What is the K-Percent Rule? The K-percent rule, proposed by economist and Nobel Prize winner Milton Friedman, is a monetary policy rule that requires central banks to increase the money supply irrespective of the condition of the economy. Friedman proposed that central banks should boost the money circulating in the economy by a certain percentage…
What is Expected Utility? Expected utility is a theory in economics that estimates the utility of an action when the outcome is uncertain. It advises choosing the action or event with the maximum expected utility. At any point in time, the expected utility will be the weighted average of all the probable utility levels that…
What is a Keepwell Agreement? A keepwell agreement is an arrangement initiated between a parent company and one of its subordinate businesses. The parent company promises that it will provide the subsidiary with all the financing requirements for a specific time period. A keepwell agreement can be referred to as a comfort letter. A keepwell…
What is Stare Decisis? Stare decisis is a legal term that refers to the doctrine of precedent, well established in common law – court rulings being guided by previous judicial decisions. The term is derived from a Latin phrase that means “to stand by things decided” or “let the decision stand.” Understanding…
What is Shortfall? Shortfall occurs whenever there is a mismatch between supply and demand. It is applicable to a variety of financial situations. The situation may be an actual circumstance that exists here and now, or the shortfall may be a projected possible future occurrence. For example, when a business experiences a cash flow problem…
What is Short-Term Debt? Short-term debt is defined as debt obligations that are due to be paid either within the next 12-month period or the current fiscal year of a business. Short-term debts are also referred to as current liabilities. They can be seen in the liabilities portion of a company’s balance sheet. Short-term debt…
What is a Short Squeeze? Short squeeze is a term used to describe a phenomenon in financial markets where a sharp rise in the price of an asset forces traders who previously sold short to close out their positions. The strong buying pressure “squeezes” the short sellers out of the market. A short squeeze often…
What is a Statute of Limitations? A statute of limitations refers to a law that limits the maximum time frame during which legal proceedings – civil or criminal – can be initiated after an alleged offense. Some statutes are specified by legislation, while others are a matter of common law history. Once the time period…
What is Statistical Significance? Statistical significance is the claim that the results or observations from an experiment are due to an underlying cause, rather than chance. Researchers conduct hypothesis testing to determine statistical significance. Financial analysts often analyze their models to determine if a change in actions will make a statistically significant difference. For example,…
