Financial Glossary V

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Value Added – there are many meanings. 1. In economics, it is one industry’s contribution to a nation’s gross domestic product. 2. In accounting, it can mean the same as gross income. 3. In marketing, it is the extras that are added on to a basic product to make it more attractive for consumers, so that they buy it. 4. Value added agriculture is the value that can be added to a basic agricultural product by changing or transforming it from its original into a more valuable state, such as from wheat-to-flour-to-bread.

Value Added Tax (VAT) – VAT is an indirect consumption tax charged on goods and services. It is levied at each stage of a product or service’s production or distribution.

Value at Risk (VaR) – a widely used risk measure of the risk of loss on a specific portfolio of financial assets over a specific period. It did not emerge as a distinct concept until after the 1987 stock market crash.

Valuation – an estimate of how much something, such as a business, antique, property, financial asset, or work of art is worth. Examples of financial assets include commercial enterprises, patents, trademark, stocks and options. Banks will not approve a mortgage unless a valuation of the property is carried out.

Value Chain – all the activities a company is involved in from buying raw materials to delivering the finished product or service to customers. Value chain also includes after sales service and/or after sales repairs. All the activities are interlinked, and if analyzed carefully and tweaked properly, can give the company and its products an advantage over its competitors in the marketplace.

Value Investing – a system of making money by purchasing securities for less than they are worth. Value investing emerged after the publication in 1934 of ‘Security Analysis’, written by Benjamin Graham and David Dodd.

Variable Costs – relate to the costs that go up and down according to levels of production. When production is increased variable costs rise, when production declines variable costs go down – unlike fixed costs, which rarely change from month-to-month. Examples of variable costs include labor and materials used for production, while rent, insurance premiums and utilities are examples of fixed costs.

Variable-Rate Mortgage – a home loan whose interest rate can change, usually as a result of fluctuations in the base rate. In the United States, the term adjustable-rate mortgage (ARM) is more common.

Veblen Goods: – luxury items whose prices do not follow the normal microeconomic laws of supply and demand. When the price of a Veblen good rises, demand for it increases. Examples of Veblen goods are luxury yachts, designer handbags, diamonds, expensive Swiss watches, certain vintage wines, and ultra-expensive cars. People buy Veblen goods either because they think their quality is superior, or they want to show off – they are status symbols.

Velocity of Circulation – also known as the velocity of money, refers to how much money is in circulation within an economy over a given period, i.e. how fast it is moving. Velocity of circulation is the driver of prices, rather than the amount of money in an economy. Economists use this measure to determine how healthy an economy is, and whether inflation is expected to rise.

Venture Capital (VC) – financial capital provided by investors to small businesses that are believed to have long-term potential. It is a type of private equity. Venture capitalists typically see thousands of proposals and just back a couple of dozen.

Venture Capitalist – a person who invests in a new business venture, i.e., a startup or a young company. The term may also refer to a company with venture capital ready to invest.

Vertical Equity – the principle that better-off people should contribute more in taxes to the government than others, and that middle class individuals should pay more than working class people, etc. Proponents say this system is fairer and reduces inequality in societies. Those against it say it discriminates against hard workers and rewards people who work less. In most countries there is a vertical equity income tax system.

Vertical Integration – refers to a company that merges with another one in the same business but in a different stage of the supply chain. For example, if Company A, a fashion retail chain, mergers with Company B, a manufacturer of clothes, that is vertical integration. It can be achieved by either merging, acquiring other companies, or setting the whole thing up internally. There are three types of vertical integration – backward, forward or balanced integration.

Vertical Market – this is a niche market, with buyers and sellers that make similar products and have virtually identical needs. Often, the term refers to a subcategory of an industry or sector. For example, a maker of artificial limbs operates in a subcategory of medical devices.

Viability Study – an in-depth study of an idea, proposal or project to determine how ‘viable’ or profitable it could be. The study also tries to determine whether it is possible to convert the proposal or idea into a going concern (successful business).

Viable – capable of working or existing successfully. In biology, a seed that can germinate is a viable seed. A viable fetus or newborn is one that can survive outside the uterus. A viable business is one that is expected to be profitable for a long time.

Virtual Reality – or VR is computer technology that makes people feel like they are in another place, i.e., another environment. VR uses software to produce images, sounds, and other sensations to create a new, simulated environment. Users feel as if they are inside this simulation.

Visible Trade – the importing and exporting of goods, tangible products, merchandise, things you can see and touch such as smartphones, automobiles, ships, coal, coffee, oil, etc. Visible trade contrasts with invisible trade, which refers to services, such as tourism, royalties and licence fees, software, consultancy, advertising, etc.

VOIP – which stands for Voice over Internet Protocol, is a new technology that allows us to talk to each other and send files via the Internet. Skype, for example, uses VoIP. It is much cheaper than using a traditional landline.

Volatility – a measurement of the fluctuations of the price of a security. It is essentially an analysis of the changes in the value of a security. It is one of the most key measures in quantifying risk. In business/finance the term can also refer to fluctuations in currencies, markets, property prices, etc.

Volcker Rule – a federal regulation that prohibits banks from engaging in certain types of speculative investment activities. It was proposed by former United States Federal Reserve Chairman Paul Volcker following the 2007-2008 financial crisis. He wanted to stop commercial banks gambling with depositors’ money in the markets.

Voluntary Unemployment – the part of the unemployed population that consists of people who opted not to work, although there are jobs available. Voluntary unemployment includes frictional unemployment – people who are between jobs, they are searching for a job, going to interviews, etc. Those in the unemployment trap – the ones who choose to remain unemployed because they think they are financially better off on unemployment benefits than taking a low-paying job, also form part of the voluntary unemployment total.

Voucher – the term has several meanings: 1. A small printed piece of paper or plastic that entitles the holder to either a discount or free product or service. 2. In the US, a scholarship to a private school. 3. In accounting, an internal document used in the accounts payable department. 4. A credential – a piece of evidence, proof, or authorization in writing. Although there is technically a difference in meaning between voucher and coupon, today the two terms are commonly used interchangeably.

Voyage Policy – an insurance policy that covers loss or damage to cargo that is being transported by ship (by sea). We also refer to it as marine cargo insurance. The policy covers the cargo during the sea voyage, but not the vessel (ship).

V-Shaped Recovery – a period of sharp but brief economic decline and then a short trough. This is followed by a rapid recovery. The V-shaped recovery is the most common pattern that the advanced economies follow. We also call it a V-shaped recession.

Vulture Funds – mutual funds which invest in high risk financial instruments issued by distressed countries or businesses. Distressed, in this context, means in or near bankruptcy. Vulture funds is a derogatory term.

Vulture Investor – a person or organization that specializes in purchasing assets and financial instruments belonging to companies or people in trouble.

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