Ad Valorem According

Ad valorem, 'according to value'. Thus an ad valorem tax is one levied on a percentage of value. It is contrasted with a specific tax which is levied at a given sum per unit of a commodity. The economic interest in the difference is that an ad valorem tax remains the same proportion if the price of the commodity changes, and a specific tax rises as a proportion of price if the price falls and falls if the price rises. Thus if the prices of imports generally rise, specific taxes are less 'protective' than ad valorem taxes.

Advance, in everyday language, a prior payment or loan; in economics a loan or overdraft by a joint-stock bank to a customer. Advances of the British joint-stock banks form about half of total deposits and are the least liquid and most profitable of bank assets, although in a sense loans at call and other highly liquid loans are also a form of advance.

Advances may be of two main types:

(1)For an overdraft the customer is permitted to 'overdraw' his current account by cheque up to a stated limit, at times and in amounts to suit his convenience. Collateral security may be required, but overdrafts are frequently granted on the banker's estimate of the credit-worthiness of the borrower. The advantage of the overdraft is that interest is paid only on the amount by which the customer is overdrawn in the period for which the interest is calculated, e.g. if a person has overdraft facilities for II,000 but i5 overdrawn only by £100 he pays interest on £100.

(z) For a loan the borrower usually places security with the banker and in return an account is opened to his credit, a loan account is debited with the equivalent sum, and interest charged on the whole sum.

In recent years there have been two innovations: (a) the Personal Loan, granted to an individual for a specific purchase or group of purchases; repayment is by agreed regular installments. (b) Term loans, common in the United States, but still relatively uncommon in Britain.

Except for the term loan, it has long been a feature of British banking (unlike German, Italian and some other continental banking) that advances are normally for short periods (up to six or twelve months), after which they are reconsidered. British banks thus supply mainly 'circulating' or 'working' as distinct from fixed capital. In practice renewal of advances is often automatic and much bank lending that is nominally short term may continue for long periods.

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