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This
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day, we will present 10 carefully curated questions with answers that will
cover essential concepts, strategies, and terminologies. Whether you have just
entered into the market, or trying to starting your stock market journey, or
looking to strengthen your foundation, our weekly post will guide you through
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Day 48: Basic Stock Market Concept
What is Trade
Deficit?
When a country's total imports are higher than its total exports, that
amount of difference is called 𝘁𝗿𝗮𝗱𝗲 𝗱𝗲𝗳𝗶𝗰𝗶𝘁.
A trade deficit occurs when a country imports more goods and services
than it exports, means it buys more from abroad than it sells.
A 𝘁𝗿𝗮𝗱𝗲 𝗱𝗲𝗳𝗶𝗰𝗶𝘁 is a complex
economic signal—not automatically good or bad. Its implications depend on how capital
inflows are used and the broader economic context.
The opposite of trade deficit is 𝘁𝗿𝗮𝗱𝗲 𝘀𝘂𝗿𝗽𝗹𝘂𝘀 indicating total exports of a country is higher than its total imports.
What is Wholesale
Price Index or WPI?
Wholesale price index tracks the wholesale prices of goods in a
country.
The Wholesale Price Index (WPI) tracks the average
change in prices of a representative basket of goods—typically industrial,
agricultural, and fuel products—at the wholesale (producer or
ex-factory) level, before they reach retailers or consumers
In India, WPI has been calculated since 1902 and is compiled
monthly by the Office of the Economic Adviser, Commerce & Industry
Ministry.
𝗙𝗼𝗿𝗺𝘂𝗹𝗮 𝗵𝗼𝘄 𝗶𝘁 𝗶𝘀 𝗰𝗮𝗹𝗰𝘂𝗹𝗮𝘁𝗲𝗱:
𝗪𝗣𝗜= 𝗕𝗮𝘀𝗲 𝗣𝗲𝗿𝗶𝗼𝗱 𝗣𝗿𝗶𝗰𝗲𝘀÷ 𝗖𝘂𝗿𝗿𝗲𝗻𝘁 𝗣𝗿𝗶𝗰𝗲𝘀× 𝟭𝟬𝟬
The WPI is a vital economic indicator that monitors wholesale-level price movements, offering early insight into inflationary trends. It’s a key tool used by governments, central banks, and businesses—especially in economies like India—for policy-making, forecasting, and contract management.
What is Free Trade
Agreement or FTA?
A Free Trade Agreement (FTA) is a legally binding pact
between two or more countries designed to reduce or eliminate barriers such
as tariffs, quotas, and non-tariff restrictions on goods and services traded
among them
When two countries participate in an FTA is called 𝗕𝗶𝗹𝗮𝘁𝗲𝗿𝗮𝗹 𝗙𝗧𝗔.
When more countries are involved, then it is called 𝗠𝘂𝗹𝘁𝗶𝗹𝗮𝘁𝗲𝗿𝗮𝗹 𝗙𝗧𝗔𝘀.
India currently has 𝟭𝟯 𝗙𝗧𝗔𝘀.
𝗙𝗧𝗔𝘀 are helpful for
countries to reduce costs of imports and increasing ease of exports benefitting
the countries involved.
What is Liquidity
Ratio?
A liquidity ratio is a financial metric that shows a
company's ability to pay its short-term debts using its short-term assets. In
simple terms, it means how easily can a company pay its due bills without raising
extra money.
A high liquidity ratio means the company can easily meet its short-term
obligations. A low ratio may signal financial trouble or cash flow issues.
Liquidity ratios help investors, creditors, and managers assess the
financial health and short-term survival chances of a company. A balanced ratio
shows that the company is managing its cash and obligations wisely.
What is Merger of
Companies?
When two companies agreed upon to form one seperate new company it called
merger.
Companies going for merger to gain higher market share trying to operate
its area of functions into new markets.
Shares of the new merged company are distributed accordingly to the
existing shareholders of the previous companies.
There are different types of mergers we can see based on the companies involved such as horizontal mergers, vertical mergers, conglomerate mergers etc.
What is a
Debenture?
A debenture is a type of long-term debt instrument used by companies and
governments to raise money from the public. When you buy a debenture, you
are lending money to the issuer (not owning a part of the
company like shareholders do).
Key Features:
Fixed Interest: The issuer promises to pay you interest at a fixed rate, called
a coupon rate.
Maturity Date: The principal (your investment amount) is repaid on a fixed future
date.
No Ownership: Debenture holders are creditors, not owners. They do not
get voting rights.
Tradable: Most debentures can be traded on stock exchanges, like bonds.
There are various types of debentures: Secured debentures, Unsecured
debentures, Convertible debentures, Non-convertible debentures.
Example:
A company issues a ₹1,00,000 debenture at 8%
interest for 5 years.
You invest ₹1,00,000
You receive ₹8,000 interest every year
After 5 years, you get your ₹1,00,000 back
Debentures are a way to earn regular
interest income with relatively lower risk compared to stocks.
However, investors should always check the credit rating of
the issuer before investing to avoid default risk.
Who are HNIs?
HNIs stand for High Net-Worth Individuals. These are people
who have a large amount of investable wealth—usually in the form of
cash, stocks, real estate, or other financial assets.
High Net-Worth Individual (HNI) is someone
whose net worth, excluding their primary residence, is
above a certain threshold. This amount can vary by country or financial
institution.
In India, many banks and financial
firms consider someone an HNI if they have ₹2 crore or more in
investable assets.
Globally, the standard is usually $1
million or more in liquid financial assets.
HNI (High Net-Worth Individual) – Investable
assets above ₹2 crore.
Super HNI – Investable
assets above ₹10 crore.
HNI (Ultra High Net-Worth
Individual) – Investable assets above ₹25 crore or more.
What is a Preferential
Share?
Preferential shares, also known
as preference shares, are a type of share that gives
investors special rights or preferences over common (equity)
shareholders.
When a company sells a certain amount of shares to
another company to accumulate funds without allotting to public investors, it
is called a preferential issue of shares.
What is Interim
Dividend?
An interim dividend is a temporary
or early dividend that a company pays to its shareholders before the
end of the financial year and before final accounts are prepared.
During a financial year dividends may be given
multiple times. These dividends are called interim dividends distributed during
the financial year.
interim dividend shows the
company’s strong short-term performance and commitment
to shareholders. It gives investors an early return on
their investment but is always subject to the company’s overall annual
performance.
What is FDI (Foreign
Direct Investment)?
FDI (Foreign Direct Investment) means
investment made by a foreign individual, company, or government into
the business or assets of another country, usually in the form
of ownership, control, or long-term interest.
Example:
If an American car company like Ford opens
a manufacturing plant in India, it is FDI.
If a foreign company buys 51% stake in
an Indian company, gaining control—this is also FDI.
FDI is a powerful tool for economic
development. It brings foreign money, technology, and expertise into
the country and helps build a strong industrial and service sector. For
investors, it offers access to new markets and business opportunities.
If you have any
other questions in your mind relating to stock market basics or need any
clarification, please put your query into the comment box, We will try our best
to clarify the same
Disclaimer:
The information provided on MoneyWiseMind is for educational and informational
purposes only. It is not intended to be financial advice, and you should not
rely on it as such. Before making any financial decisions, you should consult a
licensed financial advisor.
