Financial Terms
Real Business Cycle Theory

Main Page

Alphabetical
Index

SEARCH


Information about financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit.

 


Main Page: payroll, financial, business, stock trading, credit, inventory control, money, investment,

Definition of Real Business Cycle Theory

Real Business Cycle Theory Image 1

Real Business Cycle Theory

Belief that business cycles arise from real shocks to the economy, such as technology advances and natural resource discoveries, and have little to do with monetary policy.



Related Terms:

After-tax real rate of return

Money after-tax rate of return minus the inflation rate.


Agency theory

The analysis of principal-agent relationships, wherein one person, an agent, acts on behalf of
anther person, a principal.


approximated net realizable value at split-off allocation

a method of allocating joint cost to joint products using a
simulated net realizable value at the split-off point; approximated
value is computed as final sales price minus
incremental separate costs


Arbitrage Pricing Theory (APT)

An alternative model to the capital asset pricing model developed by
Stephen Ross and based purely on arbitrage arguments.


Basic business strategies

Key strategies a firm intends to pursue in carrying out its business plan.



Bubble theory

Security prices sometimes move wildly above their true values.


Budget cycle

The annual period over which budgets are prepared.


Real Business Cycle Theory Image 2

Business cycle

Repetitive cycles of economic expansion and recession.


Business Cycle

Fluctuations of GDP around its long-run trend, consisting of recession, trough, expansion, and peak.


Business Expansion Investment

The use of capital to create more money through the addition of fixed assets or through income producing vehicles.


Business failure

A business that has terminated with a loss to creditors.


business intelligence (BI) system

a formal process for gathering and analyzing information and producing intelligence to meet decision making needs; requires information about
internal processes as well as knowledge, technologies, and competitors


business process reengineering (BPR)

the process of combining information technology to create new and more effective
business processes to lower costs, eliminate unnecessary
work, upgrade customer service, and increase
speed to market


Business risk

The risk that the cash flow of an issuer will be impaired because of adverse economic
conditions, making it difficult for the issuer to meet its operating expenses.


business-value-added activity

an activity that is necessary for the operation of the business but for which a customer would not want to pay


Cash conversion cycle

The length of time between a firm's purchase of inventory and the receipt of cash
from accounts receivable.


Real Business Cycle Theory Image 3

cash conversion cycle

Period between firm’s payment for materials
and collection on its sales.


Cash cycle

In general, the time between cash disbursement and cash collection. In net working capital
management, it can be thought of as the operating cycle less the accounts payable payment period.



Cash Cycle

The length of time between a purchase of materials and collection of accounts receivable generated by the sale of the products made from the materials.


Commercial Business Loan (Credit Insurance)

An agreement between a creditor and a borrower, where the creditor has loaned an amount to the borrower for business purposes.


Cycle counting

The frequent, scheduled counting of a subset of all inventories,
with the intent of spotting inventory record inaccuracies, investigating root
causes, and correcting those problems.


cycle time

the time between the placement of an order to
the time the goods arrive for usage or are produced by
the company; it is equal to value-added time plus nonvalue-
added time


Exchange Rate, Real

The nominal exchange rate corrected for price level differences.


expectations theory of exchange rates

theory that expected spot exchange rate equals the forward rate.


Expiration cycle

An expiration cycle relates to the dates on which options on a particular security expire. A
given option will be placed in 1 of 3 cycles, the January cycle, the February cycle, or the March cycle. At any
point in time, an option will have contracts with 4 expiration dates outstanding, 2 in near-term months and 2
in far-term months.


High-Risk Small Business

Firm viewed as being particularly subject to risk from an investors perspective.


Interest Rate, Real

Nominal interest rate less expected inflation.


Internet business model

a model that involves
(1) few physical assets,
(2) little management hierarchy, and
(3) a direct pipeline to customers



life cycle costing

the accumulation of costs for activities that
occur over the entire life cycle of a product from inception
to abandonment by the manufacturer and consumer


Lifecycle costing

An approach to costing that estimates and accumulates the costs of a product/service over
its entire lifecycle, i.e. from inception to abandonment.


Liquidity theory of the term structure

A biased expectations theory that asserts that the implied forward
rates will not be a pure estimate of the market's expectations of future interest rates because they embody a
liquidity premium.


Local expectations theory

A form of the pure expectations theory which suggests that the returns on bonds
of different maturities will be the same over a short-term investment horizon.


manufacturing cycle efficiency (MCE)

a ratio resulting from dividing the actual production time by total lead time;
reflects the proportion of lead time that is value-added


Market cycle

The period between the 2 latest highs or lows of the S&P 500, showing net performance of a
fund through both an up and a down market. A market cycle is complete when the S&P is 15% below the
highest point or 15% above the lowest point (ending a down market). The dates of the last market cycle are:
12/04/87 to 10/11/90 (low to low).


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.


Modern portfolio theory

Principles underlying the analysis and evaluation of rational portfolio choices
based on risk-return trade-offs and efficient diversification.


Net Realizable Value

Selling price of an asset less expenses of bringing the asset into a saleable state and expenses of the sale.


net realizable value approach

a method of accounting for by-products or scrap that requires that the net realizable value of these products be treated as a reduction in the cost of the primary products; primary product cost may be reduced by decreasing either
(1) cost of goods sold when the joint products are sold or
(2) the joint process cost allocated to the joint products


net realizable value at split-off allocation

a method of allocating joint cost to joint products that uses, as the proration base, sales value at split-off minus all costs necessary
to prepare and dispose of the products; it requires
that all joint products be salable at the split-off point


Net realizeable value

The expected revenue to be gained from the sale of an item or
service, less the costs of the sale transaction.


Normal backwardation theory

Holds that the futures price will be bid down to a level below the expected
spot price.


Operating cycle

The average time intervening between the acquisition of materials or services and the final
cash realization from those acquisitions.


operating risk (business risk)

Risk in firm’s operating income.


Payroll Cycle

The period of service for which a company compensates its employees.


pecking order theory

Firms prefer to issue debt rather than equity if internal finance is insufficient.


Political Business Cycle

A business cycle caused by policies undertaken to help a government be re-elected.


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.


Product cycle

The time it takes to bring new and/or improved products to market.


product life cycle

a model depicting the stages through
which a product class (not necessarily each product) passes


Pure expectations theory

A theory that asserts that the forward rates exclusively represent the expected
future rates. In other words, the entire term structure reflects the markets expectations of future short-term
rates. For example, an increasing sloping term structure implies increasing short-term interest rates. Related:
biased expectations theories


Quantity Theory of Money

theory that velocity is constant, and so a change in money supply will change nominal income by the same percentage. Formalized by the equation Mv = PQ.


random walk theory

Security prices change randomly, with no predictable trends or patterns.


Real

Measured in base year, or constant, dollars. Contrast with nominal.


Real Actions (Earnings) Management

Involves operational steps and not simply acceleration
or delay in the recognition of revenue or expenses. The delay or acceleration of shipment would
be an example.


Real assets

Identifiable assets, such as buildings, equipment, patents, and trademarks, as distinguished from a
financial obligation.


real assets

Assets used to produce goods and services.


Real capital

Wealth that can be represented in financial terms, such as savings account balances, financial
securities, and real estate.


Real cash flow

A cash flow is expressed in real terms if the current, or date 0, purchasing power of the cash
flow is given.


Real Exchange Rate

Exchange rate adjusted for relative price levels.


Real exchange rates

Exchange rates that have been adjusted for the inflation differential between two countries.


Real GDP

GDP expressed in base-year dollars, calculated by dividing nominal GDP by a price index.


Real Income

Income expressed in base-year dollars, calculated by dividing nominal income by a price index.


Real interest rate

The rate of interest excluding the effect of inflation; that is, the rate that is earned in terms
of constant-purchasing-power dollars. Interest rate expressed in terms of real goods, i.e. nominal interest rate
adjusted for inflation.


Real Interest Rate

The rate of interest paid on an investment adjusted for inflation


real interest rate

Rate at which the purchasing power of an investment increases.


Real market

The bid and offer prices at which a dealer could do "size." Quotes in the brokers market may
reflect not the real market, but pictures painted by dealers playing trading games.


real microprofit center

a center whose output has a market value


Real Money Supply

Money supply expressed in base-year dollars, calculated by dividing the money supply by a price index.


real options

Options embedded in real assets.


Real Rate of Interest

See interest rate, real.


Real time

A real time stock or bond quote is one that states a security's most recent offer to sell or bid (buy).
A delayed quote shows the same bid and ask prices 15 minutes and sometimes 20 minutes after a trade takes place.


real value of $1

Purchasing power–adjusted value of a dollar.


Real Wage

Wage expressed in base-year dollars, calculated by dividing the money wage by a price index.


Realizable Revenue A revenue transaction where assets received in exchange for goods and

services are readily convertible into known amounts of cash or claims to cash.


Realized compound yield

Yield assuming that coupon payments are invested at the going market interest
rate at the time of their receipt and rolled over until the bond matures.


Realized Gains and Losses

Increases or decreases in the fair value of an asset or a liability that
are realized through sale or settlement.


Realized return

The return that is actually earned over a given time period.


Realized Revenue

A revenue transaction where goods and services are exchanged for cash or
claims to cash.


realized value approach

a method of accounting for byproducts or scrap that does not recognize any value for these products until they are sold; the value recognized
upon sale can be treated as other revenue or other income


REIT (real estate investment trust)

real estate investment trust, which is similar to a closed-end mutual
fund. REITs invest in real estate or loans secured by real estate and issue shares in such investments.


REMIC (real estate mortgage investment conduit)

A pass-through tax entity that can hold mortgages
secured by any type of real property and issue multiple classes of ownership interests to investors in the form
of pass-through certificates, bonds, or other legal forms. A financing vehicle created under the Tax Reform
Act of 1986.


Replacement cycle

The frequency with which an asset is replaced by an equivalent asset.


Static theory of capital structure

theory that the firm's capital structure is determined by a trade-off of the
value of tax shields against the costs of bankruptcy.


theory of constraints (TOC)

a method of analyzing the bottlenecks
(constraints) that keep a system from achieving
higher performance; it states that production cannot take
place at a rate faster than the slowest machine or person
in the process


trade-off theory

Debt levels are chosen to balance interest tax shields against the costs of financial distress.



 

 

 

 

 

 

Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit.


Copyright© 2019 www.finance-lib.com