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Demand

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Definition of Demand

Demand Image 1

Demand

An amount desired, in the sense that people are willing and able to pay to obtain this amount. Always associated with a given price.



Related Terms:

Aggregate Demand

Total quantity of goods and services demanded.


Aggregate Demand Curve

Combinations of the price level and income for which the goods and services market is in equilibrium, or for which both the goods and services market and the money market are in equilibrium.


Demand Deposit

A bank deposit that can be withdrawn on demand, such as a deposit in a checking account.


Demand deposits

Checking accounts that pay no interest and can be withdrawn upon demand.


Demand line of credit

A bank line of credit that enables a customer to borrow on a daily or on-demand basis.



Demand Loan

A loan which must be repaid in full on demand.


Demand Management Policy

Fiscal or monetary policy designed to influence aggregate demand for goods and services.


Demand Image 2

Demand master notes

Short-term securities that are repayable immediately upon the holder's demand.


Demand-Pull Inflation

Inflation whose initial cause is excess demand rather than cost increases. See also cost-push inflation.


Demand shock

An event that affects the demand for goods in services in the economy.


Excess Demand

A situation in which demand exceeds supply.


Hedging demands

demands for securities to hedge particular sources of consumption risk, beyond the usual
mean-variance diversification motivation.


Money market demand account

An account that pays interest based on short-term interest rates.


Precautionary demand (for money)

The need to meet unexpected or extraordinary contingencies with a
buffer stock of cash.


Speculative demand (for money)

The need for cash to take advantage of investment opportunities that may arise.


Transaction demand (for money)

The need to accommodate a firm's expected cash transactions.


Demand Image 3

Variable rated demand bond (VRDB)

Floating rate bond that can be sold back periodically to the issuer.


Warehouse demand

The demand for a part by an outlying warehouse.



45-Degree Line

A line representing equilibrium in the goods and services market, on a diagram with aggregate demand on the vertical axis and aggregate supply on the horizontal axis.


activity driver

a measure of the demands on activities and,
thus, the resources consumed by products and services;
often indicates an activity’s output


AD

Aggregate demand.


Aggregate Expenditure Curve

Aggregate demand for goods and services drawn as a function of the level of national income.


Appraisal rights

A right of shareholders in a merger to demand the payment of a fair price for their shares, as
determined independently.


Arms index

Also known as a trading index (TRIN)= (number of advancing issues)/ (number of declining
issues) (Total up volume )/ (total down volume). An advance/decline market indicator. Less than 1.0 indicates
bullish demand, while above 1.0 is bearish. The index often is smoothed with a simple moving average.


Balance of Payments

The difference between the demand for and supply of a country's currency on the foreign exchange market.


Benchmark interest rate

Also called the base interest rate, it is the minimum interest rate investors will
demand for investing in a non-Treasury security. It is also tied to the yield to maturity offered on a
comparable-maturity Treasury security that was most recently issued ("on-the-run").


Bill of exchange

General term for a document demanding payment.


Bottleneck

A resource whose capacity is unable to match or exceed that of the demand
volume required of it.



Call

a. An option to buy a certain quantity of a stock or commodity for a
specified price within a specified time. See Put.
b. A demand to submit bonds to the issuer for redemption before the maturity date.
c. A demand for payment of a debt.
d. A demand for payment due on stock bought on margin.


Capacity utilization

The proportion of capacity that is able to be utilized to fulfil customer demand for products
or services.


Capital Account

That part of the balance of payments accounts that records demands for and supplies of a currency arising from purchases or sales of assets.


Commercial draft

demand for payment.


company cost of capital

Expected rate of return demanded by investors in a company, determined by the average risk of the company’s assets and operations.


Consumption Function

The relationship between consumption demand and disposable income. More generally, it refers to the relationship between consumption demand and all factors that affect this demand.


Cost driver

The most significant cause of the cost of an activity, a measure of the demand for an activity
by each product/service enabling the cost of activities to be assigned from cost pools to products/services.


Cost-Push Inflation

Inflation whose initial cause is cost increases rather than excess demand. See also demand-pull inflation.


Crowding Out

Decreases in aggregate demand which accompany an expansionary fiscal policy, dampening the impact of that policy.


Current Account

That part of the balance of payments accounts that records demands for and supplies of a currency arising from activities that affect current income, namely imports, exports, investment income payments such as interest and dividends, and transfers such as gifts, pensions, and foreign aid.


Debt Financing

Raising loan capital through the creation of debt by issuing a form of paper evidencing amounts owed and payable on specified dates or on demand.


Disequilibrium

The absence of equilibrium. Disequilibrium implies excess demand or excess supply and pressure for change.


Draft

An unconventional order in writing - signed by a person, usually the exporter, and addressed to the
importer - ordering the importer or the importer's agent to pay, on demand (sight draft) or at a fixed future
date (time draft), the amount specified on its face.


Equilibrium

A position in which there is no pressure for change, where demand and supply are equal.


Events of default

Contractually specified events that allow lenders to demand immediate repayment of a debt.


Excess Supply

A situation in which supply exceeds demand.


expected capacity

a short-run concept that represents the
anticipated level of capacity to be used by a firm in the
upcoming period, based on projected product demand


Flexible Exchange Rate

An exchange rate whose value is determined by the forces of supply and demand on the foreign exchange market.


free cash flow

Generally speaking, this term refers to cash flow from
profit (cash flow from operating activities, to use the more formal term).
The underlying idea is that a business is free to do what it wants with its
cash flow from profit. However, a business usually has many ongoing
commitments and demands on this cash flow, so it may not actually be
free to decide what do with this source of cash. Warning: This term is
not officially defined anywhere and different persons use the term to
mean different things. Pay particular attention to how an author or
speaker is using the term.


Incomes Policy

A policy designed to lower inflation without reducing aggregate demand. Wage/price controls are an example.


Insured Retirement Plan

This is a recently coined phrase describing the concept of using Universal Life Insurance to tax shelter earnings which can be used to generate tax-free income in retirement. The concept has been described by some as "the most effective tax-neutralization strategy that exists in Canada today."
In addition to life insurance, a Universal Life Policy includes a tax-sheltered cash value fund that cannot exceed the policy's face value. Deposits made into the policy are partially used to fund the life insurance and partially grow tax sheltered inside the policy. It should be pointed out that in order for this to work, you must make deposits into this kind of policy well in excess of the cost of the underlying insurance. Investment of the cash value inside the policy are commonly mutual fund type investments. Upon retirement, the policy owner can draw on the accumulated capital in his/her policy by using the policy as collateral for a series of demand loans at the bank. The loans are structured so the sum of money borrowed plus interest never exceeds 75% of the accumulated investment account. The loans are only repaid with the tax free death benefit at the death of the policy holder. Any remaining funds are paid out tax free to named beneficiaries.
Recognizing the value to policy holders of this use of Universal Life Insurance, insurance companies are reworking features of their products to allow the policy holder to ask to have the relationship of insurance to investment growth tracked so that investment growth inside the policy may be maximized. The only potential downside of this strategy is the possibility of the government changing the tax rules to prohibit using a life insurance product in this manner.


management information system (MIS)

a structure of interrelated elements that collects, organizes, and communicates
data to managers so they may plan, control, evaluate
performance, and make decisions; the emphasis of the
MIS is on internal demands for information rather than external
demands; some or all of the MIS may be computerized
for ease of access to information, reliability of input
and processing, and ability to simulate outcomes of
alternative situations


Margin call

A demand for additional funds because of adverse price movement. Maintenance margin
requirement, security deposit maintenance
Margin of safety With respect to working capital management, the difference between 1) the amount of longterm
financing, and 2) the sum of fixed assets and the permanent component of current assets.


Market clearing

Total demand for loans by borrowers equals total supply of loans from lenders. The market,
any market, clears at the equilibrium rate of interest or price.


Market Mechanism

The system whereby using prices, the interaction of supply and demand allocates inputs and distributes outputs.


Market price of risk

A measure of the extra return, or risk premium, that investors demand to bear risk. The
reward-to-risk ratio of the market portfolio.


Market segmentation theory or preferred habitat theory

A biased expectations theory that asserts that the
shape of the yield curve is determined by the supply of and demand for securities within each maturity sector.


Material requirements planning (MRP)

A computer-driven production methodology
that manufactures products based on an initial demand forecast. It tends to result in
more inventory of all types than a just-in-time (JIT) production system.


materials requirements planning (MRP)

a computerbased information system that simulates the ordering and
scheduling of demand-dependent inventories; a simulation
of the parts fabrication and subassembly activities that are
required, in an appropriate time sequence, to meet a production
master schedule


Money supply

M1-A: Currency plus demand deposits
M1-B: M1-A plus other checkable deposits.
M2: M1-B plus overnight repos, money market funds, savings, and small (less than $100M) time deposits.
M3: M-2 plus large time deposits and term repos.
L: M-3 plus other liquid assets.


Negotiable order of withdrawal (NOW)

demand deposits that pay interest.


Open-end fund

Also called a mutual fund, an investment company that stands ready to sell new shares to the
public and to redeem its outstanding shares on demand at a price equal to an appropriate share of the value of
its portfolio, which is computed daily at the close of the market.


Optimum selling price

The price at which profit is maximized, which takes into account the cost behaviour of fixed and variable costs and the relationship between price and demand for a product/service.


Oversubscribed issue

Investors are not able to buy all of the shares or bonds they want, so underwriters must
allocate the shares or bonds among investors. This occurs when a new issue is underpriced or in great demand
because of growth prospects.


Poison put

A covenant allowing the bondholder to demand repayment in the event of a hostile merger.


Preferred habitat theory

A biased expectations theory that believes the term structure reflects the
expectation of the future path of interest rates as well as risk premium. However, the theory rejects the
assertion that the risk premium must rise uniformly with maturity. Instead, to the extent that the demand for
and supply of funds does not match for a given maturity range, some participants will shift to maturities
showing the opposite imbalances. As long as such investors are compensated by an appropriate risk premium
whose magnitude will reflect the extent of aversion to either price or reinvestment risk.


Price Adjuster

A firm that reacts to excess supply or excess demand by adjusting price rather than quantity. Contrast with quantity adjuster.


Price Flexibility

Ease with which prices adjust in response to excess supply or demand.


Promissory Note

Written promise committing the maker to pay the a specified sum of money either on demand or on some future date, with or without interest.


pull system

a production system dictated by product sales
and demand; a system in which parts are delivered or produced
only as they are needed by the work center for which
they are intended; it requires only minimal storage facilities


Quantity Adjuster

A firm that reacts to excess supply or excess demand by adjusting quantity rather than price. Contrast with price adjuster.


Reclamation

A claim for the right to return or the right to demand the return of a security that has been
previously accepted as a result of bad delivery or other irregularities in the delivery and settlement process.


Restructuring Charges

Costs associated with restructuring activities, including the consolidation and/or relocation of operations or the disposition or abandonment of operations or productive assets.
Such charges may be incurred in connection with a business combination, a change in an enterprise's strategic plan, or a managerial response to declines in demand, increasing costs, or other environmental factors.


Savings deposits

Accounts that pay interest, typically at below-market interest rates, that do not have a
specific maturity, and that usually can be withdrawn upon demand.


Say's Law

Belief that supply creates its own demand.


Sight draft

demand for immediate payment.


Stock

Units of ownership, also called shares, in a public corporation. Owners of such units, called shareholders, share in the earnings of the company through dividends. The price of a stock is determined by supply and demand in the stock market.


Technical analysts

Also called chartists or technicians, analysts who use mechanical rules to detect changes
in the supply of and demand for a stock and capitalize on the expected change.


Technical condition of a market

demand and supply factors affecting price, in particular the net position,
either long or short, of the dealer community.


Time draft

demand for payment at a stated future date.


Trade acceptance

Written demand that has been accepted by an industrial company to pay a given sum at a future date.
Related: banker's acceptance.


Transmission Mechanism

The channels by which a change in the demand or supply of money affects aggregate demand for goods and services.


Wage Flexibility

Ease with which wages adjust in response to excess supply or demand.


Zero curve, zero-coupon yield curve

A yield curve for zero-coupon bonds;
zero rates versus maturity dates. Since the maturity and duration (Macaulay
duration) are identical for zeros, the zero curve is a pure depiction of supply/
demand conditions for loanable funds across a continuum of durations and
maturities. Also known as spot curve or spot yield curve.



 

 

 

 

 

 

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