onomi      on epts and erminolo ies       22.45
                                                            difference in price as profits. It is also known as
        sequestrAtion                                       bear operation. Short-sellers, however, could get
     The process under which a third party (the             caught on the wrong foot if the market reverses
     sequestrator) holds a part of the disputed assets till the downtrend.
     the dispute is settled.
                                                                shutDown price
        shADow bAnking                                      That lower level of the prices for the product of a
     When financial intitutions create credit (forward      firm at which the firm decides to close (shut) down
     loan) like a bank but are not under the banking        – as it has become impossible to recover even the
     regualtory framework of the country, they are          short-run variable cost at the price. Many such
     supposed to be involved in shadow banking.             instances we get in the Euro-American economies
     Hedge funds are one such example. It also includes     during the period of the Great Depression (1929).
     unregulated activities of regulated entities.
     Credit default swaps (CDS) are the examples of             skimming price
     it—regulated entities (like banks) provide loan
                                                            A pricing method of charging high profits—
     protection in it to other lenders against default
                                                            adopted by a firm when consumers are not price-
     risks by the borrowers.
                                                            sensitive and demand is price-inelastic.
          As such institutions do not accept traditional
     bank deposits they easily escape the regulatory
     design of a country. Such acts are financially risky
     to the economy, as in it ‘capital requirements’ (of    Smurfing (also called structuring) is a method
     CRR, SLR, etc.) are bypassed by the institutions.      in which small sizes of money is kept in several
     This is why in cases of default there remains no       number of bank accounts to hide the real identity
     standby capital/asset to counter it. After the ‘sub-   of the real owner. This has been a very commonly
     prime’ crisis in USA (2007-08), shadow banking         used method of money-laundering. During
     came under increasing scrutiny and regulation          the reform period, as more prudential norms of
     across the world.                                      banking regulation evolved, such acts declined
                                                            in India. ‘Smurfer’ (or ‘money mule’) is a person
        shArpe rAtio                                        who does this.
     The idea of William Forsyth Sharpe (Nobel
                                                                sociAl costs
     Economist) which checks whether the rewards
     from an investment justify the risk. For this          The costs borne by the society at large resulting
     Sharpe uses past data of rewards and calculates        from the economic activities by the firms–
     it using standard deviation. This is why the ratio     pollution being a prominent example.
     says nothing about the future performance of the
     investment.                                                solvency mArgin
                                                            The term made news in the 1970s concerning a
        short selling
                                                            life insurance company. The only requirement,
     Selling shares without possessing them. After          till then, by a life insurance company was that the
     the prices fell to a certain extent the short-seller   value of its assets should not be less than the value
     covers his position by cheaper shares booking the      of its liabilities. The regulators in many countries