Glossary

Safety Stock (SS)

The materials in an inventory in anticipation of unforeseen shortages of materials or abnormal demand for the final product.

Scenario Analysis

A process of asking “What if?” using scenarios that capture key elements of possible future realities.

Section 201

Also known as the “escape clause” of the U.S. Trade act of 1971, section 201 is a provision that permits imports to be restricted in a certain industry, for a limited time, if those imports have caused injury to U.S. firms.

Section 301

In U.S. trade law, section 301 is a provision that allows private parties to seek compensation through the U.S. government if they have experienced injury to their business because of the illegal or unfair actions of foreign governments.

Security Market Line (SML)

In the CAPM, the relation between required return and systematic risk (or beta): Rj - RF + bj (E[RM] - RF).

Security Selection

An investment strategy that attempts to identify individual securities that are underpriced relative to other securities in a particular market or industry.

Seeking Stability Rather Than Risk

An element of the Paris Convention for the Protection of Industrial Property that gives an inventor 12 months from the date of the first application filed in a Paris Convention country in which to file in other Paris Convention countries. This relieves companies of the burden of filing applications in many countries simultaneously. Approximately 100 countries, including the United States, signed the Paris Convention.

Segmented Market

A market that is partially or wholly isolated from other markets by one or more market imperfections.

Seller's Market

A seller’s market exists when the demand for a good outweighs the supply, and so the economic forces of business cause the goods to be priced at or closer to the vendor's estimate of their value.

Semi-strong Form Efficient Market

A market in which prices fully reflect all publicly available information.

Sensitivity Analysis

Analysis of the effect on the project when there is some change in critical variables such as sales and costs.

Separation Principle

The principle that portfolio choice can be separated into two independent tasks: (1) determination of the optimal risky portfolio, which is purely technical problem, and (2) the personal choice of the best mix of the risky portfolio and the risk-free asset.

Set-of-contracts Perspective

A view of the corporation as the nexus of a set of legal contracts linking the various stakeholders. Important contracts include those with customers, suppliers, labor, management, debt, and equity.

Settlement of Disputes

The Settlement of Disputes was a declaration made by the UN stating that any water-based international disagreement must be settled in a peaceful and diplomatic manner.

Sharpe Index

A measure of risk-adjusted investment performance in excess return per unit of total risk: SI = (RP - RF)/(sP).

Shipper

Usually the supplier or owner of commodities shipped.

Short Position

A position in which a particular asset (such as a spot or forward currency) has been sold.

Short Selling

Selling an asset that you do not own, or taking a short position.

Side Effect

Any aspect of an investment project that can be valued separately from the project itself.

Sight Draft

A draft that is payable on demand.

Signaling

The use of observable managerial actions in the marketplace as an indication of management’s beliefs concerning the prospects of the company.

Simple Interest

Interest calculated by considering only the original principal amount.

Small Business Administration (SBA)

An independent agency of the U.S. federal government that aids, counsels, assists, and protects the interests of small business concerns to preserve free competitive enterprise and to maintain and strengthen the overall economy of the nation.

Smoot Hawley Act

Passed in 1930, this protectionist act increased import duties to the highest rate ever imposed by the United States, resulting in the downfall of the world trade system.

Social Capital

Physical or real capital that is owned by the public sector rather than by private firms.

Society for Worldwide Interbank Financial Transactions (SWIFT)

Network through which international banks conduct their financial transactions.

Soft Clause

In a letter of credit, a soft clause is a clause which renders it impossible for the beneficiary, or seller, to fulfill the conditions of the letter separately and independently of the purchaser.

Soft Currency

A currency which is not readily accepted in exchange for other currencies or convertible to gold.

Soft Loan

A loan with generous terms such as lower than usual or no interest, and/or a long payback period.

Sogo Sosha

A term referring to general trading companies that import and export merchandise.

Sole Proprietorship

A business owned by a single individual. The sole proprietorship pays no corporate income tax but has unlimited liability for business debts and obligations.

South Asian Association for Regional Cooperation (SAARC)

The South Asian Association for Regional Cooperation (SAARC) was established on December 8, 1985. Its members states consist of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Its main areas of cooperation are Agriculture and Rural Development; Health and Population Activities; Women, Youth and Children; Environment and Forestry; Science and Technology and Meteorology; Human Resources Development; and Transport.

Southern African Customs Union (SACU)

Established in 1910, the SACU is the oldest customs union in the world and is composed of South Africa, Swaziland, Botswana, Namibia, and Lesotho. The countries engage in the free exchange of goods across their borders, and a share a common external tariff and excise duties, as well as the revenues generated by them.

Southern African Development Community (SADC)

The Southern African Development Community (SADC) was first established in 1992. It is the successor to the Southern African Development Coordination Conference (SADCC). The Member States are Angola, Botswana, the Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, United Republic of Tanzania, Zambia and Zimbabwe.

Southern Cone

The geographic region including Argentina, Brazil, Chile, Paraguay, and Uruguay.

Sovereignty

The rights of a country to rule itself, to manage its own affairs, and to jurisdiction over land, airspace, and maritime matters.

Special Drawing Right (SDR)

An international reserve created by the International Monetary Fund and allocated to member countries to supplement foreign exchange reserves.

Specific Tariff

A tariff assessed at a specific amount per unit of weight.

Spot Exchange-rate

Exchange-rate today for settlement in two days.

Spot Market

A market in which trades are made for immediate delivery (within two business days for most spot currencies).

Stabilization Policies

Government policies designed to promote economic growth, steady employment, and stable prices.

Stakeholders

Those with an interest in the firm. A narrow definition includes the corporation’s debt and equity holders. A broader definition includes labor, management, and perhaps other interested parties, such as customers, suppliers, and society at large.

Stamp Tax

A tax on a financial transaction.

Standard Deviation

The positive square root of the variance. This is the standard statistical measure of the spread of a sample.

Standard Industrial Classification (SIC)

A standard numerical code system used by the U.S. government to classify products and services.

Stated Annual Interest Rate

The interest rate expressed as a percentage per annum, by which interest payment is determined.

Stationary Time Series

A time series in which the process generating returns is identical at every instant of time.

Stock Index Futures

A futures contract on a stock index.

Stock Index Swap

A swap involving a stock index. The other asset involved in a stock index swap can be another stock index (a stock-for-stock swap), a debt index (a debt-for-stock swap), or any other financial asset or financial price index.

Stock Market

An institution that facilitates the buying and selling of stocks.

Strategic Alliance

A collaborative agreement between two companies designed to achieve some strategic goal. Strategic alliances include international licensing agreements, management contracts, and joint ventures as special cases.

Striking Price

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

Subpart F Income

In the U.S. tax code, income from foreign subsidiaries owned more than 10 percent and controlled foreign corporations that is taxed on a pro rata basis as it is earned.

Subsidiary

Any organization controlled by another with more than 50 percent of its whose voting capital held by the latter.

Subsidized Financing

Financing that is provided by a host government and that is issued at a below-market interest rate.

Subsidy

Monetary assistance granted by the government to an individual or other entity in support of an activity that is regarded as being in the public interest.

Subsistence Agriculture

Small-scale agriculture designed to meet the consumption needs of individual households.

Sunk Cost

A cost that has already occurred and cannot be removed. Because sunk costs are in the past, such costs should be ignored when deciding whether to accept or reject a project.

Sunk Costs

Expenditures that are at least partially lost once an investment is made.

Supervisory Board

The board of directors that represents stakeholders in the governance of the corporation.

Swap

An agreement to exchange two liabilities (or assets) and, after a prearranged length of time, to reexchange the liabilities (or assets).

Swap Book

A swap bank’s portfolio of swaps, usually arranged by currency and by maturity.

Swaption

A swap with one or more options attached.

Switching Options

A sequence of options in which exercise of one option creates one or more additional options. Investment-disinvestment, entry-exit, expansion-contraction, and suspension-reactivation decisions are examples of switching options.

Syndicate

The selling group of investment banks in a public securities offering.

Synergy

In an acquisition or merger, when the value of the combination is greater than the sum of the individual parts: Synergy = VAT - (VA + VT).

Synthetic Forward Position

A forward position constructed through borrowing in one currency, lending in another currency, and offsetting these transactions in the spot exchange market.

Systematic Risk

Risk that is common to all assets and cannot be diversified away (measured by beta).