Glossary

Earnings Response Coefficient

The relation of stock returns to earnings surprises around the time of corporate earnings announcements.

Easement

A right held by one party to make use of the land of another.

East African Community (EAC)

The East African Community (EAC) is a regional organization composed of the Republics of Kenya, Uganda and the United Republic of Tanzania. The EAC provides a forum for cooperation on a broad range of topics including: trade, science and technology, wildlife management, investments and industrial development, and foreign affairs. The 3 East African countries encompass a population of 82 million and covers an area of 1.8 million square kilometers.

Eclectic Paradigm

A theory of the multinational firm that posits three types of advantages benefiting the multinational corporation: ownership-specific, location-specific, and market internalization advantages.

Economic Community of West African States (ECOWAS)

A regional group consisting of fifteen West African nations. It is a free trade area for agricultural products and raw materials, and a preferential trade area for various industrial products.

Economic Exposure

Change in the value of a corporation’s assets or liabilities as a result of changes in currency values.

Economic Freedom

Economic freedom occurs when individuals and businesses make most of the economic decisions in an economy.

Economic Integration

The integration of commercial and financial activities among countries through the abolishment of economic discrimination.

Economic Union

A group that combines the economic characteristics of a common market with some degree of harmonization of macroeconomic policies, such as monetary and fiscal policies.

Economic Value Added

A method of performance evaluation that adjusts accounting performance with a charge reflecting investors’ required return on investment.

Economies of Scale

Achieving lower average cost per unit through a larger scale of production. This is achieved by spreading fixed cost over a greater amount of production.

Economies of Vertical Integration

Achieving lower operating costs by bringing the entire production chain within the firm rather than contracting through the marketplace.

Effective Annual Interest Rate

The interest rate as if it were compounded once per time period rather than several times per period.

Effective Annual Yield

Calculated as (1+i/n)n, where i is the stated annual interest rate and n is the number of compounding periods per year (contrast with bond equivalent yield and money market yield).

Effective Exchange Rate

Spot exchange rates that are actually paid or received by the general public, including taxes on any transactions as well as bank commissions.

Efficient Frontier

The mean-variance efficient portion of the investment opportunity set.

Efficient Market

A market in which prices reflect all relevant information.

Embargo

A type of economic sanction that totally disallows the imports of a specific product or all products from a specific country. Embargoes are typically placed in time of war.

Emerging Market

An emerging market has a very high growth rate, which yields enormous market potential. It is distinguished by the recent progress it has made in economic liberalization.

Emerging Stock Markets

The stock markets of emerging economies. These markets typically have higher expected returns than established markets but also higher risk.

Employment Rate

The ratio, in percent, of the number of employed persons to total labor force.

Endogenous Uncertainty

Price or input cost uncertainty that is within the control of the firm, such as when the act of investing reveals information about price or input cost.

Engagement

The assumption of payment responsibility in respect of a letter of credit, e.g.

Equity-linked Eurobonds

A Eurobond with a convertibility option or warrant attached.

Erosion

Cash-flow amount transferred to a new project from customers and sales of other products of the firm.

Euro

The single currency of the European Economic and Monetary Union (EMU) introduced in January 1999 and became the official currency of EMU member countries on January 1, 2002. EMU members are Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, Greece, Slovenia, and Spain.

Eurobond

A bond that is denominated in a currency other than that of the country of issue.

Eurocurrencies

Deposits and loans denominated in one currency and traded in a market outside the borders of the country issuing that currency (e.g., Eurodollars).

Eurocurrency Market

A money market for currencies held in the form of deposits in countries other than that where the currency is issued.

Eurodollars

Dollar-denominated deposits held in a country other than the United States.

European Article Number (EAN)

A standard international numbering code system that is used primarily in retail applications. It is also compatible with the U.S. UPC (Universal Product Code).

European Bank for Reconstruction and Development (EBRD)

One of four major regional development banks currently operating in the global economy.

European Central Bank (ECB)

The central bank for European Union (EU). It sets monetary policy for member countries.

European Committee for Standardization (CEN)

An organization composed of the national standards organizations of 30 European countries. The European Committee for Standardization, or CEN, seeks to promote the European economy in the global market by providing an efficient and standardized infrastructure for trade.

European Currency Unit (ECU)

A trade-weighted basket of currencies in the European Exchange Rate Mechanism (ERM) of the European Union.

European Exchange Rate Mechanism (ERM)

The exchange rate system used by countries in the European Union in which exchange rates are pegged within bands around an ERM central value.

European Free Trade Association (EFTA)

The European Free Trade Association (EFTA) is an international organization established in 1960. It is composed by Iceland, Liechtenstein, Norway and Switzerland promoting free trade and economic integration. There are 3 main branches of the EFTA: the EFTA Secretariat, Surveillance Authority and EFTA Court. Its function is to create a free trade area among its Member States.

European Monetary System (EMS)

An exchange rate system based on cooperation between European Union central banks.

European Option

An option that can be exercised only at expiration (contrast with American option).

European Terms

A foreign exchange quotation that states the foreign currency price of one U.S. dollar (contrast with American terms).

European Union (EU)

An intergovernmental organization which coordinates foreign, economic, and judicial policy among its 27 member nations.

Exaction

Demanding or imposing various fees from a position of authority.

Exchange Rate

The price of one currency in terms of another, i.e. the number of units of one currency that may be exchanged for one unit of another currency.

Exchange Risk

The risk that losses may result from the changes in the relative values of different currencies.

Excise tax

A tax on the consumption of certain goods either made in or imported into a country.

Exercise Price

The price at which an option can be exercised (also called the striking price).

EXIMBANK

Export-Import Bank of the United States. Provides guarantees of working capital loans for U.S. exporters, guarantees the repayment of loans or makes loans to foreign purchasers of U.S. goods and services, and provides credit insurance against non-payment by foreign buyers for political or commercial risk. Currently, the Bank is focusing on critical areas such as emphasizing exports to developing countries, aggressively countering trade subsidies of other governments, stimulating small business transactions, promoting the export of environmentally beneficial goods and services, and expanding project finance capabilities. Ex-Im Bank is not an aid or development agency, but a government held corporation, managed by a Board of Directors.

Exogenous Uncertainty

Price or input cost uncertainty that is outside the control of the firm.

Expiry Date

The date when a letter of credit is no longer valid - i.e. the date beyond which it cannot be used.

Explicit Tax

A tax that is explicitly collected by a government; includes income, withholding, property, sales, and value-added taxes and tariffs.

Export

Any resource, intermediate good, or final good or service that producers in one country sell to buyers in another country.

Export Administration Regulations (EAR)

EAR carry both civil and criminal penalties. The EAR are available by subscription from the Superintendent of Documents, U.S. Government Printing Office, Washington, D.C. 20401 (tel no: 202-275 2091).

Export Broker

An individual or firm that helps to locate and introduce buyers and seller in international business for a commission but does not take part in actual sales transaction.

Export Credit Insurance

Insurance provided to exporters in order to protect them against commercial and political risks.

Export Financing Interest

In the U.S. tax code, interest income derived from goods manufactured in the United States and sold outside the United States as long as not more than 50 percent of the value is imported into the United States.

Export License

A general export license covers the exportation of goods not restricted under the terms of a validated export license. No formal application or written authorization is needed to ship exports under a general export license.

Export Restraints

Quantitative restrictions imposed by exporting countries to limit exports to specified foreign markets, usually as a follow-up to formal or informal agreements reached with importing countries.

Export Subsidies

Any form of government payment that helps an exporter or manufacturing company to lower its export costs.

Export Trading Company (ETC)

A company that facilitates the export of goods and services. An ETC can either act as the export department for producers or take title to the product and export for its own account.

Expropriation

A specific type of political risk in which a government seizes foreign assets.

External Market

A market for financial securities that are placed outside the borders of the country issuing that currency.

Extraterritoriality

A government practice which applies its laws outside its territorial boundaries.