, reducing interest costs, depreciation and taxes fromoperating income. Operating profit is an indication that the firm performs its coreoperations efficiently and effectively, and net profit is a good indicator of how profitablethe company has been over the past year.

165 Direct Costs VSIndirect Costs

Direct costs are costs that can be directly related to the production of goods and services.Indirect costs are costs that cannot be directly associated with the production of goodsand services. The main difference between direct and indirect costs is that direct costs canbe charged directly to a particular product, service, or unit. Indirect costs need to beapportioned among the various departments within the organization by using somemethod of allocation.



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166FinancialAccounting VS CostAccounting

Accounting is divided into two main categories known as financial accounting and costaccounting. Financial accounting is the process used to record transactions and reportsummarized financial information in order to display a precise picture of the company’sfinancial performance, financial standing, and financial position. Cost accounting is usedto evaluate costs that are incurred throughout the production process by looking into thevariable costs and fixed costs that are incurred during each step of production. Financialaccounting looks at the company as a whole while cost accounting concentrates onimproving performance in certain divisions, units, locations, etc. The major differencesbetween the two lie in the purpose for which they are created, the statements that areproduced, and the type of information that are collected for the documents that areproduced.

167 Cost of Capital VSCost of Equity

The cost of capital is the return that is needed by investors for providing capital to the firm,and this acts as a benchmark that new projects need to meet in order for the project tobe considered. Cost of equity refers to the return that is required by investors/shareholders,or the amount of compensation that an investor expects for making an equity investmentin the firm’s shares. The major difference between cost of capital and cost of equity is that,cost of equity is the return required by shareholders to compensate for the risk taken toinvest shares and cost of capital is the total return required from the investment in securities(debt and equity both).

168 Trade Discount VSCash Discount

A trade discount is an incentive provided to a customer to purchase more of a product.Cash discounts are provided to customers either when a customer pays an invoice withina specific period of time, or when the customer makes a cash payment to the seller insteadof using checks or credit cards. A trade discount is provided on the purchase of goods,and a cash discount is provided at the time the payment on the invoice is made.

169 Reserve VSProvision

While provisions are generally seen to be negative since they reduce income levels,reserves are seen as positive as they add onto the company’s profitability and can be usedto provide for unexpected future losses, distribution among shareholders, or reinvestmentin the business. Provisions provide for any losses, expenses, liabilities, or depletion in assetsthat have been known and expected. The main reason for creating a reserve is to be ableto meet any unknown losses that may occur in the future. In contrast, the main reason forcreating a provision is to provide for losses that have been known and are expected. Areserve can only be created if the company is profitable, but provisions are maderegardless of whether the company is making a profit or loss.

170 Liability VS Equity

Both liabilities and equity are important components in a firm’s balanced sheet. Theaccounting equation clearly shows the relationship between liabilities, assets and equity.The equity (or capital) in a firm is equal to the difference between the value of its assetsand liabilities. Equity and loans can serve the same purpose by funding an investment orproject. However, equity is different to liabilities because liabilities represent an obligationthat must be met by the firm. On the other hand, equity represents the amount of fundsinvested in the firm which can be either owner’s contributions or shareholder’s investmentin the firm’s stock.

171 Allocation VSApportionment

Allocation and apportionment are methods that are used to divide up costs amongvarious cost centers depending on which department or cost center each cost or portionsof each cost belong. The major difference between allocation and apportionmentmethods are that allocation is used when the overhead can be directly related to onedepartment and cost center, and apportionment is used when the overhead arises froma number of departments. In allocation, the entire amount of the cost will be allocated toone department, and in apportionment proportions of the costs will be divided amongtheir respective cost centers. Allocation is much easier and simpler to do as the expensewill directly be related to one cost center. Apportionment can, however, be quite tricky asthe percentage of the cost that needs to be assigned to each department may be difficultto decide.

172 EBIT VS EBITDA

EBIT refers to Earnings Before Interest & Tax and measures a company’s profitability. EBIT isalso used to evaluate a company’s ability to earn income on a continuous basis as a resultof ongoing business operations. EBIT is calculated as, EBIT = Revenue – Operating Expenses.EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. The EBITDAacts as an indicator of a firm’s financial performance and is useful in making comparisonsbetween competitors, since accounting and financing effects are not considered and,therefore, do not affect the EBITDA. EBITDA is calculated as, EBITDA = Revenue – Expenses(all other expenses excluding Interest, Taxes, Depreciation, Amortization).



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173 Human Capital VSPhysical Capital

Human capital and physical capital are both types of capital resources that are essentialfor the smooth running of any business. Human capital refers to the skills, training,experience, education, knowledge, know-how, and competencies contributed byhumans to a business. Physical capital refers to assets which themselves have beenmanufactured and are used for production of other goods and services.

174 Annuity VSPerpetuity

Annuities and perpetuities are similar to each other in that they both make payments atregular intervals and they are both paid as a form of return for an investment made. Anannuity is known as a financial asset that will periodically pay a set amount of cash over adefined period of time such as 5 years, 10 years, 20 years, etc. A perpetuity is referred to asa stream of cash flows that will be paid at regular intervals, and will continue for an eternalperiod of time.

175 Dividend VS CapitalGain

When an investment in made in stocks, there are two types of financial returns that can beenjoyed by the investor; those are dividends and capital gains. Capital gains are definedas the gains that arise from the sale of a capital asset that is used for business purposes, oris held for a period of more than one year. Dividends are not considered to be a capitalgain as they are a form of income received by the shareholder. The tax rate for capitalgains will be higher than tax applied for dividends.

176 Capital Gains VSIncome

Profits can be in the form of income or capital gains; which will depend on how the assetis characterized, the time period held, and the purpose for which the asset was utilized.Capital gains are defined as the gains that arise from the sale of a capital asset that is usedfor business purposes, or is held for a period of more than one year. Income, on the otherhand, refers to any funds inflow that arises from the sale of an asset which is not consideredto be a capital asset.

177 Cost of Equity VSReturn on Equity

Cost of equity refers to the return that is required by investors/shareholders, or the amountof compensation that an investor expects for making an equity investment in the firm’sshares. Return on equity is a formula very useful for shareholders and investors who invest inthe firm’s equity as it allows them to see how much return they can obtain from their equityinvestment. One of the main differences between the two is that cost of equity in theperspective of the business is a cost, and return on equity in the company’s perspective isan income.

178 Cost of Capital VSRate of Return

Cost of capital refers to the cost incurred in obtaining either equity capital (the costincurred in issuing shares) or debt capital (interest cost). The rate of return refers to the returnthat can be obtained by investing capital in business activities and growth. When decidingbetween investments of similar risk levels, an investment should only be made if the returnis higher and cost of capital is lower than the alternative.

179 Equity VS Assets

Equity is a form of ownership in the firm and equity holders are known as the ‘owners’ ofthe firm and its assets. Equity is commonly obtained by small organizations through theowner’s contributions, and by larger organisations through the issue of shares. Assets arecommonly known as anything with a value that represent economic resources orownership that can be converted into something of value such as cash.

180 Debit Balance VSCredit Balance

The double entry system requires that a debit and credit entry of equal amount be madefor a transaction to be recorded completely. A debit and credit balance arises once allthese debit and credit entries made on a T account are balanced. The main differencebetween these two balances is that, a debit balance will appear on an account that is anasset, expense or loss, and a credit balance will appear on an account that is a liability,income, or capital account.

181 Fund Flow VS CashFlow

A firm’s cash flow statement will clearly show the movement of cash around the business,how the cash has been coming in and where it has been spent. The funds flow statement,on the other hand, shows the movement of working capital with the company during theperiod of reporting. The two statements are both prepared specifically to obtain anoverview of the company’s liquidity (ability to pay its debts).

182 Sales VS Revenue

Sales and revenue are very similar to each other in that both refer to income that isreceived by a firm. The sales for a service provider firm will be harder to value since thevalue of the service provided may vary, whereas the sales for an organization that sellsproducts are easier to value since sales is the total selling price of the units of goods sold.Revenue, on the other hand, refers to the total income that a firm receives including itssales income.



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183 Gross Income VSNet Income

Gross income and net income are both important values in an income statement eventhough they are quite different in how they are calculated. Net income is the amount offunds that are left over once all expenses incurred in the business are accounted for. Grossincome is calculated by deducting the cost of goods sold from net sales (this is the numberthat you get once the returned goods have been reduced from the total good sold.

184Weighted AverageCost of Capital VSCost of Capital

Cost of capital is the total of cost of debt and cost of equity, whereas WACC is theweighted average of these costs derived as a proportion of debt and equity held in thefirm. Both, Cost of capital and WACC, are made use in important financial decisions, whichinclude merger and acquisition decisions, investment decisions, capital budgeting, and forevaluating a company’s financial performance and stability.

185 Compound InterestVS Simple Interest

Interest is the cost of borrowing funds from a bank/financial institution or the income gainedfrom depositing funds in such an institution. There are two types of interest payments, whichare simple interest and compound interest. As for simple interest the interest amount will becalculated only on the amount that was initially deposited, called the principle.Compound interest, on the other hand, is calculated, not on just the principle amount, butalso on the interest that getting added on every year. Compound and simple interest arevery different from each other in that simple interest gives a smaller return, and compoundinterest gives a much larger rate of return.

186 Equity VS Capital

Equity and capital are both terms used to describe the ownership or monetary interest inthe company that is held by the company’s owners. Capital in the usual context ofaccounting and finance means the amount of funds that is contributed by the owners orinvestors of the business, to purchase assets or capital equipment required for the runningof the business. Equity represents the claim that shareholders have, once the liabilities havebeen reduced from business assets. When assets exceed liabilities, positive equity exists andin the case that liabilities are higher than assets, the company will have a negative equity.In accounting terms, shareholders equity is the sum total of financial capital contributedby the owners and the retained earnings in the balance sheet.

187Placement VSLayering VSIntegration

Despite the variety of methods employed, money laundring is not a single act but aprocess accomplished in 3 basic stages which are placement, layering and integration.Placement refers the physical disposal of the initial proceeds derived from illegal activity.Layering is a series of transactions or movement of funds with the aim of distancing themfrom their source. And integration means re-entry of funds into the legitimate economythrough investment in: real estate, luxury assets or business ventures.

188Going ConcernConcept VS PeriodConcept

Going Concern concept relates with the long life of the business. A business is intended tocontinue for an indefinitely long period. Period concept ensures the making of financialresults at frequent intervals.

189 Capital Lease VSOperating Lease

A leasee should classify a lease transaction as a capital lease if it includes a noncancelablelease term and one or more of the four criteria mentioned below. Otherwise, it is anoperating lease. Four criteria are i) the agreement specifies that ownership of the assetstransfers to the leasee. ii) the agreement contains a bargain purchase option. iii) thenoncancelable lease term is equal to 75% or more of the expected economic life of theasset. iv) the present value of the minimum lease payments is equal to or greater than 90%of fair value of the asset.

190Operating LeverageVS FinancialLeverage

The operating leverage may be defined as the firm's ability to use fixed operating costs tomagnify the effects of changes in sales on its earnings before interest and taxes (EBIT).Financial leverage results from the presence of fixed charges in the firm's inccome stream.It is defined as the ability of a firm to use fixed financial charges to magnify the effects ofchanges in EBIT on the EPS.

191 NPV VS ProfitabilityIndex

NPV is found by subtracting a project's initial investment from the present value of its cashinflows discounted at the firm's cost of capital. Profitability Index is a ratio found dividingthe present value of cash inflows determined by required rate of return by project's intialinitial investment.

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FinancialAccounting VSManagementAccounting VS CostAccounting

Financial Accounting refers to the discipline of recording and classifying the monetaryeffects of business transaction and events of a enterprise for the purpose of nalysing, andfinancial repoorting the result to a variety of interested parties. Management Accountingrefers the presentation and utilization of accounting information in such a way as to assitmanagement in the creation of policy and in the day-to-day operation of undertaking.Cost Accounting is the provision of such analysis and classification of expenditure as willenable the total cost of any particular unit of production to be ascertained with



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reasonable accuracy and at the same time to disclosure exactly how such total cost idconstituted.

193 Continuous Loan VSDemand Loan

The loan accounts in which transactions may be made within certain limit and have anexpiry date for full adjustment will be treated as continuous loan. Examples: cash credit,overdreaft etc. The loans that become repayable on demand by the bank will be treatedas demand loan. If any contingent loan or any other liabilities are turned to forced loan(without prior approval as regular loan) those too will be treated as demand loan.Examples: PAD, FBP, IBP etc.

194 Product Cost VSPeriod Cost

Product Costs are those cost which are identified with the product and included ininventory value. Period Costs are the costs which are not identified with product or job andare deducted as expenses during the period in which they are incurred.

195Capital ExpenditureVS RevenueExpenditure

Capital expenditure provides benefits to future periods as classified as an asset; a revenueexpenditure is assumed to benefit the currentbperiod and is classified as an expense.

196 Cost Control VSCost Reduction

Cost control can be defined as the comparative analysis of actual costs with standards orbudgets to facilitate performance evaluation and formulation of corrective measures.Cost reduction may be defined as an attempt to bring costs down.

197 Journal VS Ledger

Journal is a book of prime entry; that is, whenever a transaction occurs it must be recordedsoon after in the journal. The entry made is known as a journal entry. The process ofrecording in the journal is called journalizing. The journal entry says that what account tobe debited and what account to be credited, also it contains a narration that says forwhat reason the corresponding entry has been made. Some main types of journals aregeneral journal, purchase journal, sales journal, etc. A transaction must be recorded in thegeneral journal, or one of the other special journals. Journal contains data in the historicalorder of occurrence. A ledger can be defined as an accounting book of final entry wheretransactions are listed in separate accounts. Ledger contains many accounts (normallyknown as T- accounts). The transactions, which are recorded in the journals, are groupedaccordingly and transformed to the corresponding correct accounts in the ledger. Thisprocess of recording data is known as posting. Financial statements (also known as finalaccounts) like statement of comprehensive income (income statement), statement offinancial position (balance sheet) are often derived from ledger. Ledger accounts can bechecked for the accuracy, that is, when add up all the debit balances in ledger at anygiven date or time must be equal to the summation of all credit balances in the ledger.

198 Debit VS Credit

For an individual, there is difference between debit and credit and can be easilyunderstood when he deposits money in his bank account and it shows as credit in hisaccount. On the other hand, debit takes place when he withdraws money or issues checkto another person or party. However, in accounting, no difference is made between debitand credit and they are merely ways of recording transactions in a financial statement.This system of accounting is known as double entry accounting.

199 Net Profit VS GrossProfit

Gross profit is total sales minus total cost of goods. It does not take into account operatingexpenses. Net profit is arrived at after deducting operating expenses from gross profit. Inmost businesses, net profit is always lower than gross profit.

200 Liability VS Provision

In a broader sense, provision is nothing, but liability, and considered an obligation of abusiness to be met in near future implying cash outflow. However, on closer inspection,provision appear to be a special type of liability. This is because of certainty that is normallyassociated with liability, and which is lacking in the case of provision. This means that weare accepting provision and liability to be similar, but not saying this clearly, but acceptingthem as two points on a continuum.

201 Absorption CostingVS Marginal Costing

Though, marginal costing and absorption costing are two traditional costing techniques,they have their own unique principles that draw a fine line that separates one fromanother. In marginal costing, contribution is calculated, whereas this is not calculatedunder absorption costing. When valuing the stocks under marginal costing, only thevariable costs are considered, whereas valuation of stock under absorption costingincludes costs incurred for the production function also. Generally, the value of inventoryis higher under absorption costing than marginal costing. Marginal costing is often used forinternal reporting purposes (facilitate the decision making of managers), while absorptioncosting is required for external reporting purposes, such as income tax reporting.Contribution must be calculated under marginal costing system, whereas gross profit willbe calculated under absorption costing method.



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202 Cost Centre VS CostUnit

Cost center or centers add to overall cost structure of a company though they alsoindirectly lead to profits. These profits are hard to calculate. Examples of cost center areR&D, marketing, advertisement department etc. Cost unit is a specialized unit in acompany that tracks costs incurred by various departments as also estimates and costsaving measures for different departments.

203Activity BasedCosting VSTraditional Costing

In traditional costing system, allocation of indirect costs is made based on some commonallocation bases such as labour hour, machine hour. The main drawback of this method isthat, it pools all the indirect costs and allocates them using the allocation bases todepartments. In most of the cases, this allocation method does not make sense as it poolsthe indirect costs of all products of different stages. In the traditional method, it allocatesoverheads first to the individual departments then reallocates the costs to products.Especially in the modern world, traditional method loses its applicability as a singlecompany produces larger number of different types of product without using alldepartments. So, cost experts came up with a new concept call activity based costing(ABC), which was simply reinforced the existing traditional costing method. Activity basedcosting (ABC) can be defined as an approach to costing that identifies individual activitiesas fundamental cost objects. In this method, the cost of individual activities are assignedfirst, and then, that is used as the basis of assigning cost to the ultimate cost objects. That isin activity based costing, it assigns over heads to each activity first, then reallocates thatcost to the individual product or service. Number of purchase order, number of inspections,number of production designs are some of the cost drivers used in allocating overheadcosts.

204 Accrual VS Deferral

Accrual is recognition of revenues and it leads to cash receipt or expenditure. So accrualrevenue refers to recognition of revenue that has been earned but not yet received.Similarly accrual expense is recognition of expense that has been incurred but thepayment has yet not been made. On the contrary, deferral is recognition of receipts andpayments after actual cash transactions. So in the case of deferral revenue you receivethe cash but its recognition is done later. Similarly, you pay out cash to cover for wages ofemployees but recognize it later in your books.

205 Internal Audit VSStatutory Audit

While the objective of statutory as well as internal audit is same and that is to verify thefinancial performance of the company and to ensure that all rules and regulations arefollowed in book keeping, the scope of statutory audit is much wider than internal audit.Internal auditors are answerable to the management whereas statutory auditors areresponsible to the shareholders.

206 IASB VS FASB

FASB and IASB are two different apex bodies that have been working to have uniformity infinancial reporting by developing standards for accounting all over the world. Of the two,FASB, that stands for Financial Accounting Standards Board is the older, having beenestablished in 1973 in the US. IASB is an independent, privately funded board establishedin 2001 in London with a stated objective of development of accounting standards to beapplied in all parts of the world. In 2002, the two apex bodies signed a memorandum ofunderstanding to work in close cooperation with each other to develop accountingstandards that are uniform and transparent.

207 GAAP VS IASB

It is an independent, private body that is engaged in setting standards for accountingprinciples applicable upon all countries of the world. It is based in England. IASB came intoexistence in 2001 replacing IFRS, and in the last 10 years has done much to promote uniformaccounting standard in many parts of the world. The operations of IASB, which is made upof a board with 16 members, are funded by banks and other institutions that have interestin promoting uniform accounting standards worldwide. Generally Accepted AccountingPrinciples, or GAAP as they are popularly known all over the world are set of guidelinesissued by IASB, from time to time, to maintain a standard of accounting that is transparentand uniform across the world. The need to harmonize accounting principles arose mainlybecause every country had its own standards when it came to reporting and recordingfinancial transactions by accountants of companies. This was because of cross culturaldifferences as well as accounting traditions peculiar to a country. With companiesbecoming multinational, uniform accounting standards became all the more necessary tolet potential investors compare the performance of a company operating in differentcountries.



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208 GAAP VS GAAS

GAAP (Generally Accepted Accounting Principles) is a set of rules meant for companiesto help and assist in preparing financial statements that are followed in all parts of theworld. These are accounting principles, standards and procedures that are adhered bycompanies while preparing financial statements. GAAP are not a single rule but providemany ways in which transactions can be recorded and reported by companies. GAAP arebeing sought to impose upon companies worldwide in an attempt to let investors have aminimum level of consistency and transparency in the financial statements of companieswhen they are trying to compare the performance of two companies located in differentcountries of the world. GAAS (Generally Accepted Auditing Standards) is a set of guidelinesfor auditors that are meant to help them in the audit of companies in such a way that theseaudits are accurate, are consistent, and are verifiable. These guidelines ensure thatauditors do not miss on any material information. GAAS help in ensuring highest quality ofauditing in a manner that it is possible to compare audits of various companies easily.GAAS require auditors to have a certain level of proficiency and also requires them tomaintain a high level of independence. GAAS ensure professionalism from auditors whichhelps them prepare audits in the most transparent and unbiased manner.

209 Inventory VS StockStock and inventory are used interchangeably which is not correct. Stock pertains to goodsonly, both in terms of quantity as well as its monetary value. Inventory is the sum of stockand assets that include plant and machinery

210 Opportunity Cost VSMarginal Cost

Opportunity cost is described as the sacrifice of the highest value of a good that one hasto forego to obtain another while marginal cost is the cost incurred on producing anadditional unit in a factory. There are some who equate marginal cost with opportunitycost.

211Gross WorkingCapital VS Networking Capital

Working capital is the liquidity of a company and has two definitions namely gross workingcapital and net working capital. Gross working capital is the total of all current assets anddoes not hold much significance for the investors. Net working capital is the excess ofcurrent assets over current liabilities of a company which is why it is an important indicatorof company’s financial health.

212Annual Report VSFinancialStatements

Financial statements and annual report of a company are different documents thatprovide different information to all stakeholders. While financial statements, as the nameimplies, provide all the information regarding financial activities of the company, annualreport is much more than mere numbers reflected by a financial statement. Annual reportis wider in scope and includes, letter from the CEO as well as future plans and strategies ofthe company apart from financial statements.

213 Realization VSRecognition

Recognition of the revenue is a continuous process in a profitable business and iscalculated by subtracting the expenses incurred in carrying out the business from therevenues generated. If profitability is not there in business then it is the realization of lossesthat are to be observed. A company’s recognition of revenue is not dependent on theway the business is carried out like it’s a cash sale or credit sale. As soon as a credit saletakes place revenue is recognized and is not depended on the time when payments willbe received. Realization of the revenue starts only after recognition of the revenue ends.Whether it is profit or loss the realization is reported formally in the account books.Realization of the revenue is the accurate figure and a true indicator of the health of thecompany. Realization of revenues is immediate in a cash business but in business carriedout on credit realization is made when payments are received.

214 Book Value VSMarket Value

The book value and the market value of a company can be very different. The book valueis the true indicative of the company’s worth where as market value is the projection ofcompany’s worth. Book value is calculated on the basis of all the tangible assets which arephysically present with the company and can be touched, felt or sensed. The market valueis calculated according to the book value plus the value of intangible assets. The bookvalue is generally calculated at a fixed interval of time to assess the company’sperformance where as market value is calculated only in cases of acquisitions andmergers.



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215 ROE VS ROA

It is the Return on Equity, so the net profit is divided by total equity. The result is expressed interms of percentage so you know what the expected rate of return on a fixed investmentin a company based upon past performance is. Among all the indicators used to judgethe performance of any company, ROE is perhaps the most important. It basically tells howeffectively a company uses the shareholders money. ROE= Annual net income/averageshareholders’ equity. This is called return on assets and here net profit is thus divided byassets. It is a measure of how efficiently a company uses its assets. It is clear that higher thisratio, the better the performance of a company as with same assets, if the company isgetting better profits, obviously it is performing more efficiently. Thus if the assets remain thesame, as in the case of a manufacturing company with the same plant, factory andmachines, and the profits increase, it’s ROA will go up implying a much betterperformance. The ratio of ROA also tells how capital intensive a company is. A low ROAwith huge assets indicates poor asset usage by the company.

216 Implicit Cost VSExplicit Cost

Implicit cost is considered as the cost that has occurred on an enterprise but is not initiallyreflected and reported as a direct expenditure. It is usually referred to as the deficit from apotential revenue. It is a result when the person renounces his capacity to gain higherprofitability. This is equates when a company forgoes the satisfaction and benefits that aspecific project might generate. Explicit cost is the cost that is solidly reported based onnumbers and statistics. This actual cost is very detailed in terms of the figures that weregenerated. It provides a clear and continuous cash flow from expenses that don’tnecessarily proved to be obvious about it and establish the right from the thought ofprofitability. Bottom line, this type of cost is often shown as the tangible aspect of thebusiness and pretty much considered as the revenue.

217 Depreciation VSAmortization

Both depreciation and amortization are shown in the debit column and are a liability ofthe company. Being non cash expense, they act as a liability that decreases the earningof the company but help in increasing the cash flow of the company. While depreciationrequires calculation every year, amortization is pretty straight forward and you know howmuch amortization expense to be added to the liability column every year over the lifespan of the intangible asset. But the biggest difference between the two terms lies in thefact that depreciation applies to tangible assets while the word amortization is used forintangible assets.

218 IAS VS IFRS

The International Accounting Standards or in short IAS are standards issued by the IASCfrom 1973 to 2001 that dictate how events and transactions should reflect on a company’sfinancial statements. The International Financial Reporting Standards or in short IFRS is thecurrent and updated version of the IAS and is issued by a new standard making body, theIASB. If there are any contradictions in the IFRS with the old IAS, the IFRS should be followed.

219 GAAP VS IFRS

When it comes to inventory measurement, GAAP assumes that its value is to be ascertainedon the basis of FIFO, LIFO and weighted average method but IFRS does not permit usingLIFO for the value of inventory. Where services are provided, GAAP only takes money asrevenue and does not take into account any pending service. But if IFRS is being used foraccounting, even part services can be converted into revenue. If it is not possible tocalculate revenue, IFRS makes use of zero profit method. In construction business, GAAPallows for recognition of contract if it is not completed and it can be shown in the financialresults. But in IFRS, though it recognises the % of completion method, gross profit approachof % completion is not allowed.

220 GAAP VS IAS

GAAP refers to General Accepted Accounting Principles; IAS refers to InternationalAccounting Standards. Both GAAP and IAS are accounting principles that are used torecord, summarize and analyze financial results of companies. GAPP is specific to acountry; IAS is an internationally accepted standard.IAS is an initiative of International Accounting Standards Committee (IASC). GAAP differfrom country to country, but most countries try to incorporate changes adopted by IASCin their GAAP. IAS was introduced to have uniformity in the accounting principles acrossthe world and thereby to have a fair analysis and comparison of performance of differentcompanies.

221 Excise VS VAT

Both excise duty and VAT are indirect taxes that add to the kitty of the government. In fact,excise and VAT form a bulk of the revenues generated by the government. However, thetwo taxes are different. Excise is the tax levied on the manufacture of goods. VAT is the taxlevied on consumption of goods. If the manufacturer does not sell and uses the goodhimself, he does not have to pay any excise duty. But since he sells it as a higher price, hehas to pay the excise tax. VAT is not paid by the vendor who purchases the goods fromthe manufacturer but by the end consumer in the chain. The vendor has already paidexcise duty to the manufacturer who deposits it to the government.



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222 Excise Duty VSCustom Duty

Excise duty as discussed earlier is an indirect tax and is levied on the manufacturer on thegoods manufactured by him that are to be sold within the country. Excise duty is leviedalong with another tax that can be sales tax or VAT. Excise duty constitutes the largestproportion of taxes in the price of a good. Unlike sales tax, excise duty is charged advalorem, that is it is generally calculated on the number of goods or in volume of liquid likegasoline. Every country has its own ways of imposing excise duty and is calculated as perthe guidelines issued by that particular country. Custom duty also known as consumptionduty is collected by the authorities on the goods imported by an importer and are meantto be sold in the country. The custom duty is levied on the goods whose value is determinedby its assessable value. This assessable value has been developed by World CustomsOrganisation and has given codes to every product known as H.S Codes that can be offour to ten digits. The rate of custom duty is decided by the government of the country inwhich the goods are being imported. The custom duty generally caries a very high rate onproducts like tobacco and liquor.

223 Duty VS Tax

Both duty and tax are the revenues generated by a government for its effectivefunctioning. Duty in broader terms is a kind of tax only. But there are differences betweenthe two entities. Duty is levied upon goods only, whereas tax is levied on both goods andindividuals. Tax is a term used in respect of income such as property tax, wealth tax, incometax etc, whereas duty is used in terms of goods only such as customs duty, excise duty. Dutyis generally a tax levied on good going out or coming inside a country. Duties aresometimes referred to as border taxes. Higher duties are levied on some categories ofproducts to discourage people from using them. Taxes are mostly progressive in nature.

224 IRR VS NPV

To know whether a project is feasible in terms of returns on investment, a firm needs toevaluate it with a process called capital budgeting and the tool which is commonly usedfor the purpose is called IRR. This method tells the company whether making investmentson a project will generate the expected profits or not. As it is a rate that is in terms ofpercentage, unless its value is positive any company should not proceed ahead with aproject. The higher the IRR, the more desirable a project becomes. This means that IRR is aparameter that can be used to rank several projects that a company is envisaging. IRRcan be taken as the rate of growth of a project. While it is only estimation, and the realrates of return might be different, in general if a project has a higher IRR, it presents achance of higher growth for a company. This is another tool to calculate to find out theprofitability of a project. It is the difference between the values of cash inflow and cashoutflow of any company at present. For a layman, NPV tells the value of any project todayand the estimated value of the same project after a few years taking into account inflationand some other factors. If this value is positive, the project can be undertaken, but if it isnegative, it is better to discard the project. This tool is extremely helpful for a companywhen it is considering to buy or takeover any other company. For the same reason, NPV isthe preferred choice to real estate dealers and also for brokers in a stock market.

225 Bookkeeping VSAccounting

Both are different sections of finance department, bookkeeping involves the keeping ofsystematical record of company’s financial activity, where as accounting is the nextsection, which analyze these records to prepare different reports and proposals.Bookkeeping in the procedure, which helps the management to manage day-to-dayfinancial activity of company, whereas Accounting justifies these financial actions and findtheir reasons. In large companies, accounting department is also very large to analyze thefiscal activity of business, on the other hand, an individual usually does Bookkeeping or atthe most two people are involved in this activity, even in big companies.

226 Cheque VSDemand Draft

Cheque and demand draft are both mechanisms that are used to make payments, settletransactions and to transfer funds to other accounts or individuals. A cheque serves as anorder made to a bank directing the bank to pay a specified sum to a certain person froman account that is held under a specific name with the bank. Payment through a chequeis not guaranteed as a cheque can be dishonoured or stopped. A cheque is a negotiableinstrument and is payable only on demand. A demand draft is a payment instrument thatis used in the transfer of funds from one bank to another branch of the same bank or toanother financial institution. A demand draft is guaranteed, therefore, cannot bedishonored, and funds are directly transferred from one account to another. The maindifference between a cheque and a demand draft is that unlike a cheque that requires asignature to be cashed, a demand draft does not require a signature to transfer funds.



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227 Current Account VSSaving Account

Current accounts and savings accounts are quite distinct from each other due to theirvarious features and the purposes for which they are used. However, it must be kept inmind that banks have modified their various types of savings and current accounts, andthe line between the two is starting to blur. There is, however, a number of differences thatstand out. The main purpose of a savings account is to save funds for the future. Thepurpose of opening a current account is to deposit check and manage payments. Savingsaccounts pay a higher rate of interest while current accounts usually do not pay interest.Current accounts also offer overdraft facilities, online payment facilities, and automatic billpayment facilities that are not provided to savings account holders.

228 Discount Rate VSInterest Rate

Discount rates and interest rates are both rates that are paid and received for borrowingor saving money. There are 2 meanings to the word discount rate, and it may either referto the rate that is used by firms to calculate the present values of future cash flows, or therate that is charged by the central banks for overnight loans taken out by depositoryinstitutions. Interest rates, on the other hand, refer to the rates that bank charge when loansare provided and the rates that are paid to individuals who deposit and maintain savings.Interest rates are determined by the forces of demand and supply and are regulated bythe central bank. Deposit rates (overnight fund rates) are determined by the central bankby taking a number of factors into consideration.

229 Retail Banking VSCorporate Banking

Retail banking and corporate banking services are offered mostly by commercial bankswho maintain separate divisions for their retail customers and corporate clients. In someinstances, commercial banks team up with investment banks to provide a number ofinvestment banking capabilities to their business clients. Retail banking serves the needs ofindividual customers and includes services such as accepting deposits, maintaining savingsand checking accounts, and providing loans to individuals for a variety of purposes.Corporate banking serves the needs of business customers and offers savings accounts,checking accounts, loan facilities, credit facilities, trade finance, foreign exchange, etc.solely for companies and businesses.

230 Investment Bank VSCommercial Bank

Investment banks and commercial banks are the two main divisions in the banking industry.The main difference between the two types of banks is in relation to securities trading.Commercial banks offer a variety of services that include maintaining deposits and offeringloans, but they do not deal with securities trading. On the other hand, securities trading area main area of business for investment banks as investment banks offer IPO andunderwriting services, securities trading, investment, and merger and acquisition services.The two also differ in terms of the customers that require their services. Customers ofcommercial banks include individuals and business customers while customers ofinvestment banks include large corporate clients, governments, individual investors, groupinvestors, etc.

231 Central Bank VSCommercial Bank

Commercial banks offer banking products and services to individuals and businesses.Central banks offer products and services to the country’s government and othercommercial banks. While there are a number of commercial banks in a country with manybranches, there is only one central bank that oversees the entire banking operation.Central banks have the power to print money and control the country’s monitory policy.Commercial banks and the government hold accounts at the central bank as the centralbank is the banker’s bank and the government’ s banks. The central bank regulates theentire banking system and balances funds between commercial banks. While commercialbanks offer lending services to individuals and businesses, central banks offer loans to thecommercial banks.

232 Commercial PaperVS Commercial Bill

Commercial paper and commercial bill are both financial instruments used by banks.Commercial paper is used by banks to raise finances for a short time period. The buyer getsCP at a discounted rate, while he gets face value on maturity. Commercial bill is aninstrument that helps companies to get advance payment for the invoices they raise aftermaking sales to their customers. Commercial paper is used by banks to meet their short-term obligations, while commercial bills help companies to get money in advance, for salesthey make.



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233 Investment VSMerchant Banking

An investment bank is a financial institution that engages in the issuance of securities onbehalf of its client. Investment banks are the banks, which facilitate both the investor, whois in search for good investment opportunity and the investee, who is searching for capitalto invest in viable projects. Unlike other types of banks, investment banks are not acceptingdeposits from customers; that is, investment banks do not provide regular banking servicesto the general public. The main Investment banking activities are issuance of securities,underwriting of securities, providing financial related consultancy services to companies,assisting companies in the acquisition and mergers, and similar services. JP Morgan, Bankof America, Merrill Lynch, Goldman Sachs, Morgan Stanley, and Credit Suisse are some ofthe world renown investment banks. Merchant bank is a bank that mainly deals withinternational financial activities such as foreign real estate investment and long termcompany loans. Merchant banks do not provide regular banking services to the generalpublic. Nowadays, merchant banks provide underwriting services and consultancyservices for wealthy institutions, as well as individuals. Issuance of letter of credit,international fund transfer, foreign corporate investment and foreign real estate investmentare some examples of services offered by a merchant bank. Merchant banks offer capitalin exchange for share ownership. The main sources of income of a merchant bank are feefor the consultancy that they provided and interest for the capital provided. Some of thefinancial institutions mentioned above (e.g: JP morgan) have begun as merchant banks.

234 Bank Rate VS RepoRate

Both bank rate and repo rate are financial instruments in the hands of the apex bank of acountry to control money supply in the economy. While bank rate is the rate of interest atwhich central bank grants long term loans to commercial banks, repo rate is the rate ofinterest at which banks can get short term loans to meet shortfall of funds in their operations

235 Loan VS Borrow

In the sentence mentioned above the word ‘loan’ is used in the sense of ‘give’ and hencethe meaning of the sentence would be ‘the bank gave loans for agriculturists on anagreement’. Another important difference between the two words is that a loan is givenunder a condition that it should be repaid within a certain period of time. The time periodnormally varies as according to the repaying capacity of the person who accepts the loan.On the other hand, a person borrows money from his friend or his relative sometimes notunder any condition. The money is simply lent in good faith that it will be returned duly.Hence there is no binding rule about the return of the money in the case of borrowedmoney. Borrowed money may not carry any interest on it. On the other hand a loan alwayscarries some interest on it. In other words the person who accepts the loan should return italong with interest.

236 RTGS VS NEFT

RTGS is an acronym that stands for Real Time Gross Settlement and it is indeed a verypopular fund transfer mechanism between two banks or two different branches of a singlebank on real time and gross basis. NEFT stands for National Electronics Funds Transfer andis very similar to RTGS as it is an online system of transferring funds between banks. If onetalks about differences between RTGS and NEFT, it is clear that RTGS is real time and grosssettlement, whereas NEFT is a net settlement process. As it is conducted in real time, RTGSis also considered to be one of the fastest fund transfers through banking channels. In sharpcontrast, NEFT takes much longer than RTGS.

237 RTGS VS SWIFT

It stands for Real Time Gross Settlement and is the fastest way to send money from onebank account to another within the country. SWIFT stands for Society for WorldwideFinancial Telecommunication and was established in 1973 in Brussels. It was founded tofacilitate easy communication between financial institutions all over the world. SWIFTsupplies software and other services to banks and other financial institutions.

238 MICR Code VS SwiftCode

MICR stands for Magnetic Ink Character Recognition and is a foremost technology beingemployed by nearly all banks and other financial institutions for processing of checks(cheques) these days. Instead of the manual processing of checks (cheques) earlier, whichtook a lot of time and effort, MICR makes it possible for computers to process theinformation encoded in checks (cheques) and thus thousands of cheques can beprocessed in a single day, saving a lot of time and money and allowing very fast andefficient transfer of money across banking institutions. Another factor that goes in favor ofMICR is the fact that the code can be easily read by people unlike barcodes that requirescanners to be read. So a cheque can be verified manually also with the help of MICRcode. SWIFT stands for Society for Worldwide International Financial Telecommunicationand is actually an alphanumeric code that identifies your financial institution. This codemakes it faster and simpler to send money electronically from one country to another. Infact, SWIFT codes are used for international money transfer only.



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239 Loan VS Mortgage

A simple loan is a loan that needs no collateral whereas mortgage is a loan where theborrower has to keep his property in the name of the bank till he repays the loan amountin full. A simple loan is unsecured, carries high rate of interest, and is for a shorter timeperiod. A mortgage is secured, carries lower rate of interest, and is given for a longer timeperiod.

240 LC VS SBLC

A Letter of Credit is a type of guarantee for a seller that he will receive timely and correctpayments from his clients. This is a financial instrument that has become very popular ininternational trade in modern times. Because of many uncertainties in cross border trade,particularly as buyers are not known personally to suppliers, letter of credit is a comfortablecover and an assurance to the supplier that he will not suffer any losses or damagesbecause of non payment or default on the part of the buyer. The issuing bank initiatestransfer of funds to the supplier once certain conditions mentioned in the contract arefulfilled. However, the bank also safeguards the interest of the buyer by not paying thesupplier until it receives a confirmation from the supplier that the goods have beenshipped. SBLC are very flexible financial instruments also referred to as sui generis. They arevery versatile and can be used with modifications to suit the interests and requirements ofthe buyers and sellers. The essence of SBLC is that the issuing bank will perform in the caseof non performance by the buyer or when he defaults. This is an assurance to the supplierin situations when he does not know the buyer personally or there has not been previousexperience of trade with him. However, the beneficiary (supplier) needs to give proof orevidence of non performance by the buyer to obtain payment through SBLC. Thisevidence is in the form of a letter strictly according to the language of the contract andsatisfying to the bank.

241 LC VS BankGuarantee

Major difference between a LC and a BG is that the issuing bank does not wait for a defaultfrom the buyer unlike BG where a formal request is made by the supplier to this effect. Inthis sense, a BG is more risky for the supplier as he has to wait till the bank clears his dues.Bank is liable to pay in the case of a BG in case of a default by the buyer whereas an LC isa direct responsibility of the issuing bank. BG is therefore called a second line of defensewhile LC guarantees timely payments for the supplier. LC is more of an obligation on thepart of the issuing bank that has to transfer the funds once criterion mentioned in thecontract are fulfilled. LC is thus more for ensuring timely and correct payments.

242 Pay Order VSDemand Draft

Pay order and demand draft are basically used for the same purpose, but are differentfrom each other. A pay order is a mode of payment that is to be cleared in the very specificbranch of the bank that issued it. Demand draft is a mode of payment that gets clearedin any branch of the issuing branch.

243 Swift Code VS IBANCode

SWIFT code is for identification of a bank or business while IBAN is International BankAccount Number. IBAN is used by customers to send money abroad while SWIFT is used bybanks to exchange financial and non financial transactions. IBAN allows for easier andfaster money transfers worldwide.

244 Online Banking VSE-Banking

Online banking and e-banking are modern ways to conduct banking transactions sittingin the comfort of one’s own hoe without going to the bank physically. E-banking is broaderin spectrum than online banking in the sense that it encompasses the use of ATM cards forwithdrawal of money and making payments to merchants even without going online.

245 Bank Overdraft VSBank Loan

While a loan is for large amount of money and for a longer duration, bank overdraft is aborrowing facility from the bank to its current account holders that allows one to drawmoney to meet emergencies in business. One has to repay both a loan and overdraft, butin the case of a loan it is through an EMI while one is at liberty to repay in installments andinterest applies only the rest amount from the overdrawn money. While one has to applyfor a loan afresh every time one needs money, overdraft is a continuing facility from whichone can draw money anytime depending upon exigencies.

246 Credit Note VSDebit Note

A debit note has the opposite effect of a credit note. A buyer issues a debit note to thesupplier when he is wrongly overcharged or when he is returning goods. A debit note canbe issued by the supplier when he has mistakenly undercharged a buyer.

247 IFSC Code VS SwiftCode

SWIFT code is for international money transfer while IFSC code is used for money transferwithin India. SWIFT code has been developed by ISO while IFSC code has been developedby RBI. SWIFT code has 8 or 11 characters while IFSC codes contain 11 characters. BothSWIFT and IFSC codes are business identification numbers.



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248 Cheque VSPromissory Note

While a cheque is a one time payment, a promissory note is a promise made to pay backa loan; either in installments or in one go at a later date. Cheque is drawn on a bankwhereas promissory note can be made by any individual in favor of another person. Incase of a promissory note there are two parties called the maker and the payee, whereasin case of a cheque there are three parties, the drawer, the drawee, and the payer.Cheque can be drawn in favor of oneself but a promissory note is always made in favor ofanother person. Cheques can be conditional but this is never a case with promissory notes

249 Cheque VS Bill ofExchange

While a Cheque can only be drawn on a banker, a bill of exchange can be drawn on anyparty or individual. There is no need for acceptance in case of a Cheque but a bill ofexchange must be accepted before the drawee can be made liable upon it. While thereis no grace period in the case of a Cheque and it must be paid immediately by the banker,there is usually a grace period of 2-3 days in the case of a bill of exchange. A Cheque iseither crossed or uncrossed while there is no such requirement in a bill of exchange. In thecase of a bounced Cheque, notice of dishonor is not necessary but it is a must in case ofbill of exchange. A Cheque needs no stamp but it is necessary in case of bill of exchange.You can stop payment in case of a Cheque but it is not possible in case of a bill ofexchange.

250 Goldman Sachs VSJ.P. Morgan Chase

When it comes to global investment banking and securities, Goldman Sachs emerges as atop player. It is a very old firm having been founded in 1869 and has its headquarters inlower Manhattan area of New York. The company is involved in providing various financialservices such as mergers and acquisition advice, underwriting, prime brokerage and assetmanagement to thousands of its clients. Its client profile has individuals as well ascorporations and even governments. Goldman Sachs also provides services in equity dealsand is a major player in the government security market. This financial company is involvedin various financial activities such as retail and investment banking, global securities, assetmanagement, and many other financial services. It has assets worth more than $2 trillionand is the 2nd largest banking institution in the US on the basis of its market capitalization.In terms of deposit base in the country, it is third only after Bank of America and Wells Fargo.The company operates the largest hedge fund in the US with assets worth more than $54billion. Earlier known as J. P. Morgan, it got its current name after acquisition of ChaseManhattan Corporation in 2000. The company uses its brand name Chase for retail bankingand credit cards in US. The headquarters of the company are in New York, while theheadquarters of its bank are in Chicago.

251 Bank of America VSJ.P. Morgan Chase

Talking of differences, while Bank of America is primarily a bank operating in other financialservices, J. P. Morgan is an investment firm also operating as a bank. It has offices in morethan 60 countries of the world. In terms of market capitalization, J. P. Morgan Chase is thelargest financial organization in the world with an asset base of more than $2 trillion. Bothbank of America and J. P. Morgan Chase have had their share of controversies. While BOAgot a bad name when it suddenly raised interest rates for many of its customers whichincluded even those who had a good credit history. This move created a furor and facedmush criticism from all quarters. J. P. Morgan Chase got involved in sales that nearly broughtbankruptcy to a county in Alabama. The case went to US Securities and ExchangeCommission where the company lost and had to pay fines of nearly $722 million.

252 Secured Loans VSUnsecured Loans

Secured loans are the loans for which you give some kind of guarantee to the financialinstitution that lends money regarding the repayment of the loans. Unsecured loan on theother hand is the loan offered to you on the basis of your credit rating that is supposed tobe good to be eligible to get the loan. The type of guarantee that you can give to thefinancial institution in the case of secured loans may be in the form of assets, car or anyother vehicle, documents related to investments made in banks and stocks and the like.On the other hand business people who are not interested in providing their assets asguarantee usually opt for unsecured loan simply by virtue of their existing credit rating.

253 SWIFT Code VSRouting Numbers

Routing numbers and SWIFT codes are unique identifiers for financial institutions. Routingnumbers are used for transactions within the US while the SWIFT codes are used forinternational wire transfers. Routing numbers are nine digits in length while SWIFT codes canbe eight – eleven alphanumeric characters. Routing numbers are also used for electronicpayment processing via ACH, bill pays and paper drafts. SWIFT codes are used forinternational wire transfers only.

254 SWIFT Code VS SortCode

The SWIFT code is an alphanumeric international code that you use in order for you to sendmoney to another country. It identifies the country and bank of your recipient’s account.The sort code is a six digit code in three pairs (i.e. 12-34-56) that is used by British and Irishbanks for domestic money transfers. Take note that a transfer from a British account to andIrish account is considered as an international transfer.



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255 Wire Transfer VS EFT

EFT is the process of transferring funds electronically whereas wire transfer is the act oftransferring funds from one account to another. Wire transfer is bank-to-bank transactionand more useful and convenient for fund transfers internationally while EFT, in addition towire transfer, is also suitable for domestic transactions like paying for bills, groceries andother merchants.

256 ACH VS WireTransfer

ACH (Automated Clearing House) transfer and Wire transfer are two of the most commonmethods in sending or transferring money. ACH needs the financial institutions orestablishments to be a member of the ACH network prior to engaging in transactions while,in Wire transfer, anyone with a bank account can do a transfer. ACH usually deals withlarge volumes of payments or amounts and are more of business-to-business transactionwhereas wire transfer is more of a personalized transaction and more suited for ordinarypeople.

257 Master Card VSVisa Card

Master card can be used world wide at more than 23 million locations. It is important tonote that the Master card does not issue the credit cards to the customer directly. Insteadthe issuance of Master cards is in the hands of the banks that have taken up the servicesof Master Cards. Any payments that we make to our banks for the usage of a Master cardgo to the bank and not to the Master Cards. Master cards generate its income by issuingits services to these banks. Visa cards have a customer base present in billions and a directcompetitor for Master Cards. Visa Cards are accepted around the world, and like MasterCards, the service payments charged by banks to their customers, goes towards the bankand not to Visa Cards. Visa cards receive its service payment from the banks issuing theVisa Cards services worldwide. It is a generalized concept now, that wherever you can paywith your Master Card, you can also use your Visa Card.

258 PayPal VS CreditCard

PayPal is mode of payment, which facilitates payment on the internet, an alternative oftraditional paper money. Nowadays, instead of paying through cheques and moneyorders for your shopping, you pay through PayPal. You need to have a PayPal account toget advantage of this facility; you can recharge this account from a bank account orcredit card. You can issue a PayPal cheque or can directly transfer money to therecipient’s bank account. You have to pay a nominal fee if you use PayPal for commercialpurposes. If you receive money in your PayPal account from other source, you have to paysome amount. PayPal operates nearly all over the world, but few countries have no accessto PayPal. PayPal is applicable to 19 currencies in the world; user can send, receive andhold their funds in nearly 190 countries. A small plastic card, which is acting as a mod ofpayment these days is called credit card. You can do shopping by making a promise tothe bank that you will return this amount. There is a limit on your credit card, which drawsa line for your debt, the amount that you can borrow from bank. Your bank can issue youa credit card, or you can have your account with a credit card company. Once you shopby using your credit cards, your bank will send you a monthly bill, for which the minimumamount, which is mentioned by bank, you have to pay by due date or you, can make thefull payment to the bank, to avoid interest. Having a Credit Card makes things easy andyou do not have to calculate your balance before making a transaction. You canpurchase an item and then can pay back to your bank later.

259 Tax Evasion VS TaxAvoidance

Tax avoidance and tax evasion are both methods used by individuals and businesses tominimize or completely avoid the payment of taxes. Tax avoidance is done by complyingwith the rules and regulations, yet at the same time by finding any loopholes in the laws oftaxation and taking advantage of such shortcomings. Tax evasion is an illegal mechanismused in order to avoid the payment of taxes. Tax evasion goes against any taxation lawsset in the country and is done in an unfair manner. Examples of tax avoidance include taxdeductions, artificial transactions created with the aim of gaining a tax advantage,changing business structures to reduce tax rates, establishing companies in countries thatoffer reduced tax rates also known as tax havens, etc. Examples of tax evasion are untruefinancial reporting, window dressing of financial accounts, hiding assets and income,claiming false deduction, avoiding payment of taxes due, etc. The main differencebetween tax evasion and tax avoidance lies in that tax evasion is illegal, whereas taxavoidance is a legal method used to reduce tax payments that at times can be unethicalin nature.

260 Exempt VS ZeroRated (VAT)

VAT is the value added tax that is charged when selling goods and services. The price ofthese goods and services include the VAT amount. There are different types of VAT ratesthat apply to different types of goods and services. Zero rates goods and exempt goodsare similar to one another in that they both do not charge VAT on the goods and servicessold. Retailers that sell zero rates goods can reclaim VAT on any purchases that are directlyrelated to the sale of zero rates goods. On the other hand, retailers of exempt goodscannot claim back the VAT on the purchases related to exempt goods.



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261 Duty VS Tariff

Duties and tariffs are both taxes that a country’s government will impose on the import andexport of goods and services. These terms are quite similar to one another and are mostoften used interchangeably. Both tariffs and duties are imposed for the same purposeswhich are to protect domestic industries and companies, earn government income, andreduce trade deficits. A duty can also refer to customs duty that is imposed on goods thatare brought into a country by tourists and other individuals. While duties and tariffs can bebeneficial to a country, there are also a few disadvantages. The main issues with thesetaxes are that they protect local producers too much, and by not exposing domesticproducers to international competition, they will remain within the same quality standardsand inefficiencies, and the industry as a whole will remain underdeveloped in comparisonto more efficient foreign industries.

262 Tax VS Levy

Taxes are fees that are imposed on corporations and individuals by a country’sgovernment. Taxes are used for the purpose of running of the government, investment,development, infrastructure, healthcare, public safety, law enforcement, etc. A tax levywill be imposed in the event that the tax payer fails to make tax payments or fails to workout a tax payment arrangement. If the taxpayer defaults on their tax payments thegovernment can issue a levy to seize the assets and recover the amount due in taxes.

263 Direct Tax VSIndirect Tax

The tax that is realized directly from the individual upon whom it is levied is called a directtax while the taxes that are collected from intermediaries rather than those who actuallypay them are called indirect taxes. The example of a direct tax would be income tax whichis also called a progressive kind of tax. On the other hand sales tax is an example of indirecttax as the tax is collected from the merchants who in turn collect it from the end consumers.Indirect taxes are also called regressive taxes as they lead to an increase in inequalities inthe society. They can however be made progressive if rich are made to pay them whilepoor are exempted from paying these taxes.

264 Excise Duty VSSales Tax

Excise duty and sales tax are two different taxes. Excise duty is on production whereas salestax is on sale of the product. Excise duty is paid by the manufacturer whereas sales tax isborn by the end consumer.

265 Business Risk VSFinancial Risk

Financial risk is the risk that a business will not be able to generate enough cash flow andincome to pay their debts and meet their other financial obligations. Financial risk is morerelated to the percentage of leverage that a company holds and the debt that is used tofinance business operations as opposed to the actual operations of the business. Acompany that holds a higher level of debt has a higher possibility of defaulting and notbeing able to meet their financial obligations. Therefore, companies with higher debt havea higher financial risk. Financial risk can arise from volatile interest rates, exchange rate risk,and company’s debt to equity ratio, etc. Business risk is the risk that a business faces in notbeing able to generate adequate income to cover operating expenses. Operatingexpenses of a business include utility costs, rent cost, wages and salaries, cost of goodssold, etc. Business risk can arise from a number of factors such as fluctuations in demand,market competition, costs of raw materials, etc. Business risk can be divided into systematicrisk and unsystematic risk. Systematic risk is the risk of the downturn that is faced by theentire industry or economy. Systematic risk can be caused by a number of factors such asthe recession, war, inflation, volatile interest rates, natural disasters, etc. Since these factorsaffect all businesses in one market or the entire economy, they are known as systematicrisk. There is not much that individual business owners can do to combat systematic risk.Unsystematic risk, on the other hand, varies from one business to another. Unsystematic riskcan arise from poor management decisions, strategic moves, investments, etc. The bestmethod to reduce unsystematic risk is to diversify the portfolio of businesses held, byincluding businesses from different markets and industries into the portfolio. This means thateven if one company is experiencing a downturn this can be overcome by the favorableperformance in another business.

266 SWOT Analysis VSPESTEL Analysis

SWOT represents Strengths, Weaknesses, Opportunities and Threats. SWOT is used toevaluate a company’s internal environment by identifying the strengths and weaknessesand also to evaluate the external environment by identifying the opportunities and threats.PESTEL factors are useful in evaluating the external environment (macro environment) ofthe organization. PESTEL stands for political, economical, social, technological, ecologicaland legal factors. The major difference between SWOT and PESTEL analysis is that PESTEL isused to analyse a company’s external environment while SWOT can be used for bothinternal as well as external evaluations. SWOT Analyses can be used to identify the currentmarket position of the company while PESTEL is used to identify the impact of externalenvironmental factors which may affect the business operations, especially whenexpanding the business operations into various other regions.



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267 SWOT VS TOWS

The major difference between SWOT and TOWS analysis is the order that the managers areconcerned about the strengths, weaknesses, threats and opportunities in making strategicdecisions. In TOWS analysis, initial focus is on threats and opportunities, which may leadtowards productive managerial discussions about the things which happen in the externalenvironment rather than considering about the company’s strengths and weaknesses. InSWOT, inward analysis starts first; that is, the company’s strengths and weaknesses areanalysed first in order to harp on the strengths to capture the opportunities and identify theweakness to overcome them.

268ManagerialFunctions VSManagerial Roles

Managerial functions involve the duties and responsibilities of a manager. In anorganization, a manager is responsible for performing core functions like planning,organizing, directing/leading, coordinating and controlling. Similarly, a manager needs toperform various roles in performing various activities such as interpersonal role,informational role, and decisional role.

269Project Manager VSOperationsManager

The project manager is responsible for completing the project within a specified budget,and the time frame. The duty of the operations manager is to reduce the overall cost whilemaximizing the profits or returns. The project manager is responsible only for the budgetrelating to a particular project that he/she is working on that time and the operationalmanager is responsible for the departmental budget. Project managers are appointed fora particular project within a certain period. However, operations manager is responsiblefor ensuring the smooth flow of business operations within the organization. Comparatively,operations manager has more responsibilities than a project manager in the organization.

270 ISO 9001 VS ISO27001

ISO 9001 is a standard which outlines the requirements for maintaining quality throughoutthe management system. The latest version is the ISO 9001:2008. It is a framework that canbe used in developing the processes through quality improvements and achievingorganizational success. ISO 27001 standard is to ensure the information security and dataprotection in organizations worldwide. This standard is so important for businessorganizations in safeguarding their customers and confidential information of theorganization against threats. Implementation of the information security managementsystem would ensure quality, safety, service and product reliability of the organization thatcan be safeguarded at its highest level.

271 ISO 27001 VS ISO27002

The ISO 27001 standard expresses the requirements for information security managementin organizations and ISO 27002 standard provides support and guidance for those who areresponsible in initiating, implementing or maintaining Information Security ManagementSystems (ISMS). ISO 27001 is an auditing standard based upon auditable requirements,while ISO 27002 is an implementation guide based upon best practice suggestions. ISO27001 includes a list of management controls to the organizations while ISO 27002 has a listof operational controls to the organizations. ISO 27001 can be used to audit and certify theorganization’s Information Security Management System and ISO 27002 can be used toassess the comprehensiveness of an organization’s Information Security Program.

272 ISO 9001 VS 9002

ISO 9001 standard is the most updated version of the international standards comparedto ISO 9002. The major difference between ISO 9001 and ISO 9002 is that ISO 9001 is a modelfor quality assurance in design, development, production, installation while ISO 9002 is amodel for quality assurance in production, installation and servicing. Therefore, ISO 9001sets out the requirements for an organization where the business processes range fromdesign and development, to production, installation and servicing and ISO 9002 isappropriate for organizations where they do not concern on designing and developingthe products, as it does not include the design control requirements of ISO 9001.

273 Boss VS Leader

A boss can be identified as an individual who acts as an immediate supervisor for a specificset of employees who are having the authority to make certain decisions on behalf of thecompany. The term boss can be used to refer to any employee in the company who is ata higher level including a supervisor, executive, manager, director or CEO. A leader is aperson who can influence the behavior of others. They are always working towardsachieving the organizational vision and always inspire and motivate their subordinates atwork. Being a leader requires much commitment towards achieving success. Leaders areconsidered as role models for everybody, and they inspire the people who are aroundthem. Employees get motivated to work with such people. They listen to their subordinatesand empower them. Best performers are rewarded by good leaders. Bosses are highlyconcerned about the outcomes of a process and the leaders feel responsible for theprocess of that outcome and the people who see it out.



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274

TransformationalLeadership VSSituationalLeadership

Transformational leaders act according to the vision and inspiration and situational leadersact according to a particular situation. Transformational leaders are charismaticpersonalities, which have been useful to inspire and motivate the workers to change theirbehaviours and develop them up to expected levels of quality standards. A number offactors are linked with situational leadership, including resources, external relationships,organizational culture and group management but the transformational leadership styledoes not have any link with the organizational culture. Transformational leadership can beconsidered as a single preferred style while situational leadership can be applied withleadership skills in order to motivate and inspire the employees to act according to thegiven situation.

275 Labour Intensive VSCapital Intensive

Capital intensive and labor intensive refer to types of production methods followed in theproduction of goods and services. Capital intensive production requires more equipmentand machinery to produce goods; therefore, require a larger financial investment. Laborintensive refers to production that requires a higher labor input to carry out productionactivities in comparison to the amount of capital required.

276 Audit VS Inspection

An inspection is when a facility, building, equipment, machinery, or even a process is beingclosely observed with the aim of verifying that it meets a certain set of standards. Auditsare based on a set of predetermined guidelines and standards and are more formal andplanned out. Audits are usually carried out once a year, whereas inspections are donefrequently than that and could be weekly or monthly.

277 Supply Chain VSValue Chain

Value chain and supply chain are both processes that are adopted by firms, to managethe production and value addition activities of the firm aimed at providing the customerwith a good quality product that is able to satisfy their needs at a low cost. The supply chainis concerned with the manufacturing of the product and sale and distribution, whereasvalue chain takes another step further and looks at how additional value can be createdfor the product through organizing the company’s operations in a manner that providesthe best value for the lowest cost. The main difference between supply chain and valuechain is that supply chains follow the product from the supply to the customer whereas, ina value chain, the starting point is at the customer; evaluating customer’s needs and thentracking back to manufacturing to determine how the processes can be modified to meetthese needs.

278 Strategy VS Policy

Strategy of a business organization is reflective of the thinking of those at the top of itsmanagement and the action that the management plans to take. It is the job of themanagement to set goals that are sought to be achieved and the strategy is a statementthat lets stakeholders know the thinking of the management as to how they plan toachieve these goals. To an investor or a shareholder, the strategy document is animportant reminder regarding the thinking process of men who matter in a company. Apolicy lies at the core of all decisions taken by the management of a company. It servesas a guide while taking decisions though the policy is not a statement that is written in blackand white that has to be applied in day to day operations. Policy statement is like aguidebook that helps management to take important decisions and clears all doubts asto the direction a company should take.

279 Project VS Program

A project manager needs to monitor and manage tasks, while a program managermonitors and controls projects. Projects are of shorter duration, whereas programs can lastfor years. Projects have narrow scope, whereas a program has much wider scope. In aprogram, focus is always on the manager (leadership), while in case of project; focus is onmanagement of people involved. Project has a start as well as well defined end. On theother hand, program is a bunch of projects with no definite end.

280 Code of Ethics VSCode of Conduct

Codes of conduct are rules and regulations that are to be followed strictly by theemployees of a company, and could lead to their removal if they show disregard to thesecodes. Codes of ethics are behaviors or actions that are unwritten rules and regulations,and their violation is frowned upon by the company, though not prohibited under law.Codes of ethics are not specific, and their violation leads to no punishment, though theyare expected to be followed. Codes of conduct require strict adherence, or one has toincur penalty

281 Accountability VSResponsibility

Accountability and Responsibility are two words that are quite often confused due to thesimilarity between their meanings. Strictly speaking, these two words have to beunderstood differently. The word ‘accountability’ is generally used in the sense of‘answerability’. On the other hand, the word ‘responsibility’ is used in the sense of ‘liability’or ‘dependability’. This is the basic difference between the two words.



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282 ISO 17025 VS ISO9001

ISO 17025 is about accreditation, and ISO 9001 is about certification. ISO 17025 is forlaboratory accreditation, and ISO 9001 is for quality management. ISO 17025 governs thequality of the product, and ISO 9001 does not govern the quality of the product. ISO 17025contains a main clause (clause number 4-Quality management system) derived from ISO9001:2000. ISO 17025 have five main clauses, and ISO 9001 have eight principles. ISO 17025contains technical requirement, and ISO 9001 does not contain the technical requirement.ISO 17025 contains the factors that determine the correctness and reliability of tests andcalibrations, but ISO 9001 does not include those factors related to correctness andreliability.

283 Centralisation VSDecentralisation

Centralization and decentralization are important concepts in devolution of powers andauthority in an organization. Highly centralized structure refers to an organization wheredecision making powers are in the hands of remaining few at the top and the structure iscalled a top to bottom approach. Decentralized structure is one which adopts a bottomto top approach and allows devolution of powers at lower levels. Decentralized structuresare seen as a necessity in today’s context with bigger and bigger corporations coming intoexistence. Centralization and decentralization are important concepts used in many otherfields too.

284 Assessment VSEvaluation

Evaluation is carried out to analyse the impact of the actual project and to see whether itis in line with the agreed strategic plans. Assessment is the process of documenting, usuallyin measurable terms, knowledge, skills, attitudes and faiths. Assessment of employee skillscan be very helpful to the organization. Assessment paves the way for the final evaluationof the organization or the company as a whole. Evaluation reviews progress; it identifiesproblems in planning or implementation. Evaluation aims at outcomes. Assessment aims atexecution.

285 Approach VSMethod

Approach refers to an act or means of coming near or approaching as in the expression‘made an approach’. In the expression ‘needs a new approach’, the word ‘approach’has the sense of ‘a way of dealing with a person or a thing’. A method on the other handis a word meaning ‘a way’ or ‘a process’. It refers to the manner in which a work isexecuted. This is the main difference between approach and method. You approach aproblem with a view to tackle it. On the other hand you resort to a method with a view tosolving it. In other words you can say that the word ‘approach’ is based on ‘tackling’ thingswhereas the word ‘method’ is based on solving problems.

286 Evaluation VSMonitoring

Through monitoring, you can review progress whereas through evaluation you can identifyproblems in planning. Monitoring is more of a requirement. On the other hand, evaluationis more of a tool. Evaluation helps in finding out whether the organization is working betterand efficiently wheras monitoring helps in identifying whether the plans are carried outeffectively. Evaluation forms the vision of an organization whereas monitoring becomes theframework of the project. It can also be said that monitoring leads to evaluation.

287 Purchase VSProcurement

In corporate world, the word procurement has come to be referred to the set of activitiesthat need to be performed to acquire the right material from the right vendor at the bestpossible rates at just the right time to maximize benefits for the company. On the otherhand, purchase is just the transactional part of the entire process called procurement.Purchase is the most basic form of procurement. Procurement involves much more thansimple acquisition of goods and services as negotiation as well as logistics is alsoencompassed in this term.

288 Quality AssuranceVS Quality Control

While quality control is a set of activities designed to evaluate a developed product,quality assurance or guarantee pertains to activities that are designed to ensure that thedevelopment and maintenance process is adequate and the system meets its objectives.Quality control focuses on finding defects or anomalies in the deliverables and checking ifthe defined requirements are the right requirements. Testing is one example of a qualitycontrol activity, but there are many more such activities that make up quality control.Quality assurance ensures that the process is well defined and appropriate. Someexamples of quality assurance are methodology and standards development. Any qualityassurance review would typically focus on the process aspect of a project or task, forexample, are requirements being defined at a level of detail that is accepted and proper.



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289 Leadership VSManagement

The biggest difference between leadership and management arises from the way theymotivate people who work around them as this sets the tone for all other aspects of anorganization. By definition, management has an aura or authority vested in it by thecompany. Subordinates work under it, and largely do as they are told. This is transactionalstyle in that managers tell workers what to do and workers do because they are promiseda reward (salary or bonus). Management is normally paid to get things done within theconstraints of time and money. Management tends to come from stable backgrounds andlead relatively comfortable lives. This makes them averse to taking risks and they seek toavoid conflict as far as possible. In terms of people, they like to run a happy ship.

290 Vision VS Mission

As mentioned above a vision is a concept or a goal that the seer or the individual strivesto achieve. Vision pertains to the ultimate goal of an individual, a firm, organization or acountry as a whole. Mission is the action pertaining to a group of individuals who haveunited with a common intent. Mission pertains to a social organization, a non-governmental organization or a political movement. For an example in a politicalmovement, the mission can be to create a political system that is fair and just. Thismovement works towards achieving this mission.

291 MIS VS AIS

This computer based information system is known as Management Information System(MIS), today forms the backbone for any organization to function smoothly. MIS hasinvaluable information that can be used effectively to evaluate past decisions and to planaccordingly to predict future operational success. Accounting Information System, or AIS,on the other hand is a subset of MIS and pertains to a system of keeping a record ofaccounting books and financial statements along with sales and purchase records andother financial transactions. This system is extremely crucial in maintaining the accountsystem of any organization.

292 Decision Making VSProblem Solving

Decision making in short can be called as the process of action plan. Action plan includesthe calculation of the time needed to solve the problem. It also looks at the time neededfor the implementation of the solution. It deals finally with the communication of the planto all those involved in the implementation of the solution. Problem solving consists in jottingdown the description of the various causes of the problem in terms of question such aswhere, how, with whom and why. Decision making is all about finding solutions to all thesequestions such as how, where, with whom and why through the forming a plan that has tobe implemented.

293 Agenda VS Minutes

Agenda is the schedule of a meeting and tells the sequence of events during the meetingto let the guests prepare in advance. Minutes refers to the official record of theproceedings of a formal meeting. Minutes are important to remind what happened duringa meeting on a future date if people forget.

294 Accreditation VSCertification

Accreditation is done by an approved agency that has been accepted as standard andorganizations apply for accreditation to prove their worth to outsiders. Certification is mostlyin the case of individuals though products are also certified by governmental agencies, tomaintain quality and to reassure consumers about the reliability and efficiency of theseproducts. Educational institutions apply for accreditation with the state university or theFederal university. Certificates are awarded to individuals as in IT industry to confirm theskills of people. Accreditation is a stamp of approval by a third party about procedures.

295 Motto VS Slogan

Motto is a phrase or sentence that contains a belief or an ideal. It works as a guidingprinciple for an individual or an entire organization. Companies make use of motto tomotivate their employees and keep them visible at important places inside the premises.Time is money. Honesty is the best policy. Time and money wait for none. Do not do untoothers what others don’t want to do unto you. Be brave. A slogan is a catchy phrase orsentence that used mostly by businesses and political parties to attract new members andclients. It is also used by organizations, whether they are commercial or not. Religious andcharitable organizations make heavy use of slogans to keep their flock together. A slogancan be a very powerful marketing tool as it can appeal to the customers of a company insuch a manner that they support the brand and be loyal to it. Slogans are simple butimpressive in the sense that they can be understood by all. Take a look at the slogans ofsome of the popular companies: Life is good (LG), Think different (Apple), The king of beers(Budweiser), American by birth, Rebel by choice’ (Harley Davidson).



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296 Takeover VSAcquisition

Acquisitions and takeovers are quite similar to each other, and in both acquisitions andtakeovers, the acquirer firm purchases the target and both firms will operate as one largerunit. The reasons for which either an acquisition or takeover occurs is also quite similar, andusually occurs because combined operations can benefit both firms through economiesof scale, better technology and knowledge sharing, larger market share etc. During bothan acquisition and takeover, the acquirer is entitled to all assets as well as liabilities of thetarget firm. The only major difference between the two is that a takeover is usually a hostileact, whereas an acquisition is usually an agreed upon well planned operation.

297 Outsourcing VSContracting

Outsourcing, or rather offshoring, is a process where a company gives the contract of someof its noncore business processes to companies in foreign countries to save on money andtime. Outsourcing has become controversial in recent times with people in westerncountries feeling their jobs are being given to people in third world countries. Contractingis a process where companies have a control of the outsourcing company but decide topurchase goods or services as per a contract that is made in writing. When the supplier ofthe service or product owns the business, then the process is termed as outsourcing, butwhen the company receiving products or services owns the service providing company, itis termed as contracting. In contracting, ownership of the supplier remains with the orderingcompany, but it instructs the supplier on how to go about providing services

298 Permit VS License

There is very little difference between a license and a permit as both require permissionfrom authorities to carry on certain activities or business. Permits are restrictive andtemporary in nature whereas licenses are permanent. Permits require occasionalinspection and safety regulations and a person may be required to obtain permits evenafter obtaining a license to start a business. A driver’s license s a classic example of alicense that makes a person eligible to drive a car on the road whereas a driver’s permitimposes a restriction upon a person to have an older person sit behind him on themotorcycle until he becomes eligible to drive a car or motorcycle on his own.

299 Lease VS License

The decision between a lease and a license is an important one, since it defines the levelof authority the land lord has over their property. A lease agreement will give the landlordless control and whereas, under a license, the landlord can conduct inspections andensure the property is maintained well. When making a decision to let out a property, alandlord who trusts his tenants and would have no need to keep his rights of maintenanceand inspection will use a lease agreement. A landlord who, on the other hand, requiresmore control and wishes to make sure his property is maintained and well kept will sign alicensing agreement.

300 Efficiency VSProductivity

A car is said to be more fuel efficient than other cars in its class if it gives higher mileagethan other cars per liter of gas. • Using the same inputs, achieving higher outputs is said tobe more productive than those achieving lower outputs. • If an economy produces moregoods and services with the same inputs like natural resources and manual labor thananother economy, it is said to be more efficient than the other economy. • Higherproductivity is not always a result of higher efficiency as there are other factors at workalso. • A manufacturer is obviously more efficient than his competitors if he achieves lowercost per unit of goods

301 CommercializationVS Privatization

Commercialization refers to the process of turning a free activity into a paid one orintroducing a product that begins to sell whereas it was earlier free. Privatization refers totaking government control in many activities and selling them to private enterprise.

302 Patent VSTrademark

Patent gives the right to the inventors to stop other people from manufacturing theirinvention. Trademark is a logo, image, text, or even sound that has the power to remindpeople about the products and services of a company. Patent is given in the field ofinventions and mechanisms that have never been produced before. Even medical cures(drugs and therapies) are considered under patents. Trademarks are used by businesses toidentify their goods or services.

303 Franchising VSLicensing

In franchising, the very fact that the company name and logo is utilized by the franchiseereflects upon the level of relationship between the company and the franchisee. Thecompany places its faith in the person and he has to maintain the quality and standardsof the product. In licensing, the company does not grant exclusive territorial rights to thelicensee and retains the right to grant more licenses in the same geographical area toother persons as well. This becomes a headache for a person as he faces stiff competitionfrom others who are selling the same product. Licensing is beneficial in monetary terms asthere are better margins for the licensee.



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304 CV (Curriculumvitae) VS Resume

CV is short for curriculum vitae and lists a person’s past work experience, the description ofmajor projects undertaken, the academic qualifications and the personal skills that theperson possesses that determines their compatibility with the skills required for the jobapplied for. The CV is more detailed. A resume, like the curriculum vitae, also lists thesummary of a person’s past jobs and experience as well as educational background. Theresume is relatively shorter than a CV and is the primary tool used by most employers todetermine the compatibility of the candidate with the job opening.

305 Copyright VS Patent

Copyright covers the works of authorship like literary, musical and dramatic work. On theother hand, patent protects those inventions that are new and useful. Copyrights are artsbased while patent are science-based protections. To apply for copyright , authorship mustbe original and real medium. The requirements for patent are new, useful and non-obvious.As the authorship work created, protection from copyright begins. While, patent protectionis not applicable, until patent is properly issued.

306 Coupon Rate VSInterest Rate

Coupon Rate is the yield of a fixed income security. Interest rate is the rate charged for aborrowing. Coupon Rate is calculated considering the face value of the investment.Interest rate is calculated considering the riskiness of the lending. Coupon rate is decidedby the issuer of the securities. Interest rate is decided by the lender.

307 Interim Dividend VSFinal Dividend

Dividends are profits that are distributed among the company’s shareholders. There are anumber of different types of dividends including interim dividends and final dividends.Interim dividends are paid from undistributed profits that have been brought forward.Interim dividends may be paid quarterly or every six months depending on the reservesthat the company holds. Final dividends will be paid at the end of the financial year. Sincefinal dividends will be paid out once the company’s end of year financial statements havebeen prepared and audited, the decisions regarding final dividend payments will befuelled by more insights and information on the company’s financial health. The maindifference between interim dividend and final dividend are the time period in whichdividend payments are made.

308 Preferred Stock VSCommon Stock

Both common stock and preferred stock represent the ownership interest in a firm, and areentitled to dividends and capital gains and can be traded on a stock exchange at anytime. There are a number of differences between the two types of stock. Preferredstockholders receive dividends before common stockholders. Preferred stock holders alsoreceive a fixed income, whereas common stockholder’s income will depend on thecompany’s performance; in the years that the company performs well commonstockholders will receive more dividends than preferred stock holders. Commonstockholders are entitled to votes, which is not the case for preferred stockholders.

309 NASDAQ VS DowJones (DJIA)

The Dow Jones Industrial Average (DJIA) is one of the most widely used stock marketindexes. The DJIA tracks 30 stocks from 30 large U.S. firms that are the major players in theirrespective industries. The companies that are included in the DJIA are companies that aretraded on the New York Stock Exchange. Companies such as Microsoft and Exxon Mobilmake up the DJIA, and the index is calculated by adding the price of the 30 stocks anddividing the total by a number known a Dow divisor. The DJIA was founded by CharlesDown in 1896 and was made up of 12 stocks at the time. The DJIA is the most popular, bestknown, and most widely quoted market index. The NASDAQ composite index tracksaround 2500 stocks that are traded on the NASDAQ stock exchange. The NASDAQcomposite index was founded in 1971 alongside the establishment of the NASDAQ stockexchange, the world’s very first computerized stock exchange. The NASDAQ compositeindex is followed by many professionals and investors since it coves a broader range ofstocks and provides a more comprehensive view of the performance of the smaller andlarger stocks. Alongside the index, NASDAQ also refers to the NASDAQ stock exchange inwhich over 5000 stocks are traded. NASDAQ is an electronic computerized stock marketwhich was the very first of its kind to be established in 1971.



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310 NASDAQ VS NYSE

There are a number of stock markets that operate around the world, out of which the NewYork Stock Exchange (NYSE) and NASDAQ are two prominent stock markets in the UnitedStates. The NYSE and NASDAQ are prominent stock exchanges in the United States in whichmajority of the world’s equities are traded. As public exchanges, both NASDAQ and NYSEare under obligation to follow the requirements that have been put forth by the Securitiesand Exchange Commission (SEC). There are a number of differences between the stockexchanges in terms of how they operate, the listing cost, types of stocks traded, etc. TheNYSE is an auction market in which the highest bid is matched with the lowest ask while theNASDAQ is a dealer’s market in which dealers trade directly with investors. NYSE operateselectronic as well as floor trades, whereas NASDAQ is a completely computerized system.NASDAQ is home to high tech companies that are startups (or recently publicly listed) withgreat growth potential, whereas NYSE is home to some of the oldest most established firms;this may be due to the fact that listing costs for the NYSE is much higher than for NASDAQ.

311 WACC VS IRR

IRR (Internal Rate of Return) is a tool used in financial analysis to determine theattractiveness of a particular project or investment, and can also be used to choosebetween possible projects or investment options that are being considered. IRR is mostlyused in capital budgeting and makes the NPV (net present value) of all cash flows from aproject or investment equal to zero. In simple, IRR is the rate of growth that a project orinvestment is estimated to generate. It is true that a project might actually generate a rateof return that is different to the estimated IRR, but a project that has a comparatively higherIRR (than the other options being considered) will have a greater chance of ending upwith higher returns and stronger growth. WACC (Weighted Average Cost of Capital) is abit more complex than the cost of capital. WACC is the expected average future cost offunds and is calculated by giving weights to the company’s debt and capital in proportionto the amount in which each is held (the firm’s capital structure). WACC is usuallycalculated for various decision making purposes and allows the business to determine theirlevels of debt in comparison to levels of capital. The following is the formula for calculatingWACC: WACC = (E / V) × Re + (D / V) × Rd × (1 – Tc). Here, E is the market value of equityand D is the market value of debt and V is the total of E and D. Re is the total cost of equityand Rd is the cost of debt. Tc is the tax rate applied to the company.

312 Expected Return VSRequired Return

Required return and expected return are similar to each other in that they both evaluatethe levels of return that an investor sets as a benchmark for an investment to be consideredprofitable. The required rate of return represents the minimum return that must be receivedfor an investment option to be considered. Expected return, on the other hand, is the returnthat the investor thinks they can generate if the investment is made. If the security is valuedcorrectly the expected return will be equal to the required return and the net present valueof the investment will be zero. However, if the required return is higher than the expectedrate the investment security is considered to be overvalued and if the required return islower than the expected the investment security is undervalued.

313 Swap VS Forward

Derivatives are special financial instruments that derive their value from one or moreunderlying assets. Forwards and swaps are both types of derivatives that help organizationsand individuals hedge against risks. A forward contract is a contract that promises deliveryof the underlying asset, at a specified future date of delivery, at an agreed upon pricestated in the contract. A swap is a contract made between two parties that agree to swapcash flows on a date set in the future. The major difference between these two derivativesis that swaps result in a number of payments in the future, whereas the forward contractwill result in one future payment.

314 Derivatives VSEquity

Equity and derivatives are financial instruments that are quite different to each other. Themain similarity between the two is that both equity and derivatives can be purchased andsold, and there are active equity and derivative markets for such trade. Equity refers to thecapital contributed to a business by its owners; which may be through some sort of capitalcontribution such as the purchase of stock. Derivative is a financial instrument that derivesits value from the movement/performance of one or many underlying assets. The maindifference between derivatives and equity is that equity derives its value on marketconditions such as demand and supply and company related, economic, political, orother events. Derivatives derive their value from other financial instruments such as bonds,commodities, currencies, etc. Certain derivatives also derive their value from equity suchas shares and stocks.



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315 Collateral VSSecurity

Collateral refers to any asset that is pledged to the bank by the borrower when taking outa loan; which the bank uses to recover losses in the event that the borrower defaults on hisloan. There are special types of loans that can be taken out by pledging securities ascollateral; this is referred to as securities based lending, where the borrower will pledge hissecurities portfolio to obtain funding. A portfolio of securities is subject to fluctuation in value(in response to market changes), and in the event that the portfolio value falls, the lendermay ask the borrower for additional collateral.

316Capital Market Line(CML) VS SecurityMarket Line (SML)

The SML and CML are both concepts related to one another, in that, they offer graphicalrepresentation of the level of return that securities offer for the risk incurred. Both CML andSML are important concepts in modern portfolio theory and are closely related to CAPM.There are a number of differences between the two; one of the major differences is in howrisk is measured. Risk is measured by the standard deviation in CML and is measured by thebeta in SML. The CML shows the level of risk and return for a portfolio of securities, whereasSML shows the level of risk and return for individual securities.

317 Arbitrage VSHedging

Traders in today’s marketplace continuously use various tactics to obtain higher levels ofreturn, and to ensure that the levels of risk suffered are minimized. Arbitrage and hedgingare two such measures, which are quite different to each other in terms of the purpose forwhich they are used. Arbitrage is where a trader will simultaneously purchase and sell anasset with hopes to make a profit from the differences in the price levels of the asset that isbought and the asset that is being sold. Hedging is a tactic used by traders to minimizepossible risk, and thereby loss in income resulting from changes in the movement, in pricelevels.

318 Arbitrage VSSpeculation

The aim of both arbitrage and speculation is to make some form of profit even though thetechniques used are quite different to each other. Arbitrage traders take lower levels ofrisk, and benefit from the natural market inconsistencies by buying at a lower price fromone market and selling at a higher price at another market. Speculation is done by tradinginstruments such as stocks, bonds, currency, commodities, and derivatives, and aspeculator looks to make a profit through the rising and falling of the prices in these assets.

319 Investment VSSpeculation

Speculation and investment are often times confused by many to be the same thing, eventhough they are quite different to each other in terms of the asset that is being invested in,the amount of risk taken, investment holding period and the expectations of the investor.The main similarity between investing and speculating is that, in both instances, the investorstrives to make a profit and improve his financial returns. The major difference between thetwo is the level of risk that is taken on. An investor tries to make satisfactory returns fromfunds invested by taking lower and moderate levels of risk. A speculator, on the other hand,takes a much larger amount of risk and makes investments that may yield abnormally largeprofits or equally large losses.

320 Hedge Funds VSMutual Funds

Mutual funds and hedge funds are both managed by portfolio managers who select anumber of attractive securities, pull them into a portfolio and manage them in a mannerthat provides the highest return to investors of the fund. A mutual fund represents a pool offunds that have been collected from a number of investors which is then utilized ininvestments such as stocks, bonds and other money market instruments. A hedge fund, onthe other hand, is much more aggressively managed and often undertakes more high leveland risky investment strategies.

321 Futures VS Options

Options and futures both are derivative contracts that allow the trader to trade theunderlying asset and obtain benefits from changes in prices of the value of the underlyingasset. An Options contract is a contract that is sold by the option writer to the option holder.The contract provides the trader with the right and not the obligation to buy or sell anunderlying asset for a set price during a specified period of time. Futures contracts arestandardized contracts that list out a specific asset to be exchanged on a specific date ortime at a specified price. The exercising of a futures contract is an obligation and not aright. The major difference between these two contracts is that the options contract givesthe trader an option as to whether he wants to use it, whereas the futures contract is anobligation that does not give the trader a choice.

322 Forward VS Futures

Functions performed by both futures and forwards contracts are similar to each other, inthat they allow the user of the contract to either buy or sell a specific asset at an agreedupon price during a specific time period. Futures contracts are standardized contracts thatlist out a specific asset to be exchanged on a specific date or time at a specified price.Forward contracts personalized agreements between two private parties, which therefore,make their terms and conditions much relaxed. Both forward contracts and futurescontracts are similar to each other in that they are both used to hedge risk and accomplishthe common goal of risk management.



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323 Primary Markets VSSecondary Markets

Primary and Secondary markets refer to markets which assist corporations obtain capitalfunding. The difference between these two markets lies in the process that is used to collectfunds. The Primary market refers to the market where new securities are issued by thecompany that wishes to obtain capital and is sold directly to the investor. The secondarymarket refers to the market where securities that have already been issued are traded.Instruments that are usually traded on the secondary market include stocks, bonds, optionsand futures. The main difference is that, in the primary market, the company is directlyinvolved in the transaction, whereas in the secondary market, the company has noinvolvement since the transactions occur between investors.

324 Money Market VSCapital Market

Money markets and capital markets provide investors access to finance which are usedfor growth and further expansion, and both markets trade on computerized exchanges.The main difference between the two markets is the maturity periods of the securitiestraded in them. Money markets are for short term lending and borrowing, and capitalmarkets are for longer periods. The forms of securities traded under both markets aredifferent; in money markets, the instruments include treasury bills, certificates of deposit,banker’s acceptances, commercial papers and repo agreements. In capital markets,instruments include stocks and bonds. As an individual investor, the best place to investyour money would be in the capital markets, either the primary market or secondarymarket. In the perspective of a large financial institution or corporation looking for largerfunding requirements, the money market would be ideal.

325 Call Option Vs PutOption

If you exercise call option, you enter into a contract with a broker that authorizes you tobuy a stock at a price anticipated by you at a specified date. This price is known as strikeprice. If your anticipation is right and the stock prices rise more than the strike price, youhave the right to get them at the strike price which is how you make profit through calloption. On the other hand a put option is just the opposite of a call option and here youstrike a bargain to sell shares at the strike price. If the prices of the share do fall below thestrike price, you can buy them from the market at the prevalent prices and then sell themto the buyer at strike price thus making money.

326 Cash Dividend VSStock Dividend

Cash dividends are cash distribution of net income to its stockholders. Whereas, stockdividends are the distribution of additional shares of the same class of stock.

327 Revenue VS Gain

Revenues are the inflows or other enhancement of the assets or settlement of the liabilitiesduring a given period that result from the entity's ongoing major operation. Gains areincreases in the equity from the peripheral or incideental transactions and from all othertransactions except those resulting from revenues or investment by owners.

328 Expense VS Loss

Expenses are outflows or using up of the assets or incurrences of the liabilities orcombination of both that result from the entity's ongoing major operation. Losses aredecreases in equity from the peripheral or incindental transactions of an entity and fromall other transactions except those resulting from expenses or distribution to owners.

329 Mudaraba VSMusharaka

Mudaraba is a partnership in profit whereby one party provides capital and the other partyprovides skill and labour. The provider of capital is called "Shahib al-maal", while theprovider of skill and labour is called "Mudarib". So, Mudaraba may be defined as a contractof partnership where the Shahib al-maal provides capital to the Mudarib for investing it ina commercial enterprise by applying his labour and endeavor. Both the parties share theprofit as per agreed upon ratio and the losses, if any, being borne by the provider of fundsi.e. Shahib al-maal except if it is due to breach of trust i.e. misconduct, negligence orviolation of the conditions agreed upon by the Mudarib. If there is any loss incurred due tothe reasons mentioned above, the Mudarib becomes liable for that. Musharaka may bedefined as a contract of partnership between two or more individuals or bodies in whichall the partners contribute capital, participate in the management, share the profit inproportion to their capital or as per pre-agreed ratio and bear the loss, if any, in proportionto their capital/equity ratio.



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330 Bai-Murabaha VSBai-Muajjal

The term ‘Bai-Murabaha’ has been derived from Arabic words 'Bai’un' and 'Ribhun'. Theword 'Bai’un means purchase and sale and the word 'Ribhun' means an agreed uponprofit. ‘Bai-Murabaha’ means sale on agreed upon profit. Bai-Murabaha may be definedas a contract between a buyer and a seller under which the seller sells certain specificgoods (permissible under Islamic Shariah and the Law of the land), to the buyer at a costplus agreed profit payable in cash or on any fixed future date in lump-sum or byinstallments. The profit marked-up may be fixed in lump-sum or in percentage of the costprice of the goods. The term ‘Bai-Muajjal’ has been derived from Arabic words Bai’un andAjalun. The word Bai’un means purchase and sale and the word Ajalun means a fixedtime or a fixed period. " Bai-Muajjal " means sale for which payment is made at a futurefixed date or within a fixed period. In short, it is a sale on Credit. Bai-Muajjal may be definedas a contract between a Buyer and a Seller under which the Seller sells certain specificgoods permissible under Islamic Shari‘ah and Law of the land) to the Buyer at an agreedfixed price payable at a fixed future date in lump sum or within a fixed period by fixedinstalments. The seller may also sell the goods purchased by him as per order andspecification of the Buyer. In this Bank, Bai-Muajjal is treated as a contract between theBank and the Client under which the Bank sells the goods, purchased as per order andspecification of the Client, to the client at an agreed price payable at any fixed futuredate in lump sum or within a fixed period by fixed instalments. Thus it is a Credit sale ofgoods by which ownership of the goods is transferred by the Bank to the Client but thepayment of sale price by the Client is deferred for a fixed period.

331 Bai-Salam VS Bai-Istisnaa

The term ‘Bai-Salam’ has been derived from Arabic words Bai’un and Salamun. The wordBai’un means ‘purchase and sale’ and the word Salamun means ‘advance’. ‘Bai-Salam’means advance purchase and sale. Bai-Salam may be defined as a contract between aBuyer and a Seller under which the Seller sells in advance the certain commodity(ies)/product(s) permissible under Islamic Shari‘ah and the law of the land to the Buyer atan agreed price payable on execution of the said contract and the commodity(ies)/product(s) is/are delivered as per specification, size, quality, quantity at a future timein a particular place. In other words, Bai-Salam is a sale whereby the seller undertakes tosupply some specific Commodity (ies) /Product(s) to the buyer at a future time in exchangeof an advanced price fully paid on the spot. Here the price is paid in cash, but the deliveryof the goods is deferred. Istisna'a is a contract between a manufacturer/seller and a buyerunder which the manufacturer/seller sells specific product(s) after having manufactured,permissible under Islamic Shariah and Law of the Country after having manufactured atan agreed price payable in advance or by instalments within a fixed period or on/within afixed future date on the basis of the order placed by the buyer.

332

Murabaha ImportBill (MIB) VSMudaraba PostImport (MPI) VSMurabaha TrustReceipt (MTR)

Payment made by the bank against lodgement of transport documents of goods importedthrough L/C is called MIB. It is an interim investment for a maximum period of 21 daysconnected with import and is generally liquidated against payment usually made by theparty for retirement of the documents for release of imported goods from the customsauthority. In conventional banking this type of investment is called Payment AgainstDocument (PAD). Normally importer pay the duty & sales tax of the impoted goods afterarrival at the port. Due to shortage of fund or some other reasons, sometimes importerapproach the L/C opener bank to assist him for retirement of the imported goods. In somecases importer do not come forward to retire the goods. In these cases the L/C openerbank themselves arrange to retire the goods by pledge in Godown under bank’s lock &key. This type of payment (forced loan) is called MPI. This is a temporary arrangement fora maximum period of 90 days. Within this time limit, the importer borrower will release thegoods at a time or gradually after making payment to the bank. In traditional banking thistype of investment is called LIM (Loan against Imported Merchandise) or LAM (LoanAgainst Merchandise). MTR is a type of investment allowed by a bank on trust to hisexperienced, reliable & reputed importer for retirement of shipping documents and releasethe imported goods. Under this arrangement the importer borrower will deposit the saleproceeds of imported goods which are under his control at a time or gradually within amaximum period of one year. In traditional banking this type of facility is called TrustReceipt (TR).



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333Pre ShipmentFinance VS PostShipment Finance

Pre Shipment finance is a short term working capital finance specially provided to anexporter against the documentary evidence of having entered into export commitment.Pre Shipment Finance is granted at the stage prior to the shipment of goods and suchfinance is given to procure raw material, for paying manufacturing and packing chargesand payment of insurance premium and freight. As and when the goods are shipped andshipping documents are obtained the pre shipment finance is to be liquidated against theproceeds of export documents tendered. The banks grant pre shipment finance againstdocumentary evidence either by way of an export letter of credit or a contract. Letter ofCredit constitutes the most frequently used instrument for export of goods fromBangladesh. Readymade garments, which comprise a large chunk of Bangladesh’sexport, are invariably exported against L/C because the underlying L/C constitutes thebasis for opening Back to Back L/C (both local and foreign) for procuring fabric andaccessories. The Pre Shipment finance is categorized broadly as per following: 1. Back toBack L/C (Inland and Foreign), 2. Export Cash Credit (ECC), 3. Packing Credit (PC). Thistype of credit refers to the credit facilities extended to the exporters by bank after shipmentof the goods against export documents. Necessity for such credit arises as the exporter cannot afford to wait for a long time for payment to local manufacturers/suppliers. Beforeextending such credit, it is necessary to obtain report on creditworthiness the exporters andfinancial soundness of the buyers as well as other relevant documents connected with theexporter in accordance with the rules and regulations in force. Banks in our countryextended post-shipment credit to the exporters through: 1. Negotiation of Documentsunder L/C., 2. Purchase of DP & DA bills., 3. Advance against Export Bills surrendered forcollection.

334 Master LC VS BackTo Back LC

When a business deal is made for buying & selling between buyer & merchandiser then thebuyer gives permission to his bank to open an L.C. of approx amount & send it tomerchandiser’s bank. Then this bank informed to merchandiser that an L.C. is accepted.This L .C is called MASTER L.C. Then MERCHANDISER takes decision about the manufacturerfor collecting raw materials .when merchandiser choose supplier then he tell the supplierto send a pro-forma invoice. After getting p .I. merchandiser tell to his bank to open an L.C send to the supplier’s bank. This L. C is opened from mother L .C which is given tomerchandiser. This L .C is called back to back or b to b L.C.

335 Import LC VS ExportLC

Import LC is used for import of goods from other countries. It could either be a sight LC(payable immediately) or deferred LC (payable at a specific date in the future). ImportLC is opened by the bank on behalf of its customer for the import of raw materials, capitalmachinery, consumer goods, food, chemicals, vehicles, etc. Margin is collected from thecustomer and kept in a separate account. On receipt of documents from the negotiatingbank, payment is made by debiting the PAD account in the customer’s name for sight LCsor sending an acceptance, undertaking to pay at a later date (for usance LCs). Export LCis extensively used in Foreign Trade to facilitate the smooth conduct of the export business.Banks play the role of intermediaries to get the transaction through, even though the buyerand the seller may not know about each other’s background. Export LCs clear theuncertainty between the buyer and the seller with the bank undertaking to settle theobligations in time. Export LC in favor of the customer is received by the bank, whichadvises the LC to the customer. When the customer ships the goods as per LC terms andsubmits the relevant documents to the bank, the bills are either purchased or sent forcollection to the LC issuing bank. The amounts drawn against Export LCs are endorsed onthe back of the original LC.

336

Loan againstImportedMerchandize (LIM)VS Loan againstTrust Receipt (LATR)

LIM is the short-term loan to the Importer, if he fails to retire the bill within the stipulated time.In LIM, after releasing the goods from the Customs authority, the possession of the goodsremains with the Bank i.e. under bank’s lock & key. Like Lim, LTR is ‘Post Shipment ImportTrade finance’ given by the Bank to the Importer. Difference is, in Lim, the possession of thereleased goods remains under bank’s control but in LTR, the Goods remains with theImporter. But he is holding the goods not as their owner but as an agent for the Bank.

337 Usance LC VSDeferred LC

ULC: Required bill of accepatance for accepatance, used by the industrial units basicallyfor raw material procurement, maturity is determined upon presentation of documentsand calculated from the certain point of time. DLC: do not require bill of exchange, dateof payment at maturity is defined and mentioned in LC.



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338 Capital Account VSCurrent Account

The current account of a country consists of all transactions relating to trade in goods andservices and unilateral (or unrequited) transfers. Service transactions include costs of traveland transportation, insurance, income and payments of foreign investments, etc. Transferpayments relate to gifts, foreign aid, pensions, and private remittances, charitabledonations etc. received from foreign individuals and governments to foreigners. Thecapital account of a country consists of its transactions in financial assets in the form ofshort-term and long-term lending’s and borrowings, and private and official investments.In other words, the capital account shows international flow of loans and investments, andrepresents a change in the country’s foreign assets and liabilities. There are two types oftransactions in the capital account—private and government. Private transactions includeall types of investment: direct, portfolio and short-term. Government transactions consist ofloans to and from foreign official agencies.

339 Primary Security VSCollateral Security

Primary Security is one which is deposited by the borrower himself and thus provides themain cover for the advance made. Primary security may be either personal Security orImpersonal security or both. A form of secondary protection sometimes required by a bankand intended to guarantee a borrower's performance on a debt obligation. The primarysecurity on a substantial business loan is typically the thing that is being financed, such asa factory, company car or shipment, but secondary or collateral security might also berequested by a bank to help assure that the loan will be repaid.

340 Advising Bank VSNominated Bank

Advising bank means the bank that advises the credit at the request of the issuing bank.Nominated Bank means the bank with which the credit is available or any bank in the caseof a credit available with any bank.

341 Advising Bank VSConfirming Bank

Advising bank means the bank that advises the credit at the request of the issuing bank.Confirming bank means the bank that adds its confirmation to a credit upon the issuingbank's authorization or request.

342

ExpansionaryMonetary Policy VSContractionaryMonetary Policy

The central bank of a country can adopt an expansionary or contractionary monetarypolicy. An expansionary monetary policy is focused on expanding, or increasing, themoney supply in an economy. On the other hand, a contractionary monetary policy isfocused on decreasing the money supply in the economy. The central bank uses itsmonetary policy tools to increase or decrease the money supply.

343ConventionalBanking VS IslamicBanking

In Conventional Banking, money is a commodity besides medium of exchange and storeof value. Therefore, it can be sold at a price higher than its face value and it can also berented out. Time value is the basis for charging interest on capital. Interest is charged evenin case the organization suffers losses by using bank's funds. Therefore, it is not based onprofit and loss sharing. While in Islamic bank, Money is not a commodity though it is usedas a medium of exchange and store of value. Therefore, it cannot be sold at a price higherthan its face value or rented out. Profit on trade of goods or charging on providing serviceis the basis for earning profit. Islamic bank operates on the basis of profit and loss sharing.In case, the businessman has suffered losses, the bank will share these losses based on themode of finance used (Mudarabah, Musharakah).

344 Recessionary GapVS Inflationary Gap

If real GDP < Potential real GDP (full employment GDP), then a recessionary gap exist. Atthe same time: Unemployment rate > natural rate of unemployment. Since more jobseekers are in the market, they tend to settle with a lower wage. Lower wage will lower theAS curve and causing the price to decrease. Lower price will increase consumption. Thisprocess will continue until the economy reaches the long run equilibrium (potential realGDP). If real GDP > Potential real GDP (full employment GDP), then an inflationary gapexist. At the same time: Unemployment rate < natural rate of unemployment. Since jobseekers are less than job openings in the market, employers are forced to raise the wageto attract new workers. High wage will decrease the AS, and raise the price. Higher pricewill lower consumption. This process will repeat until the long run equilibrium is reached.

345Peak Of BusinessCycle VS Trough OfBusiness Cycle

A sustained period in which real GDP is rising is an expansion; a sustained period in whichreal GDP is falling is a recession. The point at which an expansion ends and a recessionbegins is called the peak of the business cycle. Real GDP then falls during a period ofrecession. Eventually it starts upward again (at time t2). The point at which a recession endsand an expansion begins is called the trough of the business cycle.



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346Tier 1 Capital VS Tier2 Capital VS Tier 3Capital

TIER 1 CAPITAL called 'core capital' comprises of highest quality of capital elements thatconsists of: a) paid up capital b) non-repayable share premium account c) statutoryreserve d) general reserve e) retained earnings f) minority interest in subsidiaries g) non-cumulative irredeemable preference share h) dividend equalization account. TIER 2CAPITAL called 'supplementary capital' represents other elements which fall short of someof the characteristics of the core capital but contribute to the overall strength of a bankand consists of: a) general provision b) revaluation reserves (for fixed assets, securities,equity instrument etc) c) all other preference share d) subordinated debt. TIER 3 CAPITALcalled 'additional supplementary capital' consists of short term subordinated debt (originalmaturity less than or equal to five years but greater than or equal to two years) would besolely for the purpose of meeting a proportion of the capital requirements for market risk

347Internal Control &Compliance Risk VSICT Risk

INTERNAL CONTROL AND COMPLIANCE RISK arises from error and fraud in operatingactivities due to lack of standard internal processes, people and systems. ICT RISK arisesfrom unauthorised access to internal server, illegal tempering and malicious actions ininformation systems.

348 Basel I VS Basel IIVS Basel III

The first accord was the Basel I. It was issued in 1988 and focused mainly on credit risk bycreating a bank asset classification system. This classification system grouped a bank'sassets into five risk categories: 0% - cash, central bank and government debt and anyOECD government debt, 0%, 10%, 20% or 50% - public sector debt, 20% - developmentbank debt, OECD bank debt, OECD securities firm debt, non-OECD bank debt (under oneyear maturity) and non-OECD public sector debt, cash in collection, 50% - residentialmortgages, 100% - private sector debt, non-OECD bank debt (maturity over a year), realestate, plant and equipment, capital instruments issued at other banks. Basel II improvedon Basel I, first enacted in the 1980s, by offering more complex models for calculatingregulatory capital. Essentially, the accord mandates that banks holding riskier assets shouldbe required to have more capital on hand than those maintaining safer portfolios. Basel IIalso requires companies to publish both the details of risky investments and riskmanagement practices. Basel II uses a "three pillars" concept – (1) minimum capitalrequirements (addressing risk), (2) supervisory review and (3) market discipline. The first pillardeals with maintenance of regulatory capital calculated for three major components ofrisk that a bank faces: credit risk, operational risk, and market risk. The second pillar providesa framework for dealing with systemic risk, pension risk, concentration risk, strategic risk,reputational risk, liquidity risk and legal risk, which the accord combines under the title ofresidual risk. The third pillar aims to complement the minimum capital requirements andsupervisory review process by developing a set of disclosure requirements which will allowthe market participants to gauge the capital adequacy of an institution. "Basel III" is acomprehensive set of reform measures, developed by the Basel Committee on BankingSupervision, to strengthen the regulation, supervision and risk management of the bankingsector. These measures aim to: (i) improve the banking sector's ability to absorb shocksarising from financial and economic stress, whatever the source, (ii) improve riskmanagement and governance, (iii) strengthen banks' transparency and disclosures. Thereforms target: (i) bank-level, or microprudential, regulation, which will help raise theresilience of individual banking institutions to periods of stress. (ii) macroprudential, systemwide risks that can build up across the banking sector as well as the procyclicalamplification of these risks over time.

349Credit Risk VSOperational Risk VSMarket Risk

A credit risk is the risk of default on a debt that may arise from a borrower failing to makerequired payments. The credit risk component can be calculated in three different waysof varying degree of sophistication, namely standardized approach, Foundation IRB,Advanced IRB and General IB2 Restriction. IRB stands for "Internal Rating-Based Approach".Operational risk is "the risk of a change in value caused by the fact that actual losses,incurred for inadequate or failed internal processes, people and systems, or from externalevents (including legal risk), differ from the expected losses". For operational risk, there arethree different approaches – basic indicator approach or BIA, standardized approach orTSA, and the internal measurement approach (an advanced form of which is theadvanced measurement approach or AMA). Market risk is the risk of losses in positionsarising from movements in market prices. For market risk the preferred approach is VaR(value at risk).

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