Glossary

Packing List

Document listing the contents of a consignment of goods. May be called for on a letter of credit.

Parallel Loan

A loan arrangement in which a company borrows in its home currency and then trades this debt for the foreign currency debt of a foreign counterpart.

Partnership

Form of business organization in which two or more co-owners form a business. In a general partnership each partner is liable for the debts of the partnership. Limited partnership permits some partners to have limited liability.

Passive Income

In the U.S. tax code, income (such as investment income) that does not come from active participation in a business.

Patent

A government grant that gives inventors exclusive right of making, using, or selling the invention.

Payback Period Rule

An investment decision rule which states that all investment projects that have payback periods equal to or less than a particular cutoff period are accepted, and all those that pay off in more than the particular cutoff period are rejected. The payback period is the number of years required for a firm to recover its initial investment required by a project from the cash flow it generates.

Payoff Profile

A graph with the value of an underlying asset on the x-axis and the value of a position taken to hedge against risk exposure on the y-axis. Also used with changes in value (contrast with risk profile).

Payout Ratio

Proportion of net income paid out in cash dividends.

Pegged Exchange Rate System

The International Monetary Fund’s name for a fixed exchange rate system.

Pension Liabilities

A recognition of future liabilities resulting from pension commitments made by the corporation. Accounting for pension liabilities varies widely by country.

Perfect Market Assumptions

A set of assumptions under which the law of one price holds. These assumptions include frictionless markets, rational investors, and equal access to market prices and information.

Peril Point

The limit beyond which the reduction of tariff protection in a given industry would cause it serious injury.

Periodic Call Auction

A trading system in which stocks are auctioned at intervals throughout the day.

Perpetuity

A constant stream of cash flows without end. A British consol is an example.

Phytosanitary Measure

A piece of legislation, regulation, or procedure with the purpose of preventing the introduction or spread of pests. Phytosanitary procedures often include the performance of inspections, tests, surveillance, or other treatments.

Points Quote

An abbreviated form of the outright quote used by traders in the interbank market.

Political Risk

The risk that a sovereign host government will unexpectedly change the rules of the game under which businesses operate. Political risk includes both macro and micro risks.

Pooling

In logistics, pooling is when a group of carriers agree to share freight, customers, and revenues or profits. In the U.S. it is outlawed by the Interstate Commerce Act.

Portfolio

Combined holding of more than one stock, bond, real estate asset, or other asset by an investor.

Power Distance

The extent to which a society accepts hierarchical differences.

Predatory Pricing

It is a form of price discrimination that requires selling below cost with the intention of destroying competition. However, predatory pricing is against the law.

Premium

If a bond is selling above its face value, it is said to sell at a premium.

Present Value

The value of a future cash stream discounted at the appropriate market interest rate.

Present Value Factor (PVF)

Factor used to calculate an estimate of the present value of an amount to be received in a future period.

Price Elasticity of Demand

The sensitivity of quantity sold to a percentage change in price; -%changeQ/%changeP.

Price Uncertainty

Uncertainty regarding the future price of an asset.

Private Placement

A securities issue privately placed with a small group of investors rather than through a public offering.

Privatization

A process whereby publicly owned enterprises are sold to private investors (contrast with nationalization).

Pro Forma Invoice

An invoice provided by a supplier prior to the shipment of merchandise, informing the buyer of the kinds and quantities of goods to be sent, their value, and important specifications.

Product Cycle Theory

Product cycle theory views the products of the successful firm as evolving through 4 stages: (1) infancy, (2) growth, (3) maturity, and (4) decline.

Product Life Cycle (PLC)

The complete life of a product, from early planning through sales build-up, maximum sales, declining sales, and withdrawal of the product. Product life cycle lengths and types can vary depending on the type of product, the frequency of replacement, and other factors.

Production Possibilities Schedule

The maximum amount of goods (for example, food and clothing) that a country is able to produce given its labor supply.

Production Sharing

Production sharing occurs when a producer chooses to make a product in stages - and in different countries - so that the firm can employ the lowest-cost resources in the production process.

Profitability Index

A method used to evaluate projects. It is the ratio of the present value of expected future cash flows after initial investment divided by the amount of the initial investment.

Progressive Taxation

A convex tax schedule that results in a higher effective tax rate on high income levels than on low-income levels.

Project Financing

A way to raise nonrecourse financing for a specific project characterized by the following: (1) the project is a separate legal entity and relies heavily on debt financing and (2) the debt is contractually linked to the cash flow generated by the project.

Promissory Note

Financial document in which the buyer agrees to make payment to the seller at a specified time.

Proprietary Knowledge

Private or exclusive knowledge that cannot be legally used or duplicated by competitors.

Prospectus

A brochure that describes a mutual fund’s investment objectives, strategies, and position limits.

Protectionism

Protection of local industries through tariffs, quotas, and regulations that discriminate against foreign businesses.

Psychic Distance

The similarities or lack thereof between country markets. This concept takes into account geographic distance, cultural similarities, linguistic aspects, legal systems and methods of conducting business.

Public Relations (PR)

A variety of programs designed to promote and/or protect a company's image or its individual products.

Public Securities Offering

A securities issue placed with the public through an investment or commercial bank.

Pull Strategy

In logistics, it is a strategy which uses actual customer demand to determine production and distribution schedules. In marketing, it is using intensive advertising to create customer demand for a product. In either case, the product is “pulled” through the system by the consumer.

Purchasing Agent

Someone who buys goods in his or her country on behalf of foreign buyers.

Purchasing Power Parity (PPP)

The principle that equivalent assets sell for the same price. Purchasing power parity is a measurement of a currency's value based on the buying power within its own domestic economy.

Pure Discount Bond

Bonds that pay no coupons and only pay back the face value at maturity. Also referred to as zero-coupon bond or a single-payment bond.

Push Strategy

In logistics, it is a strategy which uses forecasts rather than customer demand to determine production and distribution schedules. In marketing, it is a wholesaler using promotion to create demand directly at the consumer level, bypassing retailers. In either case, the product is “pushed” through the system by the manufacturer to the customer.

Put Option

The right to sell the underlying asset at a specified price and on a specified date.

Put-call Parity

The relation of the value of a long call, a short put, the exercise price, and the forward price at expiration; CallTd/f - PutTd/f + Kd/f = FTd/f.