A foreign policy is a set of pre-established strategies designed and implemented systematically to manage a country’s relationships with other nations. They are structured guidelines that regulate international political dealings.
Explanation :
Foreign policies are drafted by governments to deal with international affairs adequately. These policies have different goals depending on the country’s interests. The purpose of it is to regulate the way the country interacts with the rest of the world, to guarantee that domestic affairs are properly safeguarded from outsiders and foreign goals are achieved. Depending on a country’s main agenda, which could be an economic, social or political agenda, the foreign policy is shaped to promote that agenda, to gain supporters and to increase international awareness and engagement. It also draws boundaries to keep allies close and enemies isolated by expanding or reducing relationships with each. There are many topics covered by a foreign policy such as immigration policies, international trade, war and military conflicts, international organizations and international law, among other subjects. There’s normally a person in charge of foreign policy issues, designated by the highest executive authority of each country. In the U.S. the Secretary of State is the person in charge of managing the country’s foreign policy.
In a nutshell :
- While international trade has been present throughout much of history, its economic, social, and political importance have increased in recent centuries, mainly because of industrialization, advanced transportation, globalization, the growth of multinational corporations, and outsourcing.
- During World War II, 44 countries signed the Bretton Woods Agreement, a system of monetary management that established the rules for commercial and financial relations among the world’s major industrial states.
- This Agreement resulted in the creation of organizations such as the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (later divided into the World Bank and Bank for International Settlements).
- The World Trade Organization (WTO) is an organization that was formed in 1995 to supervise and liberalize international trade and foreign policy.
Fiscal policy is the government’s way of monitoring and affecting the economy by adjusting spending limits and tax rates. In other words, it’s how the government influences the economy.
Explanation :
In the short-term, fiscal policy affects mainly the aggregate demand. In the long-term, it affects consumers’ saving and investment activities and the overall long-term growth of the economy. Government spending on goods and services includes the remuneration of those employed in the public sector, the payment of pensions to those retired of the public sector, public investments in infrastructure as well as investments in government agencies, farming, research and so on. Government revenue is mainly incurred by direct taxes and indirect taxes. Direct taxes include the income tax; the real estate transfer tax; the property tax; the inheritance tax; tax donations, and parental benefits. Indirect taxes include the value added tax; sales taxes, and import duties. Other sources of government revenue are the profits of public companies and the fines imposed on offenders regarding fees applicable to the use of public services.
In a nutshell :
- Fiscal policy refers to the use of government spending and tax policies to influence economic conditions.
- Fiscal policy is largely based on ideas from John Maynard Keynes, who argued governments could stabilize the business cycle and regulate economic output.
- During a recession, the government may employ expansionary fiscal policy by lowering tax rates to increase aggregate demand and fuel economic growth.
- In the face of mounting inflation and other expansionary symptoms, a government may pursue a contractionary fiscal policy.
A financial institution is an intermediary between consumers and the capital or the debt markets providing banking and investment services.
Explanation :
A financial institution is responsible for the supply of money to the market through the transfer of funds from investors to the companies in the form of loans, deposits, and investments. Large financial institutions such as JP Morgan Chase, HSBC, Goldman Sachs or Morgan Stanley can even control the flow of money in an economy. The most common types of financial institutions include commercial banks, investment banks,, brokerage firms, insurance companies, and asset management funds. Other types include credit unions and finance firms. Financial institutions are regulated to control the supply of money in the market and protect consumers.
In a nutshell :
- A financial institution (FI) is a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange.
- Financial institutions encompass a broad range of business operations within the financial services sector including banks, trust companies, insurance companies, brokerage firms, and investment dealers.
- Financial institutions can vary by size, scope, and geography.
Goodwill is a company’s value that exceeds its assets minus its liabilities. In other words, goodwill shows that a business has value beyond its actual physical assets and liabilities. This value can be created from the excellence of management, customer loyalty, brand recognition, favorable location, or even the quality of employees. Anything that adds value to the company beyond its excess assets over liabilties is considered goodwill.
Explanation :
Even though goodwill is technically considered an asset, it is not always reported on the balance sheet. Why not, because valuing a business is very subjective and can’t be measured easily or accurately. For example, how much would you value a two-year-old company that distributes its products for free and has never made a penny of revenue? Not much, right? Well, Facebook thought Instagram was worth $1 billion. To other firms, Instagram might have only been worth $500 million. Who can put a specific value on a company like that? No one can. This is why GAAP requires that goodwill can only be recorded when an entire business or business segment is purchased. An actual figure or dollar amount must exist in order to record and report it as an intangible asset on the balance sheet. Estimating the full amount is not allowed.
In a nutshell :
- Goodwill is an intangible asset that accounts for the excess purchase price of another company.
- Items included in goodwill are proprietary or intellectual property and brand recognition, which are not easily quantifiable.
- Goodwill is calculated by taking the purchase price of a company and subtracting the difference between the fair market value of the assets and liabilities.
A general accounting system is almost a dinosaur. It is a thing of the past mainly because it is outdated and modern management needs a more sophisticated accounting system. A general accounting system is a system that keeps track of inventory on a periodic basis. This was most often used in manufacturing companies.
Explanation :
Basically, a general accounting system would count the inventory or track it periodically rather than continually. In other words, the inventory would be counted in one stage then a few weeks or months would go by and the inventory would be counted at another stage. Think about how horrible this data is for management. It is completely outdated and inaccurate. How is management supposed to make decisions and strategies based on inventory numbers that are always out of date and inaccurate? That is why more companies are moving away from traditional general accounting systems.
In a nutshell :
- Regardless of the size of a business, accounting is a necessary function for decision making, cost planning, and measurement of economic performance measurement.
- A bookkeeper can handle basic accounting needs, but a Certified Public Accountant (CPA) should be utilized for larger or more advanced accounting tasks.
- Two important types of accounting for businesses are managerial accounting and cost accounting. Managerial accounting helps management teams make business decisions, while cost accounting helps business owners decide how much a product should cost.
- Professional accountants follow a set of standards known as the Generally Accepted Accounting Principles (GAAP) when preparing financial statements.
The GDP Per Capita measures the total economic output of a country per each of its individual habitants. In other words, it reflects the country’s production per individual.
Explanation :
The concept of GDP per capita is used as a competitive measurement to compare countries’ economies. The GDP per capita is calculated by using the Gross Domestic Product figure (real or nominal) and dividing it by the country’s total population. It is assumed that a high GDP per capita means a high standard of living but there are many other factors that must be taken into account when evaluating the competitiveness of a given economy. GDPs are normally calculated by using the country’s domestic currency, but when it comes to comparisons the standard currency is the US$. This means that currency values play an important role in comparing GDP per capita of different countries. By 2015, Qatar was the country with the highest GDP per capita, followed by Luxembourg. And by that year, the country with the lowest GDP per capita was Somalia, followed by the Central African Republic.
In a nutshell :
- Per capita gross domestic product (GDP) measures a country’s economic output per person and is calculated by dividing the GDP of a country by its population.
- Per capita GDP is a global measure for gauging the prosperity of nations and is used by economists, along with GDP, to analyze the prosperity of a country based on its economic growth.
- Small, rich countries and more developed industrial countries tend to have the highest per capita GDP.
The GDP expenditure approach is a technique for calculating the gross domestic product by adding the consumption, investments, government spending, and net exports of a country.
Explanation :
Gross Domestic Product is the total value of all goods and services produced within the borders of a country. The expenditure method is one system used to calculate this number by looking at the total amount spent domestically by citizens, businesses, and the government. This technique does not take into consideration who owns the means of production. It simply looks at the expenditures. Essentially, it states that all spending in the private sector adds up a country’s nominal GDP, This means it does not account for inflation. Thus, adjustments need to be made to this figure to arrive at the country’s real GDP. This is one of the most popular and widespread methods for calculating GDP because it is fairly simple.
In a nutshell :
- The expenditure method is the most common way of calculating a country’s GDP.
- This method adds up consumer spending, investment, government expenditure, and net exports.
- Aggregate demand is equivalent to the expenditure equation for GDP in the long-run.
- The alternative method to calculate GDP is the income approach.
The GDP deflator, also known as the implicit price deflator, measures the impact of inflation on the gross domestic product during a specified period, usually a year.
Explanation :
The GDP price deflator takes into consideration both the nominal GDP and the real GDP of an economy. The nominal GDP represents the value of the finished goods and services that an economy has produced, unadjusted for inflation, whereas the real GDP represents the value of the finished goods and services that an economy has produced, adjusted for inflation. Therefore, if there was no inflation involved, the nominal GDP would equal the real GDP. The GDP price deflator calculates the impact of inflation on the finished goods and products by converting an economy’s output into current prices, thereby demonstrating the impact of inflation on the GDP change.
In a nutshell :
- The GDP price deflator measures the changes in prices for all of the goods and services produced in an economy.
- Using the GDP price deflator helps economists compare the levels of real economic activity from one year to another.
- The GDP price deflator is a more comprehensive inflation measure than the CPI index because it isn’t based on a fixed basket of goods.
A garnishment is a legal requirement to allocate money, usually placed on wages, or property to a deserving third party based on a court order or legal action that has been taken by the third party. Garnishments are typically applied to earnings paid by an employer, in which the garnishment is directly withdrawn from the employee’s earnings, and remitted to the third party as designated by the court order.
Explanation :
There are a number of reasons why a court order from a judge may require an individual’s wages or property to be garnished. Most often, wage garnishments are required when an individual fails to repay a creditor, and the creditor is required to take legal action to force the individual to repay the debt. Why are garnishments deducted from an employee’s wages? Assuming the legal action taken by the creditor results in a court order for a wage garnishment to be applied, the employer of the individual will be notified and the employer will directly withdraw the required amount from the employee’s paycheck. Upon withdraw; the employer will remit the garnished wages directly to the creditor who obtained the court order.
In a nutshell :
- A garnishment is an order directing a third party to seize assets, usually wages from employment or money in a bank account, to settle an unpaid debt.
- The IRS may garnish wages without a court order.
- The Consumer Credit Protection Act sets the limits for what can be garnished from wages, except for unpaid taxes, delinquent child support, bankruptcy orders, defaulted student loans, and voluntary wage assignments.
- The debtor may be entitled to relief if facing financial hardship.
Gap analysis is an assessment tool that measures the difference between the current result and the expected result. It is a diagnostic tool that identifies the current requirements to achieve the goal.
Explanation :
These analyses are often employed as a performance assessment tool that helps an organization, or even an individual, to identify what steps need to be taken in order to achieve the expected result. To create a gap analysis a goal must be set first. This goal will establish the target to where all efforts should be directed. Then, the analyst can estimate the current stage, by analyzing present results. This can be illustrated graphically or numerically, but the goal can be qualitative. This means that the goal can be measured in numbers but the goal itself might be qualitative. After identifying the size of the gap, strategies should be suggested to reduce the gap. These strategies must have an impact on current results, to bring the current result’s line closer to the expected result line. These analyses are applicable to all kinds of organizations and they are widely useful for all the different areas and departments, since all of them have goals and expected results to be achieved.
In a nutshell :
- A gap analysis is how an organization examines its current performance with its target performance.
- A gap analysis can be useful when companies aren’t using their resources, capital, or technology to their full potential.
- By defining the gap, a firm’s management team can create a plan of action to move the organization forward and fill in the performance gaps.
- There are four steps to a gap analysis, which are defining organizational goals, benchmarking the current state, analyzing the gap data, and compiling a gap report.
- Gap analysis can also be used to assess the difference between rate-sensitive assets and liabilities.
