Economics. Dr. Pass Christopher

or, alternatively, they could deliberately engineer a DEPRECIATION of the exchange rate. See BEGGAR-MY-NEIGHBOUR POLICY.

      discount 1 a deduction from the published LIST PRICE of a good or service allowed by a supplier to a customer. The discount could be offered for prompt payment in cash (cash discount) or for bulk purchases (trade discount). Trade discounts may be given to enable suppliers to achieve large sales volumes, and thus ECONOMICS OF SCALE, or may be used as a competitive stratagem to secure customer loyalty, or may be given under duress to large, powerful buyers. See AGGREGATED REBATE, BULK BUYING.

      2 the sale of new STOCKS and SHARES at a reduced price. In the UK, this involves the issue of a new share at a price below its nominal value. In other countries where shares have no nominal value it involves the sale of new shares below their current market price.

      3 the purchase of a particular company’s issued stock or share at a price below the average market price of those of other companies operating in the same field. The price is lower because investors feel less optimistic about that company’s prospects.

      4 a fall in the prices of all stocks and shares in anticipation of a downturn in the economy.

      5 the purchase of a BILL OF EXCHANGE, TREASURY BILL or BOND for less than its nominal value. Bills and bonds are redeemable at a specific future date at their face value. The original purchaser will buy the bill or bond for less than its nominal or face value (at a discount). The discount between the price that he pays and the nominal value of the bill or bond represents interest received on the loan made against the security of the bill or bond. If the owner of the bill or bond then wishes to sell it prior to maturity (rediscount it), then he will have to accept less than its nominal value (although more than he paid for it). The difference between the original price that he paid and the price received will depend largely upon the length of time before maturity. For example, if a bond with a nominal value of £1,000 redeemable in one year’s time were bought for £900, then the £100 discount on redemption value represents an interest rate of £1,000/900 = 11.1% on the loan.

      6 the extent to which a foreign currency’s market EXCHANGE RATE falls below its ‘official’ exchange rate under a FIXED EXCHANGE RATE SYSTEM.