< previous page page_144 next page > Page 144 of equal value" in exchange for delivery.) Also called CASH ON DELIVERY, delivery against payment, delivery against cash, or, from the sell side, RECEIVE VERSUS PAYMENT. DELTA 1. measure of the relationship between an option price and the under-lying futures contract or stock price. For a call option, a delta of 0.50 means a half-point rise in premium for every dollar that the stock goes up. For a put option contract, the premium rises as stock prices fall. As options near expiration, IN-THE-MONEY contracts approach a delta of 1. 2. on the London Stock Exchange, delta stocks were the smallest capitalization issues before the system was replaced with today's NORMAL MARKET SIZE. DELTA HEDGING HEDGING method used in OPTION trading and based on the change in premium (option price) caused by a change in the price of the underlying instrument. The change in the premium for each one-point change in the underlying security is called DELTA and the relation-ship between the two price movements is called the hedge ratio. For example, if a call option has a hedge ratio of 40, the call should rise 40% of the change in the security move if the stock goes down. The delta of a put option, conversely, has a negative value. The value of the delta is usually good the first one-point move in the underlying security over a short time period. When an option has a high hedge ratio, it is usually more profitable to buy the option than to be a WRITER because the greater percentage movement vis-à-vis the underlying security's price and the relatively little time value erosion allow the purchaser greater leverage. The opposite is true for options with a low hedge ratio. DEMAND DEPOSIT account balance which, without prior notice to the bank, can be drawn on by check, cash withdrawal from an automatic teller machine, or by transfer to other accounts using the telephone or home computers. Demand deposits are the largest component of the U.S. MONEY SUPPLY, and the principal medium through which the Federal Reserve implements monetary policy. See also COMPENSATING BALANCE. DEMAND LOAN loan with no set maturity date that can be called for repayment when the lender chooses. Banks usually bill interest on these loans at fixed intervals. DEMAND-PULL INFLATION price increases occurring when supply is not adequate to meet demand. See also COST-PUSH INFLATION. DEMONETIZATION withdrawal from circulation of a specified form of currency. For example, the Jamaica Agreement between major INTERNATIONAL MONETARY FUND countries officially demonetized gold starting in 1978, ending its role as the major medium of international settlement. DENKS acronym for dual-employed, no kids, referring to a family unit in which both husband and wife work, and there are no children. < previous page page_144 next page > < previous page page_145 next page > Page 145 Without the expense and responsibility for children, DENKS have a larger disposable income than couples with children, making them a prime target for marketers of luxury goods and services, particularly various types of investments. DENOMINATION face value of currency units, coins, and securities. See also PAR VALUE. DEPLETION accounting treatment available to companies that extract oil and gas, coal, or other minerals, usually in the form of an allowance that reduces taxable income. Oil and gas limited partner-ships pass the allowance on to their limited partners, who can use it to reduce other tax liabilities. DEPOSIT 1. cash, checks, or drafts placed with a financial institution for credit to a customer's account. Banks broadly differentiate between demand deposits (checking accounts on which the customer may draw at any time) and time deposits, which usually pay interest and have a specified maturity or require 30 days' notice before withdrawal. 2. securities placed with a bank or other institution or with a person for a particular purpose. 3. sums lodged with utilities, landlords, and service companies as security. 4. money put down as evidence of an intention to complete a contract and to protect the other party in the event that the contract is not completed. DEPOSITARY RECEIPT see AMERICAN DEPOSITARY RECEIPT. DEPOSIT INSURANCE see CREDIT UNION; FEDERAL DEPOSIT INSURANCE CORPORATION. DEPOSITORY INSTITUTIONS DEREGULATION AND MONETARY CONTROL ACT federal legislation of 1980 providing for deregulation of the banking system. The act established the Depository Institutions Deregulation Committee, composed of five voting members, the Secretary of the Treasury and the chair of the Federal Reserve Board, the Federal Home Loan Bank Board, the Federal Deposit Insurance Corporation, and the National Credit Union Administration, and one nonvoting member, the Comptroller of the Currency. The committee was charged with phasing out regulation of interest rates of banks and savings institutions over a six-year period (passbook accounts were de-regulated effective April, 1986, under a different federal law). The act authorized interest-bearing NEGOTIABLE ORDER OF WITHDRAWAL (NOW) accounts to be offered anywhere in the country. The act also overruled state usury laws on home mortgages over $25,000 and otherwise modernized mortgages by eliminating dollar limits, permitting second mortgages, and ending territorial restrictions in mortgage lending. Another part of the law permitted stock brokerages to offer checking accounts. See also DEREGULATION. < previous page page_145 next page > < previous page page_146 next page > Page 146 DEPOSITORY TRUST COMPANY central securities repository where stock and bond certificates are exchanged. Most of these exchanges now take place electronically, and few paper certificates actually change hands. The DTC is a member of the Federal Reserve System and is owned by most of the brokerage houses on Wall Street and the New York Stock Exchange. DEPRECIATED COST original cost of a fixed asset less accumulated DEPRECIATION; this is the net book value of the asset. DEPRECIATION Economics: consumption of capital during productionin other words, wearing out of plant and capital goods, such as machines and equipment. Finance: amortization of fixed assets, such as plant and equipment, so as to allocate the cost over their depreciable life. Depreciation reduces taxable income but does not reduce cash. Among the most commonly used methods are STRAIGHT-LINE DEPRECIATION; ACCELERATED DEPRECIATION; the ACCELERATED COST RECOVERY SYSTEM, and the MODIFIED ACCELERATED COST RECOVERY SYSTEM. Others include the annuity, appraisal, compound interest, production, replacement, retirement, and sinking fund methods. Foreign exchange: decline in the price of one currency relative to another. DEPRESSED MARKET market characterized by more supply than demand and therefore weak (depressed) prices. See also SYSTEMATIC RISK. DEPRESSED PRICE price of a product, service, or security that is weak because of a DEPRESSED MARKET. Also refers to the market price of a stock that is low relative to comparable stocks or to its own ASSET VALUE because of perceived or actual risk. Such stocks are identified by high dividend yield, abnormally low PRICE/EARNINGS RATIOS and other such yardsticks. See also FUNDAMENTAL ANALYSIS. DEPRESSION economic condition characterized by falling prices, reduced purchasing power, an excess of supply over demand, rising unemployment, accumulating inventories, deflation, plant contraction, public fear and caution, and a general decrease in business activity. The Great Depression of the 1930s, centered in the United States and Europe, had worldwide repercussions. DEREGULATION greatly reducing government regulation in order to allow freer markets to create a more efficient marketplace. After the stock-brokerage industry was deregulated in the mid-1970s, commissions were no longer fixed. After the banking industry was deregulated in the early 1980s, banks were given greater freedom in setting interest rates on deposits and loans. Industries such as communications and transportation have also been deregulated, with similar results: increased competition, heightened innovation, and mergers among weaker competitors. Some government oversight usually remains after deregulation. < previous page page_146 next page > < previous page page_147 next page > Page 147 DERIVATIVE short for derivative instrument, a contract whose value is based on the performance of an underlying financial asset, index, or other investment. For example, an ordinary option is a derivative because its value changes in relation to the performance of an underlying stock. A more complex example would be an option on a FUTURES CONTRACT, where the option value varies with the value of the futures contract which, in turn, varies with the value of an underlying commodity or security. Derivatives are available based on the performance of assets, interest rates, currency exchange rates, and various domestic and foreign indexes. Derivatives afford leverage and, when used properly by knowledgeable investors, can enhance returns and be useful in HEDGING portfolios. They gained notoriety in the late '80s, however, because of problems involved in PROGRAM TRADING, and in the '90s, when a number of mutual funds, municipalities, corporations, and leading banks suffered large losses because unexpected movements in interest rates adversely affected the value of derivatives. See also BEARS, CERTIFICATES OF ACCRUAL ON TREASURY SECURITIES (CATS), COLLATERALIZED BOND OBLIGATION (CBO); COLLATERALIZED MORTGAGE OBLIGATION (CMO); CUBS; DIAMONDS; INDEX OPTIONS; OEX; SPDR; STRIP; SUBSCRIPTION RIGHT; SUBSCRIPTION WARRANT; SWAP; TIGER. DERIVATIVE INSTRUMENT see DERIVATIVE. DESCENDING TOPS chart pattern wherein each new high price for a security is lower than the preceding high. The trend is considered bearish. < previous page page_147 next page > < previous page page_148 next page > Page 148 DESIGNATED ORDER TURNAROUND (DOT) electronic system used by the New York Stock Exchange to expedite execution of small MARKET ORDERS by routing them directly from the member firm to the SPECIALIST, thus bypassing the FLOOR BROKER. A related system called Super DOT routes LIMIT ORDERS. DESK trading desk, or Securities Department, at the New York FEDERAL RESERVE BANK, which is the operating arm of the FEDERAL OPEN MARKET COMMITTEE. The Desk executes all transactions undertaken by the FEDERAL RESERVE SYSTEM in the money market or the government securities market, serves as the Treasury Department's eyes and ears in these and related markets, and encompasses a foreign desk which conducts transactions in the FOREIGN EXCHANGE market. DEUTSCHE BORSE AG operating company for the German securities and derivatives markets. In 1998, it changed its name to Eurex Frankfurt GmbH. It operates the FRANKFURT STOCK EXCHANGE, the country's leading stock exchange, and seven others in Dusseldorf, Munich, Hamburg, Berlin, Stuttgart, Hanover and Bremen. Deutsche Borse also operates DEUTSCHE TERMINBORSE, Germany's only futures exchange, and is responsible for settlement of all securities and futures exchange transactions in Germany. The eight exchanges have different official trading hours. General trading hours are 10:30 A.M. to 1:30 P.M., Monday through Friday. The IBIS system runs from 8:30 A.M. to 5 P.M. DEUTSCHE TERMINBORSE (DTB) Germany's first fully computerized exchange, and the first German exchange for trading financial futures, opened in January 1990. In January 1994, DTB merged with DEUTSCHE BORSE AG. DTB changed its name to Eurex Deutschland in 1998, when it joined with the SWISS OPTIONS AND FINANCIAL FUTURES EXCHANGE (SOFFEX) to form Eurex. Eurex trades futures and options contracts formerly traded on the two exchanges: futures and options on the DAX Index (the German stock index) and the Swiss Market Index (SMI); futures and future options on the DAX future, BOBL national government bonds (3.3 to 5 years), BUND national government bonds (8.5 to 10 years), Swiss government bonds (Conf), Dow Jones STOXX 50 and Dow Jones Euro STOXX 50; futures on the one-month Euromark, three-month Euromark, Mid-Cap DAX and Jumbo Pfandbrief; stock options on German and Swiss blue chip equities; and U.S. dollar/Deutschemark options. DEVALUATION lowering of the value of a country's currency relative to gold and/or the currencies of other nations. Devaluation can also result from a rise in value of other currencies relative to the currency of a particular country. DEVELOPMENTAL DRILLING PROGRAM drilling for oil and gas in an area with proven reserves to a depth known to have been productive in the past. Limited partners in such a program, which is con- < previous page page_148 next page > < previous page page_149 next page > Page 149 siderably less risky than an EXPLORATORY DRILLING PROGRAM or WILDCAT DRILLING, have a good chance of steady income, but little chance of enormous profits. DEWKS acronym for dual-employed, with kids, referring to a family unit in which both husband and wife work and there are children. Marketers selling products for children, including various investments, target DEWKS. DIAGONAL SPREAD strategy based on a long and short position in the same class of option (two puts or two calls in the same stock) at different striking prices and different expiration dates. Example: a six-month call sold with a striking price of 40 and a three-month call sold with a striking price of 35. See also CALENDAR SPREAD; VERTICAL SPREAD. DIALING AND SMILING expression for COLD CALLING by securities brokers and other salespeople. Brokers must not only make unsolicited telephone calls to potential customers, but also gain the customer's confidence with their upbeat tone of voice and sense of concern for the customer's financial well-being. DIALING FOR DOLLARS expression for COLD CALLING in which brokers make unsolicited telephone calls to potential customers, hoping to find people with investable funds. The term has a derogatory implication, and is typically applied to salespeople working in BOILER ROOMS, selling speculative or fraudulent investments such as PENNY STOCKS. DIAMOND INVESTMENT TRUST unit trust that invests in high-quality diamonds. Begun in the early 1980s by Thomson McKinnon, these trusts let shareholders invest in diamonds without buying and holding a particular stone. Shares in these trusts do not trade actively and are therefore difficult to sell if diamond prices fall, as they did soon after the first trust was set up. DIAMONDS represent units of beneficial interest in the DIAMONDS Trust, a UNIT INVESTMENT TRUST that holds the 30 component stocks of the Dow Jones Industrial Average. First introduced in January, 1998, DIAMONDS trade under the ticker symbol "DIA" like any other stock on the American Stock Exchange. They are designed to offer investors a low-cost means of tracking the DJIA, the most widely recognized indicator of the American stock market. DIAMONDS pay monthly DIVIDENDS (which can be reinvested into more shares of the trust) that correspond to the dividend yields of the DJIA component stocks and pay capital gains distributions once a year. DIAMONDS are designed to trade at about 1/100 the level of the Dow Jones Industrial Average. So if the DJIA is at 9000, DIAMONDS will trade at about $90 per unit. For those speculating that stock market prices will fall, it is possible to SELL SHORT using DIAMONDS. Short sellers have an additional advantage: DIAMONDS are not subject to the UPTICK RULE that < previous page page_149 next page > < previous page page_150 next page > Page 150 applies to stocks, meaning they can be sold regardless of which direction the price is moving. Unlike open-end mutual funds, DIAMONDS trade like stocks, allowing investors to buy or sell at any time during the trading day, whereas index mutual funds are only priced once at the end of each trading day. Like open-end index funds, DIAMONDS charge low management fees because there is little research or trading conducted by the trust's management. There are also no LOADS to buy DIAMONDS, though normal brokerage commissions do apply to trades. Whereas closed-end funds often trade at discounts to their NET ASSET VALUES, investors can create an unlimited number of DIAMONDS trading units, which helps insure they will correlate closely with the performance of the DJIA stocks in the portfolio. See also INDEX FUND; SPDR. DIFF short for Euro-rate differential, a futures contract traded on the Chicago Mercantile Exchange that is based on the interest rate spread between the U.S. dollar and the British pound, the German mark, or the Japanese yen. DIFFERENTIAL small extra charge sometimes called the odd-lot-differential usually 1/8 of a pointthat dealers add to purchases and subtract from sales in quantities less than the standard trading unit or ROUND LOT. Also, the extent to which a dealer widens his round lot quote to compensate for lack of volume. DIGITS DELETED designation on securities exchange tape meaning that because the tape has been delayed, some digits have been dropped. For example, 26 1/2 . . . 26 5/8 . . . 26 1/8 becomes 6 1/2 . . . 6 5/8 . . . 6 1/8. DILUTION effect on earnings per share and book value per share if all convertible securities were converted or all warrants or stock options were exercised. See FULLY DILUTED EARNINGS PER (COMMON) SHARE. DINKS acronym for dual-income, no kids, referring to a family unit in which there are two incomes and no children. The two incomes may result from both husband and wife working, or one spouse holding down two jobs. Since the couple do not have children, they typically have more disposable income than those with children, and therefore are the prime targets of marketers selling luxury products and services, including various investments. See also DENKS; DEWKS. DIP slight drop in securities prices after a sustained up-trend. Analysts often advise investors to buy on dips, meaning buy when a price is momentarily weak. See chart on next page. DIRECT INVESTMENT (1) purchase of a controlling interest in a foreign (international) business or subsidiary. (2) in domestic finance, the purchase of a controlling interest or a minority interest of such size and influence that active control is a feasible objective. DIRECTOR see BOARD OF DIRECTORS. < previous page page_150 next page > < previous page page_151 next page > Page 151 DIRECT OVERHEAD portion of overhead costsrent, lights, insuranceallocated to manufacturing, by the application of a standard factor termed a burden rate. This amount is absorbed as an INVENTORY cost and ultimately reflected as a COST OF GOODS SOLD. DIRECT PARTICIPATION PROGRAM program letting investors participate directly in the cash flow and tax benefits of the underlying investments. Such programs are usually organized as LIMITED PART-NERSHIPS, although their uses as tax shelters have been severely curtailed by tax legislation affecting PASSIVE investments. DIRECT PLACEMENT direct sale of securities to one or more professional investors. Such securities may or may not be registered with the SECURITIES AND EXCHANGE COMMISSION. They may be bonds, private issues of stock, limited partnership interests, mortgage-backed securities, venture capital investments, or other sophisticated instruments. These investments typically require large minimum purchases, often in the millions of dollars. Direct placements offer higher potential returns than many publicly offered securities, but also present more risk. Buyers of direct placements are large, sophisticated financial institutions including insurance companies, banks, mutual funds, foundations, and pension funds that are able to evaluate such offerings. Also called private placement. DIRECT PURCHASE purchasing shares in a no-load or low-load OPEN-END MUTUAL FUND directly from the fund company. Investors making direct purchases deal directly with the fund company over the phone, in person at investor centers, or by mail. This contrasts with the method of purchasing shares in a LOAD FUND through a financial intermediary such as a broker or financial planner, who collects a commission for offering advice on which fund is appropriate for the client. Many companies also now allow shareholders to purchase "no-load" stock directly from the company, thereby avoiding brokers and sales commissions. See also TREASURY DIRECT. DIRTY STOCK stock that fails to meet the requirements for GOOD DELIVERY. < previous page page_151 next page > < previous page page_152 next page > Page 152 DISABILITY INCOME INSURANCE insurance policy that pays benefits to a policyholder when that person becomes incapable of performing one or more occupational duties, either temporarily or on a long-term basis, or totally. The policy is designed to replace a portion of the income lost because of the insured's disability. Payments begin after a specified period, called the elimination period, of several weeks or months. Some policies remain in force until the person is able to return to work, or to return to a similar occupation, or is eligible to receive benefits from another program such as Social Security disability. Disability insurance payments are normally tax-free to beneficiaries as long as they paid the policy premiums. Many employers offer disability income insurance to their employees, though people are able to buy coverage on an individual basis as well. DISBURSEMENT paying out of money in the discharge of a debt or an expense, as distinguished from a distribution. DISCHARGE OF BANKRUPTCY order terminating bankruptcy proceedings, ordinarily freeing the debtor of all legal responsibility for specified obligations. DISCHARGE OF LIEN order removing a lien on property after the originating legal claim has been paid or otherwise satisfied. DISCLAIMER OF OPINION auditor's statement, sometimes called an adverse opinion, that an ACCOUNTANT'S OPINION cannot be provided because of limitations on the examination or because some condition or situation exists, such as pending litigation, that could impair the financial strength or profitability of the client. DISCLOSURE release by companies of all information, positive or negative, that might bear on an investment decision, as required by the Securities and Exchange Commission and the stock exchanges. See also FINANCIAL PUBLIC RELATIONS; INSIDE INFORMATION; INSIDER. DISCONTINUED OPERATIONS operations of a business that have been sold, abandoned, or otherwise disposed of. Accounting regulations require that continuing operations be reported separately in the income statement from discontinued operations, and that any gain or loss from the disposal of a segment (an entity whose activities represent a separate major line of business or class of customer) be reported along with the operating results of the discontinued segment. DISCOUNT 1. difference between a bond's current market price and its face or redemption value. 2. manner of selling securities such as treasury bills, which are issued at less than face value and are redeemed at face value. 3. relationship between two currencies. The French franc may sell at a discount to the English pound, for example. < previous page page_152 next page > < previous page page_153 next page > Page 153 4. to apply all available news about a company in evaluating its current stock price. For instance, taking into account the introduction of an exciting new product. 5. method whereby interest on a bank loan or note is deducted in advance. 6. reduction in the selling price of merchandise or a percentage off the invoice price in exchange for quick payment. DISCOUNT BOND bond selling below its redemption value. See also DEEP DISCOUNT BOND. DISCOUNT BROKER brokerage house that executes orders to buy and sell securities at commission rates sharply lower than those charged by a FULL SERVICE BROKER. DISCOUNT DIVIDEND REINVESTMENT PLAN see DIVIDEND REINVESTMENT PLAN. DISCOUNTED CASH FLOW value of future expected cash receipts and expenditures at a common date, which is calculated using NET PRESENT VALUE or INTERNAL RATE OF RETURN and is a factor in analyses of both capital investments and securities investments. The net present value (NPV) method applies a rate of discount (interest rate) based on the marginal cost of capital to future cash flows to bring them back to the present. The internal rate of return (IRR) method finds the average return on investment earned through the life of the investment. It determines the discount rate that equates the present value of future cash flows to the cost of the investment. DISCOUNTING THE NEWS bidding a firm's stock price up or down in anticipation of good or bad news about the company's prospects. DISCOUNT POINTS see POINT. DISCOUNT RATE 1. interest rate that the Federal Reserve charges member banks for loans, using government securities or ELIGIBLE PAPER as collateral. This provides a floor on interest rates, since banks set their loan rates a notch above the discount rate. 2. interest rate used in determining the PRESENT VALUE of future CASH FLOWS. See also CAPITALIZATION RATE. DISCOUNT WINDOW place in the Federal Reserve where banks go to borrow money at the DISCOUNT RATE. Borrowing from the Fed is a privilege, not a right, and banks are discouraged from using the privilege except when they are short of reserves. DISCOUNT YIELD yield on a security sold at a discountU.S. treasury bills sold at $9750 and maturing at $10,000 in 90 days, for instance. Also called bank discount basis. To figure the annual yield, divide the discount ($250) by the face amount ($10,000) and multiply < previous page page_153 next page > [...]... estate and gift taxes, phased in so that the first $600,000 of property can be given free of estate tax starting in 1987 Annual gifts that can be given free of gift tax were raised from $30 00 to $10,000 Unlimited deduction for transfer of property to a spouse at death 9 lowering of rates on the exercise of stock options 10 change in rules on DEPRECIATION and INVESTMENT CREDIT See also TAX REFORM ACT OF. .. portfolio EITHER-OR ORDER see ALTERNATIVE ORDER ELASTICITY OF DEMAND AND SUPPLY Elasticity of demand: responsiveness of buyers to changes in price Demand for luxury items may slow dramatically if prices are raised, because these purchases are not essential, and can be postponed On the other hand, demand for necessities such as food, telephone service, and emergency surgery is said to be inelastic It remains... all purchases made through the 25th of one month are payable within 30 days of the end of the following month; EOM means end of month Assuming no prompt payment discount, purchases through the 25th of April, for example, will be payable by the end of June If a discount exists for payment in ten days, payment would have to be made by June 10th to take advantage of it End of month dating with a 2% discount... one year and 35 % the next has earnings momentum and should see a gain in its stock price EARNINGS PER SHARE portion of a company's profit allocated to each outstanding share of common stock For instance, a corporation that earned $10 million last year and has 10 million shares outstand- < previous page page_168 next page > < previous page page_169 next page > Page 169 ing would report earnings of $1 per... taxable income of $100,000 owes $30 ,000 in a year, he has an effective tax rate of 30 % The effective tax rate is useful in tax planning, because it gives a taxpayer a realistic understanding of the amount of taxes he is paying after allowing for all deductions, credits, and other factors affecting tax liability EFFICIENT MARKET theory that market prices reflect the knowledge and expectations of all investors... DILIGENCE MEETING meeting conducted by the underwriter of a new offering at which brokers can ask representatives of the issuer questions about the issuer's background and financial reliability and the intended use of the proceeds Brokers who recommend investment in new offerings without very careful due diligence work may face lawsuits if the investment should go sour later Although, in itself, the... Corporate finance: allocation of income and expenses to the appropriate subsidiary accounts Economics: (1) movement of goods from manufacturers; (2) way in which wealth is shared in any particular economic system Estate law: parceling out of assets to the beneficiaries named in a will, as carried out by the executor under the guidance of a court Mutual funds and closed-end investment companies: payout of. .. annual basis The report will show revenues, expenses, and net profit for the period Earnings reports are released to the press and reported in newspapers and electronic media, and are also mailed to shareholders of record Also called profit and loss statement (P&L) or income statement EARNINGS SURPRISE EARNINGS REPORT that reports a higher or lower profit than analysts have projected If earnings are higher... stages ending in 19 83 2 indexing of tax brackets to the inflation rate 3 lowering of top tax rates on long-term capital gains from 28% to 20% The top rate on dividends, interest, rents, and royalties income dropped from 70% to 50% 4 lowering of MARRIAGE PENALTY tax, as families with two working spouses could deduct 10% from the salary of the lower-paid spouse, up to $30 00 5 expansion of INDIVIDUAL RETIREMENT... the voting shares of any one company DIVESTITURE disposition of an asset or investment by outright sale, employee purchase, liquidation, and so on Also, one corporation's orderly distribution of large blocks of another corporation's stock, which were held as an investment Du Pont was ordered by the courts to divest itself of General Motors stock, for example DIVIDEND distribution of earnings to shareholders, . of the asset. DEPRECIATION Economics: consumption of capital during productionin other words, wearing out of plant and capital goods, such as machines and equipment. Finance: amortization of. additions and withdrawals of capital as a part of the RETURN along with income and capital gains and losses. For example, a portfolio (or group of portfolios) worth $100 million at the beginning of. increasing its efficiency and profitability. Downsizing is typically accomplished through RESTRUCTURING, which means reducing the number of employees and, often, the SPIN-OFF of activities unrelated