index

My Glossary

A, B and H shares

There are seven types of China shares:
State Shares - Shares owned by the state.
Legal Person Shares - Shares owned by companies or institutions.
A shares - stocks issued by domestic companies and are held and traded in RMB by domestic investors only.
B shares - stocks issued by domestic companies registered on the mainland, but traded in hard currency by foreign investors, including overseas Chinese and individuals and institutions from foreign countries as well as from Hong Kong, Macao, and Taiwan. Individual domestic investors have been allowed to trade B shares since February 2001.
H shares - stocks issued and listed by domestic companies in Hong Kong Stock Exchange.
Red Chips - Shares in Hong Kong companies that are traded in Hong Kong but derive most of their profit from business in mainland China ("Hang Seng China-Affiliated Shares")
N-shares - American Depositary Receipts (ADR's), issued by Chinese companies, that trade on the New York Stock Exchange.

Balassa Samuelson Theorem

The Balassa Samuelson Theorem states that countries with higher traded-goods productivity have higher price levels, measured in the same currency. This theoreom also implies that countries which have higher productivity growth in the traded-goods sector relative to the non-traded-goods sector will have real exchange rate appreciation. The Balassa Samuelson Theorem also implies that the capital-labor ratio in both traded and non-traded-goods sectors must be cointegrated with the total factor productivity (TFP) in the traded-goods sector.(Kakkar, 2002) Reference: Kakkar,Vikas,2002,"Capital-Labor Ratios and Total Factor Productivity in the Balassa-Samuelson Model", Review of International Economics, 10(1), 166-176, 2002.

Brady Bonds

US dollar denominated bonds isseded by emerging markets.

Current Account Reversals

An abrupt reduction in the current account deficit (say, at least 4% of GDP in a year). Edwards (2004) finds that current account reversals have had a negative effect on real growth that goes beyond their direct effect on investment. Current account reversal is closely related to the "sudden stop" phenomenon of the capital account. However, the relationship is not perfect. Historically there have been many sudden stops that have not been related to reversal episodes. In these cases, the countries have effectively used their international reserves to avoid an abrupt current account adjustment. For further reference, see Edwards (2004) "Financial Openness, Sudden Stops and Current Account Reversals".

Domestic Credits

The Central Banks' claims on the government. e.g. holdings of the Treasury Bills.

Federal Fund Rate

The Fed funds target rate (TR) is the operating target of the US monetary policy. Through open market operations, the Fed influences the level of the effective Fed funds rate (FF) -- the interest rate prevailing in the interbank market for overnight deposits among banks in the US -- to ensure that the FF does not deviate much from the TR.
By law, US banks must hold reserves with the banks that make up the Federal Reserve Bank System. Since these reserves do not earn interest, banks have an incentive to lend any excess funds to other banks in need of reserves. These interbank transactions are collectively known as the fed funds market.
As the FF follows closely the TR, the Fed funds futures contract, the settlement price of which is based on the EF, has been widely used as a tool to gauge maket expectation of future levels of TR.
Reference: Ip Wing Yu, Rex Tang and Angela Sze (2002), "Extraction of US Dollar Interest Rate Expectations from Derivative Prices", Hong Kong Monetary Authority Working Paper.

Multifactor Productivity

MFP measures reflect ouput per unit of a set of combined inputs. A change in MFP refects the change in output that cannot be accounted for by the change in combined inputs. As a result, MFP measures reflects the joint effects of many factors including research and development (R&D), new technologies, economies of scale, managerial skill, and changes in the organization of production. For more details, see website of U.S. Department of Labor.

Productivity Growth

There are three types of productivity growth:
Hicks Neutral -- Y=AF(K,L) Neutral technical progress
Solow Neutral -- Y=F(AK,L) Capital-augmenting progress
Harrod Neutral -- Y=F(K,AL) Labor-augmenting progress

Swap Rate (in China)

Before 1994, China had a multiple exchange rate system with an official exchange rate applied to the state enterprises and a more depreciated swap rate applied to export and other selected new industries. Foreign trade was mainly funneled through state trading companies which largely insulated domestic prices from exchange rate changes. (Mckinnon and Schnabl, 2002)

Sterilization

Sterilized intervention has been the most common policy reponse to the surge in capital flows in Asia and Latin Americ. Frankel and Okongwu (1995) distinguish between narrow sterilization, which leaves the monetary base unchanged through the sale of domestic bonds, and board sterilization, which leaves the money supply constant even if the base changes, for example by changes in reserve requirements. Both techniques have been widely used in many countries, including Chile and Mexico.

Tier 1 Capital

Tier 1 capital, or "core capital", consists of equity capital (the total of common shareholders' equity and convertible preferred stock less certain intangible assets and other items excluded from regulatory capital) and disclosed reserves that are considered freely available to meet claims against the bank. (see "Financial Soundness Indicators: Analytical Aspects and Country Practices", IMF Occasional Papers 212, 2002)

Tier 2 Capital

Tier 2 capital consists of financial instruments and reserces that are available to absorb losses, but which might lack permanency, have uncertain values, might entail costs if sold, or otherwise lack the full loss-absorption capacity of tier 1 capital items.

Tier 3 Capital

Tier 3 capital consists of subordinated debt with an original maturity of at least two years for use, if needed, against market risk exposures associated with fluctuations in the market value of assets held.