192 definitions by Abu Yahya

(FINANCE) when a financial derivative has intrinsic value to the person who holds it. There are two examples:

* when the strike price of a call option is less than the spot price of the underlying stock, it is worthwhile to exercise it;

* when the strike price of a put option is more than the spot price of the underlying stock, it is worthwhile to exercise it.

Please remember that an option being "in the money" does not mean it was a good investment. You might have bought the option when the difference between the strike price and the spot price was MORE than it is now. If it's expiring, you might as well exercise it because to not do so is just throwing money away. But it still could have been a loss for the investor.
PHIL: Sweet! My call options are back in the money. Now I'd better exercise them.

MIGUEL: You must be rolling in the cash, Holmes!

PHIL: Not even close. The forex rate for the UK pound nosedived and I got hosed pretty bad. It's not where it was when I bought these rat droppings, but I need to get out before they expire.

MIGUEL: You know, when you first told me about options they sounded like a sweet deal, but...

PHIL: Yeah... the guy who wrote the option always seems to know what's going down better than us dilettantes.
by Abu Yahya April 15, 2010
(US BUSINESS LAW) limited liability partnership; a type of business organization which is a cross between a partnership and a corporation. In a private partnership, all of the partners own all the assets in common and have unlimited liability; in a corporation, the firm assets are owned by a legal "person," and shareholders are liable only for the value of their stake (equity) in the firm.

Partnerships have higher risk for members, but their management can disclose a lot less and the taxes are lower. Limited/limited liability partnerships represent a compromise.

In a limited partnership, one or more of the partners has unlimited liability ("general partners") and the others have liability limited to their equity stake in the firm ("limited partners"). A limited partnership is indicated by the initials "LP" after the name, e.g. Apollo Management, LP.

In a limited liability partnership, all members have limited liability; specifically, the other partners of the LLP are shielded from torts for malpractice against the other partners, BUT they are legally responsible for financial claims against the whole organization. LLP liability varies somewhat by state law (several US states do not permit LLP's at all), and somewhat by the terms of the LLP agreement for that particular partnership.

Apologies to Urban Dictionary for an error in the definition of private equity fund and hedge fund: both types of fund are almost never LLP's; they are often limited partnerships (LP's).
At the first meeting of the law partners, it was decided to adopt an LLP form of business.
by Abu Yahya September 2, 2010
*noun*; a school of economic thought prevalent after World War 2; around 1980, Keynesianism was supposedly superseded by monetarism, and then by the rational expectations hypothesis. Theory is named for John M. Keynes (1881-1946), who argued against the then-mainstream view that the economy was "self correcting." Keynes' book introducing his economic theory was The General Theory of Employment, Interest, and Money (1936).


*Basic Concept*
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The basic concept of Keynesianism is that each economy has a level of aggregate demand, which does not respond to price or income levels in the same way that classical economics says it should. Rising income, for example, *does not* lead to a matching increase in consumption or business investment. Business investment is driven by investment opportunity, not {only by interest rates. Savings is driven by liquidity preference, not only by interest rates.

Keynes suggested that, for any economy, there was a marginal propensity to consume that was less than one. Hence, if the national income rose by 10%, consumption would rise by something less than 10%. This would lead to some production not being consumed, waste, and unemployment.

*What Keynesianism Says We Should Do*
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In 1936, when Keynes wrote *The General Theory*, most of the world was suffering from the Great Depression. Keynes recommended that the national government stimulation aggregate demand through a policy of deficit stimulus. In other words, the country should create adequate levels of aggregate demand by spending more than it took in as taxes (fiscal policy).

Also, Keynesianism held that aggregate demand could be stimulated *up to a point* by lowering interest rates (monetary policy).

*Application*
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In the USA and other large industrial countries, fiscal and monetary policy has been attempted often. After 1980, the Federal Reserve chair (Paul Volcker) was a monetarist, who claimed to reject Keynesianism. Nobel laureates in economics almost unanimously attacked Keynesianism as outmoded and wrong-headed, but governments continue to use fiscal stimulus and interest rate cuts in response to recessions.
Keynesianism held out the prospect that the state could reconcile the private ownership of the means of production with democratic management of the economy.

Adam Przeworski, *Capitalism and social democracy* (1986)
by Abu Yahya March 3, 2009
*noun*; one of the factors of production. Fixed capital refers to physical objects used to produce goods or services. Examples include cash registers, drill presses or car jacks, and civil aircraft.

Pretty much anything can be used as fixed capital, provided it is used by the entrepreneur/firm to provide a service or produce something valuable. If the firm is a hotel, then pillows and vacuum cleaners are fixed capital; if it's a store, then the cash register, the shelves, and the mop are fixed capital.

Another form of business capital is circulating capital. This is called capital because it's a physical object used to produce value, but its purpose is to be sold or used up in production.
Some part of the capital of every master artificer or manufacturer must be fixed in the instruments of his trade...In other works a much greater fixed capital is required. In a great iron-work, for example, the furnace for melting the ore, the forge, the slitt-mill, are instruments of trade which cannot be erected without a very great expense.

Adam Smith, *The Wealth of Nations* (1776)
by Abu Yahya March 3, 2009
a graph correlating inflation against unemployment rates. Using a horizontal axis to represent unemployment, and a vertical axis to represent inflation, A.W. Phillips found the rate of inflation and unemployment in Great Britain for every year between 1861 and 1957. When he had plotted the 97 dots on the chart, he had a rather neat hyperbola convex to the origin of the graph.

In other words, if the rate of unemployment was low, the rate of inflation was high, and vice versa. At the time, economists concluded that this was a logical outcome of both being influenced by the rate of interest: if interest rates were low, then unemployment would be low and prices would rise, but if interest rates were high then there would be lots of unemployment and workers would not have much money to spend... so prices would go down.

Unfortunately, when economists tried to design policy around this concept they disrupted the smooth relationship. In the years since the 1960's, there has not been a straightforward relationship, and Keynesian economics has had to be drastically revised to a post-Phillips Curve regime.

There is some correlation between inflation and unemployment, but the correlation is much more complicated than originally thought. It is quite possible to have high unemployment and high inflation (i.e., a high "misery index").
The Phillips Curve implies a trade-off between unemployment and inflation. Unfortunately, this trade-off may sometimes represent more of a Faustian bargain.
by Abu Yahya February 15, 2009
national income and product accounting; refers to the formal system of measuring capital accounts, current accounts, and gross domestic product.

National income and product accounting is the centerpiece of national economic
accounting in the United States. The NIPA's show the real and nominal value of output, the composition of output, and the distribution across types of income generated in its production.

Abraham & Mackie, *Beyond the Market,* p.40
by Abu Yahya February 14, 2009
(AEROSPACE) French company created in 1970 from a massive consolidation of the French aerospace industry. Inherited and completed the French component of the Concorde SST, a supersonic jet transport. Aérospatiale was a partner in Airbus from the beginning.

Later, all of the partners in Airbus (except British Aerospace, which sold its stake in the consortium to the others) merged into a new, super-sized company called EADS. EADS is the parent company of Airbus, Eurocopter, and Arianespace.
Aérospatiale was one of the most technically brilliant companies of the late 20th century. It's all part of EADS now.
by Abu Yahya September 1, 2010