onomi on epts and erminolo ies 22.43
returned. But, by definition, it is not the the house at the market price and the loan of the
result of a ‘forced’ transaction. Returning bank will be settled. If the value of the house is
of Hong Kong to China by the UK in more than the loan, the difference is paid to the
1997 is the best such example of the senior citizens or their heirs. If the heir wants to
recent times. possess the house, he/she needs to pay the loan.
(iii) The act of ‘differentiating’ and
‘diversifying’ assets by consolidating and reverse yielD gAp
then dividing them amongst a number
An excess of returns on gilt-edged (government)
of stakeholders – by doing so the risk
securities above those on equities. This occurs
involved is ‘retroceded’ (i.e., cut down
during periods of high inflation because equities
or minimised). This is, usually, done by
provide capital gains to compensate inflation
the ‘hedge funds’ in their day-to-day
while the gilt-edged securities do not.
portfolio management.
reveAleD preference
reverse tAkeover
The notion that what one wants is revealed by
The term is used to mean two different kinds of what one does, not by what one says–actions
takeovers: speak louder than words.
(i) Takeover of a public company by a
private one, and ricArDiAn equivAlence
(ii) Takeover of a bigger company by a
smaller one. An idea which (generated too much controversies)
originally suggested by David Ricardo (1772–
1823) and more recently by Barro, that government
resiDuAl unemployment deficits do not affect the overall level of demand in
Unemployment of those who remained an economy.
unemployed even in the times of full employment This is because tax-payers know that any
(as for example employing a severely handicapped deficit has to be paid later, and so they increase
person may far outweigh the productivity obtained their savings in anticipation of a higher tax bill in
from him). future; thus government attempts to stimulate an
economy by increasing public spending or cutting
reverse mortgAge taxes, will be rendered impotent by private sector
reaction.
A scheme for senior citizens in India announced The equivalence can be seen as part of a thread
in the Union Budget 2007–08. Under this of economic thinking which holds that only
scheme, the senior citizens go to mortgage their decisions about real variables (e.g., consumption
house owned by them in reverse to a bank and and production) matter, and that decisions about
the bank pays them the agreed money either in financing will, in a perfectly functioning market,
installments or lumpsum. Guidelines for reverse never have an effect.
mortgage announced by the National Housing
Bank (NHB) in May 2007 has a provision of risk seeking
maximum period of 15 years for such mortgage.
Once the period of mortgage is complete either An act whereby investors prefer an investment
the house should be vacated or the bank will sell with an uncertain outcome to one with the same