Glossary Of Financial Terms starting with Z

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List of Financial Terms (Alphabet Wise)

Zero-base Budgeting A rigorous method of drawing up BUDGETS in which the premise is that expenditures will be zero, and so allocations are made thereafter, only upon a justification of the true requirements. Thus, this method does not consider the previous year's allocation, but instead, imposes an onerous burden of justifying any expenditure whose approval is sought. In the process, it forces administrators or managers to critically appraise ongoing programmes and activities; this review could lead to considerable economy in inessential expenditure.

Zero-coupon Bond A BOND that bears a zero COUPON RATE and hence is issued at a price substantially below its FACE VALUE.

At MATURITY, an investor receives the face value. So, the return consists of the DISCOUNT, i.e., the excess of face value over the issue price. Thus, zero-coupon bonds are a sub-set of the group of DEEP DISCOUNT BONDS. The advantage with this security to an investor is that, he does not have to worry about reinvestment, since there are no periodic inflows. Similarly, a company need not bother about meeting interest obligations at regular intervals, and yet would obtain tax deduction.

A few companies in India have issued such securities especially zero-coupon CONVERTIBLES. IDBI and SIDBI too have issued the zero-coupon variety of deep discount bonds. An interesting development was the issue of five year zero-coupon bonds by the Government of India by auction, in January 1994.