Absolute Advantage

An absolute advantage exists when a nation or economic region is able to produce a good or service more efficiently (using the same amount of resources) than a second nation or region.

Accelerated Tariff Elimination

An increased rate of reduction of import duties at a faster rate than what was originally planned or decided upon.

Accounting Exposure

Changes in a corporation's financial statements as a result of changes in currency values. Also known as translation exposure.

Acquisition of Assets

In an acquisition of assets, one firm acquires the assets of another company. None of the liabilities supporting those asset are transferred to the purchaser.

Acquisition of Stock

In an acquisition of stock, one firm buys the equity interest of another firm.

Acquisition Premium

In a merger or acquisition, the difference between the purchase price and the preacquisition value of the target firm.

Active Fund Management

An investment approach that actively shifts funds either between asset classes (asset allocation) or between individual securities (security selection).

Active Income

In the U.S. tax code, income from an active business as opposed to passive investment income.

Activity Based Costing (ABC)

An accounting method that allocates costs to specific products or services or activities such as production, delivery or maintenance based on breakdowns of cost drivers.

Ad Valorem Tariff

A tariff assessed as a percentage of the value of an import.

Adjusted Present Value

A valuation method that separately identifies the value of an unlevered project from the value of financing side effects.

Advance Payment

Trading method in which the buyer pays for the goods before they are sent out , method is used when buyer is of unknown credit worthiness.

Adventure

It is also called "marine adventure." It is a term of art in the marine insurance business. All insured cargo owners and every shipper on that vessel are part of the adventure.

Advising Bank

Bank, usually in the country of the seller, whose primary function is to authenticate the letter of credit and advise it to the seller.

Advisory Capacity

Used to indicate that a shipper's agent or representative is not empowered to make definitive changes or adjustments without approval of the group or individual represented.

African Developmental Bank Group (ABD Group)

The ABD Group is 1 of 4 major regional developmental banks currently operating in the global economy; it is headquartered in Abidjan, Cote d'Ivoire.

African Union (AU)

The African Union is an organization for regional, social and economic cooperation. It consists of 53 member nations in Africa and was derived from the OAU (Organisation of African Unity). Its goal is to unify Africa and promote peace, security, and stability on the continent through social and economic cooperation.

African, Caribbean, and Pacific Countries (ACP)

The African, Caribbean and Pacific Group of States (ACP) is an organisation created by the Georgetown Agreement in 1975. It is composed of African, Caribbean and Pacific States signatories to the Georgetown Agreement or the Partnership Agreement between the ACP and the European Union, officially called the

Agency Costs

The costs incurred to ensure that agents and managers act in the best interest of the principal. For example, reward to managers as a percentage of profit.

Agent

Someone who represents another. In corporate governance terminology, management is the agent of the principal stakeholders in a principal-agent relationship.

Aggregate Demand

The total demand of all potential buyers of a commodity or service. Includes all individuals and organizations that have the ability, willingness, and authority to purchase such products.

Agreement on Textiles and Clothing (ATC)

The Agreement on Textiles and Clothing (ATC) and all restrictions thereunder terminated on January 1, 2005. The expiry of the ten-year transition period of ATC implementation means that trade in textile and clothing products is no longer subject to quotas under a special regime outside normal WTO/GATT rules but is now governed by the general rules and disciplines embodied in the multilateral trading system.

Air Waybill

A nonnegotiable instrument of domestic and international air transport that functions as a bill of lading.

All-in-cost

The percentage cost of a financing alternative, including any bank fees or placement fees.

Allocation-of-Income Rules

In the U.S. tax code, these rules define how income and deductions are to be allocated between domestic-source and foreign-source income.

Allocational Efficiency

The efficiency with which a market channels capital toward its most productive uses.

Allowance

An amount paid or credited by sellers to the buyers on products due to one or more reasons that did not meet buyers' specifications such as late shipment and faulty packaging.

Alternative Tariff

A tariff that has two or more rates for the same product, trading to and from the same points, with the authority to use one that produces the lowest charge.

American Option

An option that can be exercised anytime until expiration (contrast with European option).

American Shares

Shares of a foreign corporation issued directly to U.S. investors through a transfer agent in accordance with SEC regulations.

American Terms

A foreign exchange quotation that states the U.S. dollar price per foreign currency unit (contrast with European terms).

Andean Community (CAN)

The Andean Community or Comunidad Andina de Naciones in Spanish (CAN) is made up of Bolivia, Colombia, Ecuador, Peru and Venezuela. It is a series of bodies and institutions that work to bring Andean subregional integration, promote external projection, and reinforce the actions connected with the process.

Andean Pact

A regional trade pact that includes Venezuela, Colombia, Ecuador, Peru, and Bolivia.

Annuity

A level stream of equal dollar payments that lasts for a fixed time. An example of an annuity is the coupon part of a bond with level annual payments.

Annuity Factor

The term used to calculate the present value of the stream of level payments for a fixed period.

Anti-dumping Laws

Laws that are enacted to prevent dumping - offering prices in the overseas market that is lower than that at which a product is sold in its home domestic market.

Appellate Body (AB)

The Appellate Body is a World Trade Organization (WTO) entity, which was established in 1995 under Article 7 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). Its purpose is to hear appeals and reports issued by panels in disputes between WTO members. It is composed of a standing body of 7 people and has the power to uphold, modify, or reverse the legal findings and conclusions of a panel. These rulings must be accepted by the parties of the dispute. The Appellate Body has its seat in Geneva, Switzerland.

Appreciation

An increase in a currency value relative to another currency in a floating exchange rate system.

Arab Maghreb Union (AMU)

A regional alliance seeking economic and political unity in Northern Africa. Members are Algeria, Libya, Mauritania, Morocco, and Tunisia.

Arbitrage

The process of purchasing and selling the identical products, such as foreign exchange, stocks, bonds and other commodities, in several markets intending to make profit from the difference in price. Arbitrage is generally seen as a "risk-less" transaction.

Arbitrage Pricing Theory (APT)

APT is a theory used in finance to find the prices of assets and is typically used in stock pricing.

Arbitrage Pricing Theory (APT)

An asset pricing model that assumes a linear relation between required return and systematic risk as measured by one or more factors according to Rj = mj + b1jF1 + ... + bKjFK + ej.

Asia-Pacific Economic Cooperation (APEC)

A forum designed to promote economic growth, cooperation, and integration among member nations. APEC has also worked to reduce tariffs and other trade barriers across the Asia-Pacific region. Its vision is based on the "Bogor Goals" adopted in the 1994 meeting in Bogor, Indonesia. There are 21 member economies including: Australia; Brunei Darussalam; Canada; Chile; People's Republic of China; Hong Kong, China; Indonesia; Japan; Republic of Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; The Republic of the Philippines; The Russian Federation; Singapore; Chinese Taipei; Thailand; United States of America; Viet Nam.

Asian Development Bank (ADB)

The Asian Development Bank (ADB) is a multilateral development financial institution owned by 67 members (48 from the region and 19 from other parts of the globe). Its goal is to improve the welfare of the people in Asia and the Pacific. ADB is headquartered in Manila, Philippines. It is one of four major development banks around the world.

Ask Rates

The rate at which a market maker is willing to sell the quoted asset. Also known as offer rates.

Asset Allocation Policy

The target weights given to various asset classes in an investment portfolio.

Assets In Place

Those assets in which the firm has already invested (Compare to growth options).

Association of Southeast Asian Nations (ASEAN)

An economic and geopolitical affiliation formed in 1967 that includes Singapore, Brunei Darussalam, Malaysia, Thailand, the Philippines, Indonesia, Myanmar (Burma), Laos, Cambodia, and Vietnam.

At-the-money Option

An option with an exercise price that is equal to the current value of the underlying asset.

Attachment

Legal seizure of a property or a person before the judgment is made, in order to secure compensation if awarded. The prosecutor can request the court to issue an order to seize a property.

Autarky

In models of international trade, a situation in which there is no cross-border trade.

Aval

A guarantee of the buyer's credit provided by the guarantor, unless the buyer is of unquestioned financial standing. The aval is an endorsement note as opposed to a guarantee agreement.

Avalisation

Payment undertaking given by a bank in respect of a bill of exchange drawn.

Average Accounting Return (AAR)

The average project earnings after taxes and depreciation divided by the average book value of the investment during its life.

Back Order

A customer order for materials, goods in process, or finished goods that is not currently in stock but is to be sold or delivered when it becomes available.

Backward Innovation

Building a more basic version of an existing product for a lesser-developed market.

Balance of Payments

The International Monetary Fund’s accounting system that tracks the flow of goods, services, and capital in and out of each country.

Balance of Trade

The difference between a country’s total imports and exports over a set period.

Balance Sheet

A statement showing a firm's accounting value on a particular date. It reflects the equation, Assets = Liabilities + Stockholders' equity.

Balanced Economy

In national finances, it is when exports are equal to imports.

Bank for International Settlements ((BIS))

An international organization, which promotes international monetary and financial cooperation among nations by fostering the cooperation of world central banks.

Bank Release

A document issued by a bank authorizing the delivery of goods.

Bank-based Corporate Governance System

A system of corporate governance in which the supervisory board is dominated by bankers and other corporate insiders.

Banker's Acceptance

A time draft drawn on and accepted by a commercial bank.

Banker's Draft

A payment instrument used to make international payments.

Bankruptcy

The status of an individual or a legal entity that does not have sufficient resources to pay for its debts as they become due.

Bargain Purchase Option

A lease provision allowing the lessee, to purchase the equipment for a price predetermined at lease inception, which is substantially lower than the expected fair market value at the date the option can be exercised.

Barter

Trade in which merchandise is exchanged directly for others without use of money or the involvement of a 3rd party.

Basel Convention

An international treaty concerned with restricting the movement of hazardous wastes between countries, especially from developed to underdeveloped countries.

Basic IRR Rule

Accept the project if the (Internal Rate of Return) IRR is greater than the discount rate; reject the project if IRR is less than the discount rate.

Basis

The simple difference between 2 nominal interest rates.

Basis Point

Equal to 1/100 of 1 percent.

Basis Risk

The risk of unexpected change in the relationship between futures and spot prices.

Basis Swap

A floating-for-floating interest rate swap that pairs two floating rate instruments at different maturities (such as 6-month LIBOR versus 30-day U.S. T-bills).

Bearer Bonds

Bonds that can be redeemed by the holder. The convention in most West European countries is to issue bonds in registered form (contrast with registered bonds).

Benchmarking

A systematic procedure of comparing a company’s practices against the best practice and modifying actual knowledge to achieve superior performance.

Beneficiary

A party who receives a legal benefit.

Beta

A measure of an asset’s sensitivity to changes in the market portfolio (in the Capital Asset Pricing Model) or to a factor (in the APT). The beta of an asset j is computed as bj = rj,k (sj/sk), where k represents a market factor (such as returns to the market portfolio in the CAPM).

Bid Bond

A type of bond which guarantees the fulfillment of an offer or bid if it is accepted.

Bid Rate

The rate at which a market maker is willing to buy the quoted asset.

Bid-offer Spread

The difference between the interest rate at which the bank borrows money and lends money.

Bilateral Investment Treaty (BIT)

A treaty between two countries to ensure that investments between the two countries receive the same treatment as domestic or other international investments.

Bilateral Trade Agreement

A commercial agreement between two countries, often detailing what specific quantities of what specific goods can be exchanged.

Bill of Lading (BOL)

A document that establishes the terms and conditions of a contract between a shipper and a shipping company under which freight is to be moved between specified points for a specified charge.

Blank Endorsement

The method whereby a bill of lading is made into a freely negotiable document of title.

Blanket Bond

A bond that coves a group of people, articles or properties.

Blanket Contracts

A long-term contract in which the supplier promises to re-supply the buyers as needed at agreed-upon prices over the contracting time.

Blanket Rate

A rate that is applied broadly over different articles or entities.

Blockade

The act of seizing commercial exchange with a particular country. Such act is common during wartime.

Blocked Funds

Cash flows generated by a foreign project that cannot be immediately repatriated to the parent firm because of capital flow restrictions imposed by the host government.

Bogor Goals

The Bogor Goals were created by the Asia Pacific Economic Cooperation (APEC) in Bogor, Indonesia in 1994, with the intention of increasing economic unity among Asian Pacific nations by increasing trade. The goals are to have free trade and investment in developed nations by 2010 and in developing nations by 2020.

Bond Equivalent Yield

A bond quotation convention based on a 365-day year and semiannual coupons (contrast with effective annual yield).

Bond of Indemnity

An agreement relieving the party to whom the bond is issued of responsibility in a situation in which the party would normally be liable.

Bonded Exchange

Foreign exchange that cannot be freely converted into other currencies.

Break-even Analysis

Analysis of the level of sales at which a project would make zero profit. The term can also be used for sales of financial instruments.

Bretton Woods Agreement

An agreement made near the end of World War II to promote exchange rate stability and facilitate the international flow of currencies.

Bretton Woods Conference

An international conference held in 1944 at Bretton Woods, New Hampshire. The conference established the International Monetary Fund and the World Bank.

Buffer Stock

Goods set aside and reserved for sale specifically to balance out the market in the case of a shortage of that good. In the case of a surplus, more off the good would be bought and set aside.

CAA

Clean Air Act (USA)

Call Option

The right to buy the underlying currency or security at a specified price and on a specified date from the option writer/seller.

Calvo Doctrine

A foreign policy doctrine that states that the country in which an investment is located has jurisdiction over that investment.

Cap

In banking and finance, when the interest on borrowed funds is tied to the market rate, an upper limit or a cap can be negotiated and agreed upon, so that even when the market rate is higher than the stated level, no premium will be paid.

Capital Account

A measure of change in cross-border ownership of long-term financial assets, including financial securities and real estate.

Capital Asset Pricing Model (CAPM)

An asset pricing model that relates the required return on an asset to its systematic risk.

Capital Budgeting

Planning and managing expenditures for long-lived assets.

Capital Formation

The process of increasing the amount of capital goods - also called capital stock - in a country.

Capital Gain

The positive change in the value of an asset, a negative capital gain is a capital loss.

Capital Goods

Manufactured goods that are used for production, such as machine tools.

Capital Market Line

The line between the risk-free asset and the market portfolio that represents the mean-variance efficient set of investment opportunities in the CAPM.

Capital Markets

Markets for financial assets and liabilities with maturity greater than one year, i.e. long-term loanable funds, including long-term government and corporate bonds, preferred stock, and common stock.

Capital Rationing

The case where funds are limited to a fixed dollar amount and must be allocated among the competing projects.

Capital Structure

The mix of the various debt and equity capital maintained by a firm. Also called financial structure. The composition of a corporation's securities used to finance its investment activities; the relative proportions of short-term debt, long-term debt, and owners' equity.

Capital Structure

The proportion of debt and equity and the particular forms of debt and equity chosen to finance the assets of the firm. Also known as financial structure.

Capitalism

An economic system that is based on private ownership; economic development is proportionate to and dependent upon the accumulation and reinvestment of profits.

Caribbean Community and Common Market (CARICOM)

CARICOM consists of Antigua & Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts & Nevis, St. Lucia, St. Vincent & The Grenadines, Suriname, and Trinidad & Tobago. Its purpose is to provide a continued economic linkage after the dissolution of the West Indies Federation for English-speaking countries in the Caribbean.

Carrier

An individual or entity that transports persons or goods for compensation under the contract of carriage.

Cartage

The delivery of goods with short distance.

Cartel

An agreement among, or an organization of, suppliers of a product to limit production in order to minimize competition and maximize market power.

Cash Against Documents (CAD)

Payment for goods where a commission house or other intermediary transfers title documents to the buyer upon payment in cash.

Cash Cover

In a letter of credit transaction, money deposited by the applicant with the issuing bank.

Cash Flow

Cash generated by the firm and paid to creditors and shareholders. It can be classified as (1) cash flow from operations, (2) cash flow from changes in fixed assets, and (3) cash flow from changes in net working capital.

Cash in Advance (CIA)

Payment for goods in which the price is paid in full before the shipment is made. This type of payment is usually only made for very small shipments or when goods are made to order.

Cash With Order (CWO)

Payment for goods in which the price is paid at the time the order is placed.

Central America Free Trade Agreement (CAFTA-DR)

CAFTA-DR is an extensive trade agreement between Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States.

Central Bank

The sole institution of a nation that has the authority to issue banknotes and set monetary and credit policies. It manages the rate of exchange of the nation's currency and determines the internal and external monetary stability of the currency.

Centrally Planned Economy

An economy in which the government, rather than free-market activity, controls the allocation of resources.

Certificate of Acceptance

Term used in leasing. A document whereby the lessee acknowledges that the equipment to be leased has been delivered, is acceptable, and has been manufactured or constructed according to specifications.

Certificate of Analysis/Certificate of Inspection

Documents that may be asked for by the importer and/or the authorities of the importing country, as evidence of quality or conformity to specifications.

Certificate of Manufacture

A statement that is usually notarized in which the producer of goods certifies that the goods have been produced and are now available to the buyer.

Certificate of Origin

Documents that may be asked for by the authorities of the importing country, as evidence of the country of manufacture of the goods.

Certificate of Product Origin

A document required by certain foreign countries for tariff purpose, certifying the country of origin of specified goods.

Change in Net Working Capital

Difference between net working capital from one period to another.

Characteristic Line

The line relating the expected return on a security to different returns on the market.

Chattel

An item of movable personal property

Chill a Sale

The collusion of buyers or bidders in a sale to check competition in order to obtain goods or properties below fair value.

Civil Law

A body of law created by the legislation of a state or nation, and based upon written statutes, for its own regulation.

Civil Society Organizations (CSOs)

Non-governmental and non-profit groups that work to improve society and the human condition.

Clean Bill of Lading

A receipt for goods issued by a carrier that indicates that the goods were received in apparently good order and without damage.

Clean Collection

Collection in which only the financial document is sent through the banks.

Clearance

The completion of customs entry requirements that results in the release of goods to the importer.

Clearing

The settlement of a transaction, often involving exchange of payments and/or documentation.

Clearing House Interbank Payments System (CHIPS )

Financial network through which banks in the United States conduct their financial transactions.

Closed-end Fund

A mutual fund in which the amount of funds under management is fixed and ownership in the funds is bought and sold in the market like a depository receipt.

Closed-end Transaction

A credit transaction in which the time for repayment and amount are fixed.

Codex

Codex Alimentarius Commission (a world food standards body)

Collar

An agreement that fixes the interest rate between a lower and upper boundary, regardless of the market rate.

Collecting Bank

The bank that acts as the agent of the seller to collect payment(s) from the buyer and then transfer the payment(s) to the remitting bank (seller's bank).

Collection Order

In a collection, the document in which the seller instructs the banks as to how the collection is to be conducted.

Collective Mark

A trademark or service mark for a cooperative, association or a collective group to indicate membership in this collective group.

Collectivist Society

A society in which people feel more comfortable thinking and acting in groups.

Collusion

An agreement (usually secret ) among mostly oligopolistic competing firms in an industry to control the market, raise the market price, and otherwise act like a monopoly.

Command Economy

An economy based on government ownership and/or control of society's resources; during the 20th century, the dominant form of command economy was communism.

Commercial Bank

A bank whose primary function is to accept demand deposits (which can be withdrawn upon depositories' demand), and grant short-term and long-term loans.

Commercial Credit

A letter of credit that assures the seller that buyer will pay for the goods being sold. Such letter is usually issued by a bank upon client's request.

Commercial Document

General term for documents describing various aspects of a transaction, e.g. commercial invoice, transport document, insurance document, certificate of origin, certificate of inspection, etc.

Commingling

Method of packing a shipment in which various goods subject to differing duties are grouped together. Because of this, the value of each type of item is difficult to determine.

Commodity Price Risk

The risk of unexpected changes in a commodity price, such as the price of oil.

Commodity Swap

A swap in which the (often notional) principal amount on at least one side of the swap is a commodity such as oil or gold.

Common Carrier

An organization that transports persons or goods for a fee.

Common Law

The body of law based on customs, usages, and court decisions rather than statutory laws.

Common Market

A common market is a group of countries that have common external tariffs against non-member nations. It may also allow labor mobility as well as common economic policies. For example, the European Union (EU).

Common Market for Eastern and Southern Africa (COMESA)

An organization of states that intends to promote the development of the resources of its members, COMESA forms a major trading block of 20 nations: Angola, Burundi, Comoros, D.R. Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe.

Common Market of the South

See MERCOSUR.

Commonwealth

An association of independent states that promotes cooperation, consultation, and mutual assistance among members. However, such association has no treaty or constitution. For example, the British Commonwealth.

Comparative Advantage

A comparative advantage exists when a nation or economic region is able to produce a product at a lower opportunity cost compared to another nation or region. The rule of economics that states that each country should specialize in producing those goods that it is able to produce relatively most efficiently.

Compensatory Trade

The sale of goods or services that is paid for by bartering other goods or services.

Complementary Imports

The imports of goods or services that the importing country does not possess or produce.

Compliant Documents

Documents presented under a letter of credit that comply with all its terms and conditions. The banks are only obliged to pay the beneficiary if documents are totally compliant.

Compound Interest

Interest that is earned both on the initial principal and on interest earned on the initial principal in previous periods. The interest earned in one period becomes in effect part of the principal in a following period.

Compound Rate

A rate that has both a specific rate as well as an ad valorem rate.

Compound Value

Value of a sum after investing it over more than one period. Also called future value.

Compounding

Process of reinvesting each interest payment to earn more interest. Compounding is based on the idea that interest itself becomes principal and therefore also earns interest in subsequent periods.

Confirming Bank

Bank that adds its payment undertaking to a letter of credit.

Consignee

Party to whom goods are to be delivered.

Consignment

Delivery of merchandise from an exporter (the consignor) to an agent (the consignee) under agreement that the consignee sells the merchandise of the account of the consignor, while the consignor retains title to the goods until the consignee sells them. The consignee sells merchandise for commissions and remits the net proceeds to the consignor.

Consignor

A consignor is an individual entity, partnership or a company that ships its goods to another party to be taken care of. A consignor is usually an exporter.

Consolidated Income

The sum of income across all of the multinational corporation’s domestic and foreign subsidiaries.

Consolidation

A form of corporate reorganization in which two firms pool their assets and liabilities to form a new company. The term can also be used for shipping, in which a freight consolidator combines shipments of cargo that are less than truckload (LTL) in order to reduce shipping rates.

Consular Statement

A document required by some foreign countries, describing a shipment of goods and showing information such as the consignor, consignee, and value of shipment. Certified by a consular official of the foreign country, it is used by the country's officials to verify the value, quantity, and nature of the shipment.

Consulate

The diplomatic building located in a foreign country that represents the commercial interests of the home country.

Consumer Goods

Goods produced for individuals rather than for manufacturing purposes.

Contango

The amount the buyer pays the seller to delay the transaction of a security, especially when the future price of the security is above the expected future spot price. The opposite is called backwardation.

Contingency Insurance

Contingency insurance protects the exporter in any situation in which exporter responsibility relied on the buyer to insure, but sustained a loss because of inadequate coverage from that source. It will cover situations in which the FOB endorsement would have otherwise served had that been in force.

Contingent claim

Claim whose value is directly dependent on, or is contingent on, the value of its underlying assets. For example, the debt and equity securities issued by a firm derive their value from the total value of the firm.

Continuous Compounding

Interest compounded continuously, every instant, rather than at fixed intervals.

Continuous Quotation System

A trading system in which buy and sell orders are matched with market makers as the orders arrive, ensuring liquidity in individual shares.

Contract Manufacturing

A firm allowing another firm to manufacture a pre-specified product.

Contribution Margin

Amount that each additional product, such as a jet engine, contributes to after-tax profit of the whole project: (Sales price - Variable cost) X (1 - T), where T is the corporate tax rate.

Controlled Foreign Corporation (CFC)

In the U.S. tax code, a foreign corporation owned more than 50 percent either in terms of market value or voting power.

Convention on the International Trade in Endangered Species (CITES)

CITES (the Convention on International Trade in Endangered Species of Wild Fauna and Flora) is an international agreement between governments. Its aim is to ensure that international trade in specimens of wild animals and plants does not threaten their survival.

Convertible Bonds

Bonds sold with a conversion feature that allows the holder to convert the bond into common stock on or prior to a conversion date and at a prespecified conversion price.

Convertible Currency

A currency that can be traded for other currencies at will.

Convex Tax Schedule

A tax schedule in which the effective tax rate is greater at high levels of taxable income than at low levels of taxable income. Such a schedule results in progressive taxation.

Cooperation Council for the Arab States of the Gulf (GCC)

The Cooperation Council for the Arab States of the Gulf (GCC) was established on May 25, 1981. It joined the 6 states of the United Arab Emirates, State of Bahrain, Kingdom of Saudi Arabia, Sultanate of Oman, State of Qatar and State of Kuwait. The framework's focus is on acheiving a state of unity in all fields among its member states. It also stresses a furthering of relations and cooperation among member states and provides a platform to address security and economic development chanllenges.

Copenhagen Criteria

The rules and regulations that all applicant countries to the European Union must meet, and to which all EU member nations must maintain.

Corporate Culture

The set of values, beliefs, relationships between individuals and functions that guide the decisions of a company to achieve its objectives.

Corporate Governance

The way in which major stakeholders exert control over the modern corporation.

Corporate Social Responsibility (CSR)

The responsibilities that corporations (including MNCs) have to workers and their families, to consumers, to investors, and to the natural environment.

Corporation

Form of business organization that is created as a distinct "legal person" composed of one or more actual individuals or legal entities. Primary advantages of a corporation include limited liability, ease of ownership, transfer, and perpetual succession.

Correlation

A measure of the covariability of two assets that is scaled for the standard deviations of the assets (rAB = sAB / sAsB such that -1 < rAB < +1).

Correspondent Bank

A bank that, in its own country, handles the business of a foreign bank.

Cost and Freight

A pricing term that indicates that the cost of the goods and freight charges are included in the quoted price.

Cost of Equity Capital

The required return on the company's common stock in capital markets. It is also called the equity holders' required rate of return because it is what equity holders can expect to obtain in the capital market. It is a cost from the firm's perspective.

Cottage Industry

An industry comprised of a labor force that produces goods for sale at home, often with their own equipment.

Counter Credit

Another name for back-to-back letter of credit.

Countertrade

The sale of goods or services that are paid for in whole or part by the transfer of goods or services from a foreign country.

Countervailing Duties

Duties levied on an imported good that has been unfairly subsidized by a foreign government. Imposing duties on the good is meant to raise the product's price to a "fair market value".

Country Risk

The political and financial risks of conducting business in a particular foreign country.

Coupon

The stated interest on a debt instrument.

Coupon Swap

A fixed-for-floating interest rate swap.

Courtage

A European term for brokerage fee.

Covariance

A measure of the covariability of two assets (sAB = sAsB rAB).

Cover Note

Insurance document evidencing that insurance cover for a consignment has been taken out, but not giving full details.

CPI

Corruption Perceptions Index (CPI):
A ranking of countries by level of corruption that is researched and published by Transparency International (TI), the world's leading non-governmental organization dedicated to fighting corruption.

Consumer Price Indexes (CPI):
A program that produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. It is 1 indication of inflation.

Credit Risk Insurance

Insurance that covers the risk of nonpayment for delivered goods.

Creeping Nationalization

The succession of small but important changes in a firm's condition or standing that bring it slowly under national control.

Cross-hedge

A futures hedge using a currency that is different from, but closely related to, the currency of the underlying exposure.

Culture

Collective mental paradigms that a society imparts to individuals in the form of behavior patterns, shared values, norms and institutions.

Cumulative Translation Adjustment (CTA)

An equity account under FAS #52 that accumulates gains or losses caused by translation accounting adjustments.

Currency Coupon Swap

A fixed-for-floating rate nonamortizing currency swap traded primarily through international commercial banks.

Currency Cross-hedge

A hedge of currency risk using a currency that is correlated with the currency in which the underlying exposure is denominated.

Currency of Reference

The currency that is being bought or sold. It is most convenient to place the currency of reference in the denominator of a foreign exchange quote.

Currency Option

A contract giving the option holder the right to buy or sell an underlying currency at a specified price and on a specified date. The option writer (seller) holds the obligation to fulfill the other side of the contract.

Currency Risk

The risk of unexpected changes in foreign currency exchange rates. Also known as foreign exchange risk.

Currency Swap

A contractual agreement to exchange a principal amount of two different currencies and, after a prearranged length of time, to give back the original principal. Interest payments in each currency are also typically swapped during the life of the agreement.

Current Account

A measure of a country’s international trade in goods and services.

Current Account Balance

A broad measure of import-export activity that includes services, travel and tourism, transportation, investment income and interest, gifts, and grants along with the trade balance on goods.

Current Rate Method

A translation accounting method, such as FAS #52 in the United States, that translates monetary and real assets and monetary liabilities at current exchange rates. FSA #52 places any imbalance into an equity account called the “cumulative translation adjustment.”

Customhouse Broker

A person or firm obtains the license from the treasury department of its Country when required, and help clients (importers) to enter and declare goods through customs.

Customs

The authorities designated to collect duties levied by a country on imports and exports.

Customs Union

A form of regional economic integration group that eliminates tariffs among member nations and establishes common external tariffs.

Dealing Desk

The desk at an international bank that trades spot and forward foreign exchange. Also known as trading desk.

Debt Capacity

The amount of debt that a firm chooses to borrow to support a project.

Debt-for-equity Swap

A swap agreement to exchange equity (debt) returns for debt (equity) returns over a prearranged length of time.

Debtor Nation

A nation that is owed less in foreign currency than it owes other nations.

Decision Trees

A graphical analysis of sequential decisions and the likely outcomes of those decisions.

Deferred Payment Credit

A type of letter of credit which provides for payment some time after presentation of the shipping documents by the exporter.

Del Credere Risk

Situation created when a sales agent sells on credit and there is a chance that the buyer either does not want to or does not have the money to pay.

Deliverable Instrument

The asset underlying a derivative security. For a currency option, the deliverable instrument is determined by the options exchange and is either spot currency or an equivalent value in futures contracts.

Delta-cross-hedge

A futures hedge that has both currency and maturity mismatches with the underlying exposure.

Delta-hedge

A futures hedge using a currency that matches the underlying exposure and a maturity date that is different from, but preferably close to, the maturity of the underlying exposure.

Demand Management

A business process with the intention to coordinate and influence all sources of demand for a firm’s products.

Department for International Development (DFID)

Department for International Development (UK)

Department of Commerce (DOC)

Department of Commerce (USA)

Depository Receipt

A derivative security issued by a foreign borrower through a domestic trustee representing ownership in the deposit of foreign shares held by the trustee.

Depreciation

1) The expense against earnings to write-off purchase price of an asset over its useful life. 2) A decrease in a currency value relative to another currency in a floating exchange rate system.

Derivative Security

A financial security whose price is derived from the price of another asset. The value of a derivative is determined by the fluctuations in the asset.

Devaluation

A decrease in a currency value relative to another currency in a fixed exchange rate system. The purpose of devaluation typically is to increase export and decrease import in order to correct a balance of payment deficit.

Developed Countries

The richer more industrialized countries in the world.

Developing Country

A country that is in the process of becoming industrialized. Average national income must be below $9,265 for a country to be classified as a developing country. A developing country typically lacks industrialization, infrastructure, high literacy rate and advanced living standards.

Difference Check

The difference in interest payments that is exchanged between two swap counterparties.

Digital Divide

The digital divide refers to the widening technological gap between the richer and the poorer countries of the world.

Direct Costs of Financial Distress

Costs of financial distress that are directly incurred during bankruptcy or liquidation proceedings.

Direct Exporting

Marketer takes direct responsibility for its products abroad by selling them directly to foreign customers or through local representatives in foreign markets.

Direct Financing Lease

A non-leveraged lease by a lessor in which the lease meets any of the definitional criteria of a capital lease, plus certain additional criteria.

Direct Product Profitability

Measuring the direct costs associated with handling a product from the warehouse until a customer buys from the retail store.

Direct Terms

The price of a unit of foreign currency in domestic currency terms, such as $.6548/DM for a U.S. resident (contrast with indirect quote).

Discount

If a bond is selling below its face value, it is said to sell at a discount.

Discounted Cash Flow

A valuation methodology that discounts expected future cash flows at a discount rate appropriate for the risk, currency, and maturity of the cash flows.

Discounted Payback

The length of time needed to recoup the present value of an investment; sometimes used when investing in locations with high country risk.

Discounted Payback Period Rule

An investment decision rule in which the cash flows are discounted at an interest rate and the payback rule is applied on these discounted cash flows.

Discounting

Calculating the present value of a future amount. The process is the opposite of compounding.

Discretionary Reserves

Balance sheet accounts that are used in some countries to temporarily store earnings from the current year or the recent past.

Discriminatory Pricing

The practice that selling a product or service at different prices that do not reflect a proportional difference in costs.

Dispatch

An amount paid by a vessel's operator to a charter if loading or unloading is completed in less time than stipulated in the charter party.

Dispute Settlement Body (DSB)

Dispute Settlement Body is a part of the World Trade Organization (WTO) that settles trade disputes between governments.

Dispute Settlement Panel (DSP)

The WTO's Dispute Selttement Body forms different Dispute Settlement Panels to resolve conflicting issues among its members.

Dispute Settlement Understanding (DSU)

The Dispute Settlement Understanding (DSU) of the World Trade Organization (WTO) was one of the key outcomes of the Uruguay Round of multilateral trade negotiations.

Distributor

A foreign agent who sells for a supplier directly and maintains an inventory of the supplier’s product.

Diversifiable Risk

A risk that specifically affects a single asset or a small group of assets. Also called unique or unsystematic risk.

Diversionary Dumping

The sale of foreign products at less than fair value to a 3rd country where the products are further processed and sold to another country.

Dock Receipt

A receipt issued by an ocean carrier to acknowledge receipt of a shipment at the carrier's dock or warehouse.

Dock Statement

A receipt issued by an ocean carrier to acknowledge the receipt of a shipment at the carrier's dock or warehouse facilities.

Domestic Bonds

Bonds issued and traded within the internal market of a single country and denominated in the currency of that country.

Domestic International Sales Corporation

In the U.S. tax code, a specialized sales corporation whose income is lumped into the same income basket as a foreign sales corporation.

Domestic Liquidity

The aggregate of money supply, quasi-money or savings and time deposits, and deposit substitutes.

Downstream Dumping

A type of dumping in which the primary producer first sells its product to another domestic producer at below fair value or cost. The second producer then furthur processes the product and exports it to another country at a lower than normal cost.

Draft

A means of payment whereby a drawer (the importer) instructs a drawee (either the importer or its commercial bank) to pay the payee (the exporter). Also known as trade bill or bill of exchange.

Dual Pricing

The practice of selling identical products in different markets for different prices.

Dumping

Selling merchandise in another country at a price below the price at which the same merchandise is sold in the home market or selling such merchandise below the costs incurred in production and shipment, that is, selling the product at less than fair value. Dumping is an illegal trade practice.

Dumping Margin

The difference between the fair value of a product and the amount for which it is available in the case of dumping.

Duty

A tax imposed on imports by the customs authority of a country.

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.

 

Face Value

The value of a bond that appears on its face. Also referred to as par value or principal.

Factor Model

A model that assumes a linear relation between an asset's expected return and one or more systematic risk factors.

Factoring

Sale of an accounts receivable balance to buyers (factors) that are willing and able to bear the costs and risks of credit and collections.

Fast Track Negotiating

Authority provided by the U.S. Congress to the Executive Branch to negotiate amendment-proof trade agreements.

Federal Trade Commision (FTC)

The FTC is an indepedent US government agency established in 1914 by Woodrow Wilson. Its main goals are consumer protection and prevention of trust formation.

Federal Trade Commission (FTC)

A U.S. agency, which ensures that consumers are protected in the marketplace against unfair methods of competitions.

Financial Contagion

The spread of a financial crisis from one country or region to other countries or regions.

Financial Engineering

The process of innovation by which new financial products are created.

Financial Innovation

The process of designing new financial products, such as exotic currency options and swaps.

Financial Market

The market for the exchange of credit and capital in an economy. It consists of the money market and the capital market.

Financial markets

Markets for financial assets and liabilities.

Financial Policy

The corporation’s choices regarding the debt-equity mix, currencies of denomination, maturity structure, method of financing investment projects, and hedging decisions with a goal of maximizing the value of the firm to some set of stakeholders.

Financial Price Risk

The risk of unexpected changes in a financial price, including currency (foreign exchange) risk, interest rate risk, and commodity price risk.

Financial Risk

Financial risk refers to unexpected events in a country’s financial, economic, or business life.

Financial Service Income

In the U.S. tax code, income derived from financial services such as banking, insurance, leasing, financial service management fees, and swap income.

Financial Strategy

The way in which the firm pursues its financial objectives.

Financial Structure

The proportion of debt and equity and the particular forms of debt and equity chosen to finance the assets of the firm. Also known as capital structure.

First-to-market Advantage

Also know as "first-mover advantage." The idea of first-mover advantage is that the initial occupant of a strategic position or niche (market segment) gains access to resources and capabilities that a follower cannot match.

Fixed Cost

A cost that is fixed in total for a given period of time and for given volume levels. It is not dependent on the amount of goods or services produced during the period.

Fixed Exchange Rate System

An exchange rate system in which governments stand ready to buy and sell currency at official exchange rates. Fluctuations of this currency are not possible.

Fixed Forward Contract

Currency is bought or sold at a given future date.

Flight of Capital

The movement of capital from one place to another in order to avoid loss or increase gain.

Floating Currency System

An exchange rate system under which a government is not obligated to declare that its currency is convertible into a fixed amount of another currency.

Floating Exchange Rate

An exchange rate system in which currency values are allowed to fluctuate according to supply and demand forces in the market without direct interference by government authorities.

Floor

In banking and finance, a floor can be negotiated and agreed upon when the interest rate is dependent on the market interest rate.

FOB Endorsement

Used with FOB (Free on Board), FAS, C&F, or CFR (but not CIF) quotations, FOB sales endorsement to an open marine policy can cover transit risk from the point of origin until title transfers. In these instances, the exporter relies on the importer to insure.

Food and Drug Administration (FDA)

A United States agency which has power to set standards for food, drugs, cosmetics, and devices. Before new drugs can be approved by the FDA and be released to the market, they must undergo extensive laboratory testing within the pharmaceutical company. The company must then file a formal and thorough application for approval with the FDA.

Force Majeure

The title of a standard clause in marine contracts exempting the parties for non-fulfillment of their obligations as a result of conditions beyond their control, such as Acts of God or war.

Foreign Aid

A grant of money, technical assistance, capital equipment, or other assistance typically extended by richer nations to poorer nations.

Foreign Base Company Income

In the U.S. tax code, a category of Subpart F income that includes foreign holding company income and foreign base company sales and service income.

Foreign Bonds

Bonds that are issued in a domestic market by a foreign borrower, denominated in domestic currency, marketed to domestic residents, and regulated by the domestic authorities.

Foreign Bottom

An ocean vessel built or registered in a foreign country.

Foreign Branch

A foreign affiliate that is legally a part of the parent firm. In the U.S. tax code, foreign branch income is taxed as it is earned in the foreign country.

Foreign Debt

Money owed by a nation to foreign investors, banks, or governments.

Foreign Direct Investment (FDI)

The act of building productive capacity directly in a foreign country.

Foreign Equity Requirements

Investment rules that limit foreign ownership to a minority holding in a company.

Foreign Exchange

Currency of another country, or a financial instrument that facilitates payment from one currency to another.

Foreign Exchange Broker

Brokers serving as matchmakers in the foreign exchange market that do not put their own money at risk.

Foreign Exchange Dealer

A financial institution making a market in foreign exchange.

Foreign Exchange Markets

Networks of commercial banks, investment banks, and other financial institutions that convert, buy, and sell currencies in the global economy.

Foreign Exchange Rate

The price of one nation's currency in terms of another nation's currency. The foreign exchange rate is specified as the amount of one currency that can be traded per unit of another.

Foreign Exchange Risk

The risk of unexpected changes in foreign currency exchange rates. Also known as currency risk.

Foreign Remittances

The transfer across national boundaries of any kind of funds.

Foreign Sales Corporation (FSC)

In the U.S. tax code, a specialized sales corporation whose income is lumped into the same income basket as that of a domestic international sales corporation.

Foreign Tax Credit (FTC)

In the U.S. tax code, a credit against domestic U.S. income taxes up to the amount of foreign taxes paid on foreign-source income.

Foreign Trade Zone

A physical area in which the government allows firms to delay or avoid paying tariffs on imports.

Foreign-source Income

Income earned from foreign operations.

Forfaiting

A form of factoring in which large, medium- to long-term receivables are sold to buyers (forfaiters) that are willing and able to bear the costs and risks of credit and collections.

Forward Contract

A commitment to exchange a specified amount of one currency for a specified amount of another currency on a specified future date.

Forward Discount

A currency whose nominal value in the forward market is lower than in the spot market (contrast with forward premium).

Forward Foreign Exchange

An agreement to purchase or sell a defined amount of forward currency in the future at a certain fixed rate.

Forward Market

A market for forward contracts in which trades are made for future delivery according to an agreed-upon delivery date, exchange rate, and amount.

Forward Parity

When the forward rate is an unbiased predictor of future spot exchange rates.

Forward Premium

A currency whose nominal value in the forward market is higher than in the spot market (contrast with forward discount).

Foul Bill of Lading

A receipt issued by a carrier to the exporter making use of its services which, to reduce the carrier's liability, notes that the goods were in some way damaged, short in quantity, or improperly packaged.

Franchise Agreement

An agreement in which a domestic company (the franchiser) licenses its trade name and/or business system to an independent company (the franchisee) in a foreign market.

Franchising

A parent company grants another independent entity the privilege to do business in a pre-specified manner, including manufacturing, selling products, marketing technology and other business approach.

Free Cash Flow

Cash flow after all positive-NPV projects have been exhausted in the firm’s main line of business.

Free Market

The type of market in which goods and services cross borders freely, unrestrained by tariffs or any other sort of barrier to trade.

Free On Board (FOB)

A trade term requiring the seller to deliver goods via a method of transportation designated by the buyer. The seller fulfills its obligations to deliver when the goods have passed through the seller's ownership and prepared for delivery to the buyer.

Free Port

An area such as a port city into which merchandise may legally be moved without payment of duties.

Free Trade Area of the Americas (FTAA)

A proposed hemispheric trade zone that would cover all of the countries in North, South, and Latin America. The FTAA is highly controversial.

Free Trade Zone

An area designated by the government to which goods may be imported for processing and subsequent export on duty-free basis. Merchandise may be stored, used or manufactured in the zone and reexported without duties being paid.

Freely Floating Exchange Rate System

An exchange rate system in which currency values are allowed to fluctuate according to supply and demand forces in the market without direct interference by government authorities.

Freight Forwarder

An independent business that handles export shipment on behalf of the shipper without vested interest in the products. A freight forwarder is a good source of information and assistance on export regulations and documentation, shipping methods, and foreign import regulations.

Freight Shippers

Also know as freight forwarders. Freight shippers are agents used to coordinate the logistics of transportation.

Frequency Distribution

The organization of data to show how often certain values or ranges of values occur.

Full Payout Lease

A lease in which the lessor recovers, through the lease payments, all costs incurred in the lease plus an acceptable rate of return, without any reliance upon the leased equipment's future residual value.

Fundamental Analysis

A method of predicting exchange rates using the relationships of exchange rates to fundamental economic variables such as GNP growth, money supply, and trade balances.

Future Value

Value of a sum after investing it over multiple periods. Also called compound value.

Futures Commission Merchant

A brokerage house that is authorized by a futures exchange to trade with retail clients.

Futures Contract

A commitment to exchange a specified amount of one currency for a specified amount of another currency at a specified time in the future. Futures contracts are periodically marked-to-market, so that changes in value are settled throughout the life of the contract. Exchange-traded currency futures are marked-to-market on a daily basis.

G-7

A formal organization of 7 highly industrialized democracies: Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.

G-8

The G-7 countries plus Russia.

General Agreement on Tariffs and Trade (GATT)

A post-World War II agreement designed to promote freer international trade among the nations of the world. The GATT was replaced by the World Trade Organization (WTO) in 1994.

Generalized Autoregressive Conditional Heteroskedasticity

A time series model in which returns at each instant of time are normally distributed but volatility is a function of recent history of the series.

Generalized System of Preferences (GSP)

A program of tariff preferences for designed to encourage the economic growth of certain developing countries. In accordance with the Generalized System of Preferences (GSP), developed countries let the manufactured and semi-manufactured goods of eligible developing countries enter with either no duty or a lower rate than is applied to other countries.

Generally Accepted Accounting Principles (GAAP)

A common set of accounting concepts, standards, and procedures by which financial statements are prepared.

Geocentric Multinational

A multinational in which the subsidiaries are neither satellites nor independent city states, but parts of a whole whose focus is on worldwide objectives as well as local objectives, each part making its unique contribution with its unique competence.

Global Bond

A bond that trades in the Eurobond market as well as in one or more national bond markets.

Global Economy

The international network of individuals, businesses, governments, and multilateral organizations which collectively make production and consumption decisions.

Global Quota

An import quota set by a nation which specifies the allowed quantity of a product from all countries.

Globalization

A global movement to increase the flow of goods, services, people, real capital, and money across national borders in order to create a more integrated and interdependent world economy.

Gold Exchange Standard

An exchange rate system used from 1925 to 1931 in which the United States and England were allowed to hold only gold reserves while other nations could hold gold, U.S. dollars, or pounds sterling as reserves.

Gold Standard

An exchange rate system used prior to 1914 in which gold was used to settle national trade balances. Also called the “classical gold standard.”

Goodwill

The accounting treatment of an intangible asset such as the takeover premium in a merger or acquisition.

Gradualism

A steady and calculated approach to transforming an economy from communism to capitalism.

Graduation

The point at which a developing country's eligibility for Generalized System of Preferences (GSP) is terminated for the reason of sufficient economic progression.

Gray-market Imports

Gray-market imports are parallel distribution of genuine goods by intermediaries other than authorized channel members.

Greenfield

A Greenfield Investment is the investment in a manufacturing plant, office, or other physical company-related structure or group of structures in an area where no previous facilities exist.

Greenmail

Buying shares on the open market in the hope that the target’s business partners will buy back the shares at inflated prices.

Gross Domestic Product (GDP)

A measure of the market value of goods and services produced by a nation. Unlike Gross National Product, GDP excludes profits made by domestic firms overseas, as well as the share of reinvested earning in domestic firms' foreign-based operations.

Gross National Income (GNI)

Previously known as Gross National Product, Gross National Income comprises the total value of goods and services produced within a country (i.e. its Gross Domestic Product), together with its income received from other countries (notably interest and dividends), less similar payments made to other countries. For example, if a British-owned company operating in another country sends some of their incomes (profits) back to UK, UK’s GNI is enhanced. Similarly, a British production unit of a US company sending profit to the US will affect the British GNI but will not reduce it since it is not included in the first place.

Gross National Product (GNP)

GNP is the total value of all final goods and services produced within a nation in a particular year, plus income earned by its citizens who are working abroad, minus income of non-residents located in that country. It is essentially the measurement of the value of all goods and services produced by a country's citizens regardless of their location. Its difference with Gross Domestic Product (GDP) is that GDP measures the total production within a country regardless of the citizenship of the producer.

Growing Perpetuity

A constant stream of cash flows without end that is expected to rise indefinitely. For example, cash flows to the landlord of an apartment building might be expected to rise a certain percentage each year.

Growth Options

The positive net present value opportunities in which the firm has not yet invested. The value of growth options reflects the time value of the firm’s current investment in real assets as well as the option value of the firm’s potential future investments.

Growth Stocks

Stocks with high price/book or price/earnings ratios. Historically, growth stocks have had lower average returns than value stocks (stocks with low price/book or PE ratios) in a variety of countries.

Guideline Lease

A lease written under criteria established by the IRS to determine the availability of tax benefits to the lessor.

Gulf Cooperation Council (GCC)

A council created in 1981 and composed of Saudi Arabia, Bahrain, Oman, Qatar, Kuwait, and the United Arab Emirates. It is a forum to coordinate and integrate economic policies between these six countries, which account for about 40% of oil in the international market.

Harmonized Tariff Schedule (HTS)

A method of classification used by many countries to determine tariffs on imports.

Heavily Indebted Poor Countries Initiative

The HIPC Initiative is a major international response to the burdensome external debt held by the world's poorest, most indebted countries. It originated in 1996 as a joint undertaking of the World Bank and the International Monetary Fund (IMF). Also known as the HIPC Initiative.

Hedge

A position or operation that offsets an underlying exposure. For example, a forward currency hedge uses a forward currency contract to offset the exposure of an underlying position in a foreign currency. Hedges reduce the total variability of the combined position.

Hedge Funds

Private investment partnerships with a general manager and a small number of limited partners.

Hedge Portfolio

The country-specific hedge portfolio in the International Asset Pricing Model serves as a store of value (like the risk-free asset in the CAPM) as well as a hedge against the currency risk of the market portfolio.

Hedge Quality

Measured by the r-square in a regression of spot rate changes on futures price changes.

Hedge Ratio

The ratio of derivatives contracts to the underlying risk exposure.

Hedging

Reducing the risk of a cash position by using the futures instruments to offset the price movement of the cash asset.

High-withholding-tax Interest Income

In the U.S. tax code, interest income that has been subject to a foreign gross withholding tax of five percent or more.

Historical Volatility

Volatility estimated from a historical time series.

Holding-period Return

The rate of return over a given period.

Home Asset Bias

The tendency of investors to overinvest in assets based in their own country.

Homogeneous Expectations

Idea that all individuals have the same beliefs concerning future investments, profits, and dividends.

Hyperinflation

An extremely high rate of inflation, often exceeding several hundred or several thousand percent, that causes a country's money to become practically worthless.

Hysteresis

The behavior of firms that fail to enter markets that appear attractive and, once invested, persist in operating at a loss. This behavior is characteristic of situations with high entry and exit costs along with high uncertainty.

Implicit Tax

Lower (higher) before-tax required returns on assets that are subject to lower (higher) tax rates.

Implied Volatility

The volatility that is implied by an option value given the other determinants of option value.

Import

Any resource, intermediate good, or final good or service that buyers in one country purchase from sellers in another country.

Import License

A document required and issued by some national government authorizing the importation of goods into their individual countries.

Import licenses

Licenses required by some countries to bring in a foreign-made good. In many cases, import licenses are also used by the issuing country to control the quantity of imported items.

In-the-money Option

An option that has value if exercised immediately.

Income Baskets

In the U.S. tax code, income is allocated to one of a number of separate income categories. Losses in one basket may not be used to offset gains in another basket.

Income Statement

Financial report that summarizes a firm's performance over a specified time period.

Incremental IRR

Internal Rate of Return (IRR) on the incremental investment from choosing a large project instead of a smaller project.

Indemnity Clause

A clause in which the one party indemnifies the other. In leasing, generally a clause whereby the lessee indemnifies the lessor from loss of tax benefits.

Independent Project

A project whose acceptance or rejection is independent of the acceptance or rejection of other projects.

Index Futures

A futures contract that allows investors to buy or sell an index (such as a foreign stock index) in the futures market.

Index Options

A call or put option contract on an index (such as a foreign stock market index).

Index Swap

A swap of a market index for some other asset (such as a stock-for-stock or debt-for-stock swap).

Indication Pricing Schedule

A schedule of rates for an interest rate or currency swap.

Indirect Costs of Financial Distress

Costs of financial distress that are indirectly incurred prior to formal bankruptcy or liquidation.

Indirect Customers

The end-users (e.g., consumers) of the products and services purchased from the wholesalers, retailers, and consignees - the direct customers of the seller.

Indirect Diversification Benefits

Diversification benefits provided by the multinational corporation that are not available to investors through their portfolio investment.

Indirect Exporting

Export products to foreign markets by using an intermediary, usually export trading company based in the exporter’s country.

Indirect Terms

The price of a unit of domestic currency in foreign currency terms such as DM1.5272/$ for a U.S. resident (contrast with direct terms).

Infant Industry Argument

The infant industry argument is a rationale for the “temporary protection” of a new industry or firm in order to help it become established domestically and later become competitive worldwide. These protections consist of tariff and non-tariff barriers to imports, preventing global competition from entering the market.

Inflation Rate

The general increase in the price level herein measured by the growth rate in the GNP Implicit Price Index or the general price deflator.

Informational Efficiency

Whether or not market prices reflect information and thus the true (or intrinsic) value of the underlying asset.

Integrated Financial Market

A market in which there are no barriers to financial flows and purchasing power parity holds across equivalent assets.

Intellectual Property

Material or communicable result in forms of discoveries, inventions, designs and literary and art works of scientific, humanistic, literary, and artistic endeavor. It includes, but is not limited to, works in the form of scientific discoveries and inventions, designs, patents, trademarks, books, monographs, papers, paintings, drawings and sculpture, performances, computer software, and lecture and conference presentations.

Intellectual Property Rights

Patents, copyrights, and proprietary technologies and processes that are the basis of the multinational corporation’s competitive advantage over local firms.

Inter-American Development Bank

A regional development bank designed to promote sustainable economic development in the Western Hemisphere. Its headquarters are located in Washington, D.C.

Interbank Spread

The difference between a bank’s offer and bid rates for deposits in the Eurocurrency market.

Interest Rate Risk

The risk of unexpected changes in an interest rate.

Interest Rate Swap

An agreement to exchange interest payments for a specific period of time on a given principal amount. The most common interest rate swap is a fixed-for-floating coupon swap. The notional principal is typically not exchanged.

Intermediated Market

A financial market in which a financial institution (usually a commercial bank) stands between borrowers and savers.

Intermodal

The use of two or more modes of transportation to complete a cargo move; truck/rail/ship, or truck/air, for example.

Internal Market

A market for financial securities denominated in the currency of a host country and placed within that country.

Internal Rate of Return (IRR)

A discount rate at which the net present value of an investment is zero. The IRR is a method of evaluating capital expenditure proposals.

International Accounting Standards Board (IASB)

The International Accounting Standards Board (IASB) is an independent, privately funded organization that sets international accounting standards. The IASB is committed to developing a single set of high quality, understandable and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements.

International Asset Pricing Model (IAPM)

The international version of the CAPM in which investors in each country share the same consumption basket and purchasing power parity holds.

International Bank for Reconstruction and Development

Also called the World Bank, an international organization created at Breton Woods in 1944 to help in the reconstruction and development of its member nations.

International Bonds

Bonds that are traded outside the country of the issuer. International bonds are either foreign bonds trading in a foreign national market or Eurobonds trading in the international market.

International Chamber of Commerce (ICC)

International non-governmental body concerned with promotion of trade and harmonization of trading practice. Responsible for drafting and publishing.

International Energy Agency (IEA)

The IEA is an autonomous agency linked with the Organization for Economic Cooperation and Development (OECD). It is the authoritative source for energy statistics worldwide and an energy policy advisor for 26 member countries. It was founded during the oil crisis of 1973-74 and was initially focused on coordinating efforts between member countries in times of oil supply emergencies. Since then it has expanded its role to encompass climate change policies, market reform, energy technology collaboration, and outreach to the rest of the world.

International Labour Organization (ILO)

The International Labour Organization is the UN specialized agency which seeks the promotion of social justice and internationally recognized human and labour rights. The ILO formulates international labour standards in the form of conventions and recommendations setting minimum standards of basic labour rights.

International Monetary Fund (IMF)

An international organization designed to promote global economic stability and development. It compiles statistics on cross-border transactions and publishes a monthly summary of each country’s balance of payments.

International Monetary System

The global network of governmental and commercial institutions within which currency exchange rates are determined.

International Organization for Standardization (ISO)

ISO is a worldwide federation of national standardization bodies of more than 140 countries. Established as a non-government organization in 1947, it develops international standards and publishes them. All branches other than electrical engineering standards are within the scope of ISO.

Intervention

The efforts undertaken by a country or its central bank to affect the price of the country’s currency on the exchange market. This can be done either through the government buying or selling large quantities of the currency to affect total supply, or by the central bank changing interest rates to affect the cash flow into the country.

Intrinsic Value of an Option

The value of an option if exercised immediately.

Investment Agreement

An agreement specifying the rights and responsibilities of a host government and a corporation in the structure and operation of an investment project

Investment Opportunity Set

The set of possible investments available to an individual or corporation.

Investment Philosophy

The investment approach (active or passive) pursued by an investment fund and its managers.

Invisible Barriers to Trade

Government regulations that do not directly restrict trade but have a hindering effect on through the use of excessive and obscure requirements on goods before they can be sold, especially imported goods. While known to local business people, foreign investors are not aware of these conditions, making them “invisible.” Labeling requirements or other sorts of measurement or sanitary standards would be an example of this.

Jeito

The way of somehow getting things done in Brazil; the jeito can help conquer seemingly insurmountable tasks (Portuguese).

Joint Venture

An agreement of two or more companies to pool their resources to execute a well-defined mission. Resource commitments, responsibilities, and earnings are shared according to a predetermined contractual formula.

Jurisdiction

The right of an authority to apply the law in a given territory.

Just-in-time (JIT)

An organization-wide practice that keeps the inventory to the minimum and provides customers the right goods or service at the right time.

Kanban System

A Japanese just-in-time inventory system that makes use of cards to signal the need for more raw materials or supplies.

Keiretsu

Collaborative groups of vertically and horizontally integrated firms with extensive share cross-holdings and with a major Japanese bank or corporation at the center.

Kyoto Protocol

A multilateral environmental agreement; its goal is to control global warming by reducing greenhouse gases emitted into the Earth's atmosphere.

Laissez-faire

A term associated with the free enterprise economic system which calls for minimal government intervention or regulation, except in maintenance of this economic freedom.

Landed Cost

The quoted or invoiced cost of a commodity, plus any inbound transportation charges.

Law of One Price

The principle that equivalent assets sell for the same price. The law of one price is enforced in the currency markets by financial market arbitrage. Also known as purchasing price parity (PPP).

LDCs

Least Developed Countries
The poorest of the developing countries. They are characterized by a low gross national product per capita, a reliance on subsistence agriculture, rapid population growth, inadequate infrastructure, a weak safety net of social programs, and a low quality of life.
Note: Many sources prefer LLDC to denote Least Developed Countries and LDC for Less Developed Countries.

Lesser Developed Countries
This is a form of categorization in economic growth for the countries that are just beginning to industrialize.

Lead Manager

The lead investment bank in a syndicate selling a public securities offering.

Leading and Lagging

Reduction of transaction exposure through timing of cash flows within the corporation.

Lease

A contract in which one party conveys the use of an asset to another party for a specific period of time at a predetermined rate.

Lease Rate

The periodic rental payment to a lessor for the use of assets. Others may define lease rate as the implicit interest rate in minimum lease payments.

Less than Truckload (LTL)

Refers to shipments of relatively small amounts of freight, typically between 100 and 10,000 pounds. It usually involves slower freight times than full truckload shipping.

Letter of Credit (L/C)

A letter issued by an importer’s bank guaranteeing payment upon presentation of specified trade documents (invoice, bill of lading, inspection and insurance certificates, etc.).

Letter of Intent

A document describing the preliminary understanding between parties intending to join together in some sort of action or engage in a contract.

Leveraged Lease

The lessor provides an equity portion (usually 20 to 40 percent) of the equipment cost and lenders provide the balance on a nonrecourse debt basis.

Liberalization

The process by which certain business activities become more market driven.

License Agreement

A sales agreement in which a domestic company (the licensor) allows a foreign company (the licensee) to market its products in a foreign country in return for royalties, fees, or other forms of compensation.

Licensing

One firm gives another firm a permission, which allows the latter to engage in an activity otherwise legally forbidden to it. Such activities usually involve the transfer of intellectual and proprietary knowledge in return for royalty as revenue.

Limited Flexibility Exchange Rate System

The International Monetary Fund’s name for an exchange rate system with a managed float.

Liquid Market

A market in which traders can buy or sell large quantities of an asset when they want and with low transactions costs.

Liquidity

The ease with which an asset can be exchanged for another asset of equal value.

Loanable funds

The pool of funds from which borrowers can attract capital; typically categorized by currency and maturity.

Location-specific advantages

Advantages (natural and created) that are available only or primarily in a single location.

Lombard Rate

The rate of interest changed by the Bundesbank, Germany’s central bank, to loans backed by moveable, easily-sold assets.

London Interbank Bid Rate (LIBID)

The bid rate that a Euromarket bank is willing to pay to attract a deposit from another Euromarket bank in London.

London Interbank Offer Rate (LIBOR)

The offer rate that a Euromarket bank demands in order to place a deposit at or make a loan to another Euromarket bank in London.

Long Position

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

Lump of Labor Fallacy

The fallacious argument which, working on the assumption that there is only a fixed amount of work in the world, says that an increasing population will inevitably lead to increasing unemployment. This argument is often used by governments as reasoning behind reducing the workweek to reduce unemployment.

Maastricht Treaty

The treaty, formally known as the Treaty on European Union, signed in 1992, that led to the unification of many European countries. The treaty changed the name of the European Community (EC) to the European Union (EU) and led to the creation of a monetary union with a European Central bank, political and military integration, common foreign policy, and common citizenship among member countries.

Macro Country Risks

Country (or political) risks that affect all foreign firms in a host country.

Management Contract

An agreement by which one firm allows another to manage its foreign activities on behalf of it. The managing firm is forbidden to make capital investment or financing decisions.

Managerial Flexibility

Flexibility in the timing and scale of investment provided by a real investment option.

Manifest

Document that lists in detail al the bills of lading issued by a carrier of its agent or master (i.e. a detailed summary of the total cargo of a vessel).

Maquiladoras

Duty-free assembly plants located mainly in the developing world. Maquiladoras are one type of foreign direct investment.

Margin Account

An account maintained by an investor with a brokerage firm in which securities may be purchased by borrowing a portion of the purchase price from the brokerage, or may be sold short by borrowing the securities from the brokerage firm.

Margin Requirement

A performance bond paid upon purchase of a futures contract that ensures the exchange clearinghouse against loss.

Market Access

The extent to which a domestic industry can penetrate a related market in a foreign country. Access can be limited by tariffs or other non-trade barriers.

Market Economy

An economy in which resource allocations, prices and other marketing decisions are primarily determined by the free market.

Market Failure

A failure of arms-length markets to efficiently complete the production of a good or service. In the eclectic paradigm, the multinational corporation’s market internalization advantages take advantage of market failure.

Market Internalization Advantages

Advantages that allow the multinational corporation to internalize or exploit the failure of an arms-length market to efficiently accomplish a task.

Market Maker

A financial institution that quotes bid (buy) and offer (sell) prices.

Market Model

Also known as the one-factor market model. The empirical version of the security market line: Rj = aj + bjRM + ej.

Market Portfolio

A portfolio of all assets weighted according to their market values.

Market Risk Premium

The risk premium on an average stock; (E[RM]-RF).

Market Timing

An investment strategy of shifting among asset classes in an attempt to anticipate which asset class(es) will appreciate or depreciate during the coming period.

Market-based Corporate Governance System

A system of corporate governance in which the supervisory board represents a dispersed set of largely equity shareholders.

Marketing Mix

The set of marketing tools that the firm uses to pursue its marketing objectives in the target market. One of the most popular classifications of marketing mix tools is called the

Marking to Market

The process by which changes in the value of futures contracts are settled daily.

Matchmaker Program

A service organized by the United States International Trade Administration, this program aids firms that are new to exporting or new to the market to meet prescreened business prospects in foreign markets who are interested in their products or services.

Maturity Date

The date on which the last payment on a bond is due.

Mean-variance Efficient

An asset that has higher mean return at a given level of risk (or lower risk at a given level of return) than other assets.

MERCOSUR

The “common market of the South,” a customs union which includes Argentina, Brazil, Paraguay, Uruguay, and Venezuela in a regional trade pact that reduces tariffs on intrapact trade by up to 90 percent. Bolivia, Chile, Colombia, Ecuador and Peru are associate members.

Merger

A form of corporate acquisition in which one firm absorbs another and the assets and liabilities of the two firms are combined.

Method of Payment

The way in which a merger or acquisition is financed.

Micro Country Risks

Country risks that are specific to an industry, company, or project within a host country.

Microcredit

Small loans, perhaps $50 or $100, that are extended to small businesses to finance a business start-up or other business activity.

Middle Market

A market segment generally represented by financing under $2 million. In leasing this sector is dominated by single investor leases.

Miller and Modigliani’s Irrelevance Proposition

If financial markets are perfect, then corporate financial policy (including hedging policy) is irrelevant.

Mixed Tariff

A combination of specific and ad valorem tariffs.

Monetary Assets and Liabilities

Assets and liabilities with contractual payoffs.

Money Market Hedge

A hedge that replicates a currency forward contract through the spot currency and Eurocurrency markets.

Money Market Yield

A bond quotation convention based on a 360-day year and semiannual coupons (contrast with bond equivalent yield).

Money Markets

Financial markets for debt securities that pay off in the short term (usually less than one year).

Money Supply

The total amount of currency in circulation and peso deposits subject to check of the monetary system.

Monopoly

Exclusive control or possession by one group of the means of producing or selling goods or services.

More Flexible Exchange Rate System

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

Most Favored Nation (MFN)

A status granted to one country by another; the granting country then accords the recipient's imports and exports the most favorable treatment that it accords any country.

Multilateral Environmntal Agreements (MEAs)

Environmental agreements negotiated by a number of countries.

Multilateral Investment Guarantee Agency (MIGA)

One of the five institutions comprising the World Bank Group; MIGA’s purpose is to help encourage equity investment and other kids of direct investment flow into developing countries.

Multinational Corporation (MNC)

A corporation with operations in more than one country.

Multinational Netting

Elimination of offsetting cash flows within the multinational corporation.

Mutually Exclusive Investment Decisions

Investment decisions in which the acceptance of a project precludes the acceptance of one or more alternative projects.

National Tax Policy

The way in which a nation chooses to allocate the burdens of tax collections across its residents.

National Treatment

A country accords no less favorable treatment to imported goods than it does to domestic goods.

Nationalization

A process whereby privately owned companies are brought under state ownership and control (contrast with privatization).

Natural Advantage

Theory in economics that certain countries have a competitive advantage in certain products due to their access to specific natural resources, their climactic conditions, or their transportation system.

Negative-NPV Tie-in Project

A negative net present value infrastructure development project that a local government requires of a company pursuing a positive-NPV investment project elsewhere in the economy.

Net Asset Value (NAV)

The sum of the individual asset values in a closed-end mutual fund. Closed-end funds can sell at substantial premiums or discounts to their net asset values.

Net Currency Exposure

Exposure to foreign exchange risk after netting all intracompany cash flows.

Net Exposed Assets

Exposed assets less exposed liabilities. The term is used with market values or, in translation accounting, with book values.

Net Monetary Assets

Monetary assets less monetary liabilities.

Net Position

A currency position after aggregating and canceling all offsetting transactions in each currency, maturity, and security.

Net Present Value (NPV)

The present value of future cash returns, discounted at the appropriate market interest rate, minus the present value of the cost of the investment.

Net Working Capital

Current assets minus current liabilities.

New Protectionism

Recent efforts to pressure national governments to exercise greater control over foreign trade and foreign direct investment.

New-to-export (NTE)

The name of the circumstances of a company that either engages in export activities for the first time, engages in exportation for first time in twenty-four months, or has only exported to because of prior unsolicited orders. Export assistance is available to companies with this classification.

New-to-market (NTM)

The name of the circumstances under which a company exports to a foreign market in which it has either never exported to, has not exported to for the past twenty-four months, or has only exported to because of prior unsolicited orders. Assistance is available to companies with this classification.

Newly Industrializing Countries (NIC)

A group of former LDC countries who, due to high levels of economic growth, have grown rapidly in recent years.

Nominal Cash Flow

A cash flow expressed in nominal terms if the actual dollars to be received (or paid out) are given.

Nominal Interest Rate

Interest rate unadjusted for inflation.

Non-governmental Organizations (NGOs)

Special interest groups that operate in the global community.

Non-market Economy

An economy in which the government, through the use of central planning, makes most economic decisions to control economic activity.

Non-tariff Barrier

An indirect measure used to discriminate against foreign manufacturers, for example, extensive inspection procedures for foreign imports that create barriers to entering the market.

Noncash Item

Expense against revenue that does not directly affect cash flow, such as depreciation and deferred taxes.

Nonintermediated Debt Market

A financial market in which borrowers (governments and large corporations) appeal directly to savers for debt capital through the securities markets without using a financial institution as intermediary.

Nonmonetary Assets and Liabilities

Assets and liabilities with noncontractual payoffs.

Nordic Council

A regional alliance established in 1952 between Norway, Sweden, Finland, Denmark, and Iceland that is dedicated to cooperation among the Nordic countries. This has led to a common labor market, social security, and free movement of citizens across borders.

Normal Distribution

Symmetric bell-shaped frequency distribution that can be defined by its mean and standard deviation.

Normal Trade Relations (NTR)

New name for Most Favored Nation (MFN) trading status, in which the country which grants this status accords the recipient's imports and exports the most favorable treatment that it accords any country.

North American Free Trade Agreement (NAFTA)

NAFTA is a regional trade pact among the United States, Canada, and Mexico.

North-south Trade

A name for trade between developed (northern) and less developed countries (southern).

Notional Principal

In a swap agreement, a principal amount that is only “notional” and is not exchanged.

Offer Rates

The rate at which a market maker is willing to sell the quoted asset. Also known as ask rates.

Offering Statement

In the United States, a shortened registration statement required by the Securities and Exchange Commission on debt issues with less than a 9-month maturity.

Official Settlements Balance

An overall measure of a country’s private financial and economic transactions with the rest of the world. Also known as overall balance.

Offshore Financial Centers (OFCs)

The many types of financial institutions that operate without financial supervision by governments or other agencies.

Oligopoly

A market dominated by so few sellers that action by any of them will impact both the price of the good and the competitors.

Open Account

The seller delivers the goods to the buyer and then bills the buyer according to the terms of trade.

Open and Reform Policy

An economic policy enacted by the Chinese government combining central planning with market-oriented reforms to increase productivity, living standards, and technological quality without exacerbating inflation, unemployment, and budget deficits, with the goal of moving from a centrally-planned economy to a market-based one.

Open-end Fund

A mutual fund in which the amount of money under management grows/shrinks as investors buy/sell the fund.

Operating Cash Flow

Earnings before interest and depreciation minus taxes. It measures the cash flow generated from operations, not counting capital spending or working capital requirements.

Operating Exposure

Changes in the value of real (nonmonetary) assets or operating cash flows as a result of changes in currency values.

Operating Leverage

The trade-off between fixed and variable costs in the operation of the firm.

Operational Efficiency

Market efficiency with respect to how large an influence transactions costs and other market frictions have on the operation of a market.

Opportunity Cost

Most valuable alternative that is given up. The rate of return used in NPV computation is an opportunity interest rate.

Opportunity Set

The set of all possible investments.

Orderly Marketing Agreements

Agreements between two or more governments to hold back the growth of trade for certain products by limiting exports and imposing import quotas.

Organization for Economic Cooperation and Development (OECD)

A group of 30 countries that meets regularly to discuss global issues and make appropriate economic and social policies.

Organization of American States (OAS)

A regional organization created in 1948 promoting the economic and social development of Latin America. Members include the U.S., Mexico, most of South and Central America, and most of the Caribbean nations.

Organization of Petroleum Exporting Countries (OPEC)

A producer cartel that produces and sells oil.

Out-of-the-money option

An option that has no value if exercised immediately.

Outright Quote

A quote in which all of the digits of the bid and offer prices are quoted (contrast with points quote).

Outsourcing

A situation in which a firm's functions are performed or provided by a person or group from outside the company.

Outward Swap

Purchasing foreign currency today and reselling it at a forward rate against the domestic currency.

Overall Balance

(See official settlements balance).

Overall FTC Limitation

In the U.S. tax code, a limitation on the FTC equal to foreign-source income times U.S. tax on worldwide income divided by worldwide income.

Overseas Private Investment Corporation (OPIC)

A US agency that assists US companies protect their investment against risk in a particular country besides providing other services.

Ownership-specific Advantages

Property rights or intangible assets, including patents, trademarks, organizational and marketing expertise, production technology and management, and general organizational abilities, that form the basis for the multinational’s advantage over local firms.

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.

Quantitive Restrictions (QR)

Restrictions on trade, generally in the form of quotas, that limit the quantity o a good or service that can be imported or exported. Another form of quantity restriction is a VER, or Voluntary Export Restraint.

Quid Pro Quo

The English translation is "a favor for a favor"

Quota

The quantity of goods of a specific kind that a country permits to be imported without restriction or imposition of additional duties.

R-square

The percent of the variation in a dependent variable (a y-variable) that is “explained by” variation in an independent variable (an x-variable). Also known as the coefficient of determination.

Random Walk

A process in which instantaneous changes in exchange rates are normally distributed with a zero mean and constant variance.

Re-invoicing Centers

An offshore financial affiliate that is used to channel funds to and from the multinational’s foreign operations.

Real Appreciation/Depreciation

A change in the purchasing power of a currency.

Real Cash Flow

A cash flow is expressed in real terms if the current, or date 0, purchasing power of the cash flow is given.

Real Exchange Rate

A measure of the nominal exchange rate that has been adjusted for inflation differentials since an arbitrarily defined base period.

Real Interest Rate

Interest rate expressed in terms of real goods; that is, the nominal interest rate minus the expected inflation rate.

Real Options

An option or option-like feature embedded in a real investment opportunity.

Realignment

The coordinated revaluation and devaluation of the currencies of several countries.

Reciprocal Marketing Agreement

A strategic alliance in which two companies agree to comarket each other’s products in their home market. Production rights may or may not be transferred.

Reconsignment

In shipping, it is the change in either the name of the consignee, the place of delivery, or relinquishment of the shipment by the carrier at the point of origin.

Recourse

The right to demand return of money paid. In negotiation of a letter of credit, payment by the negotiating bank will normally be with recourse.

Red Clause

A banking term which refers to a special clause in a letter of credit allowing the seller of goods to obtain an unsecured advance from the issuing bank to finance the manufacture or purchase of the goods.

Regional Development Banks (RDBs)

Banks that are owned and operated by member nations; they are designed to extend development loans and provide other assistance to member nations. The world's four regional development banks are the African Development Bank Group, the Asian Development Bank, the European Bank for Reconstruction and Development, and the Inter-American Development Bank.

Registered Bonds

Bonds for which each issuer maintains a record of the owners of its bonds. Countries requiring that bonds be issued in registered form include the United States and Japan (contrast with bearer bonds).

Registration Statement

In the United States, a statement filed with the Securities and Exchange Commission on securities issues that discloses relevant information to the public.

Remittance

The forwarding of funds from one party to another as payment for goods or services.

Repatriation

The act of remitting cash flows from a foreign affiliate to the parent firm.

Replevin

A legal action which entitles the rightful owner of property that has been wrongfully kept from him or her to recover it.

Rescind

To void or cancel a contract.

Reservation Price

The price below (above) which a seller (purchaser) is unwilling to go.

Residual Value

The value of an asset at the conclusion of a lease.

Restitution

In the case of a breach of contract, restitution is the restoration of the involved parties to their original positions prior to the contract.

Restrictive Endorsement

Endorsement transferring title or right to a named party.

Retention Ratio

Retained earnings divided by net income.

Return on Equity (ROE)

Net income after interest and taxes divided by average common stockholder's equity.

Revaluation

An increase in a currency value relative to other currencies in a fixed exchange rate system.

Right of Priority

In patent, industrial design and trademark laws, a priority right or right of priority is a time-limited right, triggered by the first filing of an application for a patent, an industrial design or a trademark respectively. The priority right belongs to the applicant or his successor in title and allows him to file a subsequent application for the same invention, design or trademark and benefit, for this subsequent application, from the date of filing of the first application for the examination of certain requirements.

Rights of Set-off

An agreement defining each party’s rights should one party default on its obligation. Rights of set-off were common in parallel loan arrangements.

Risk Averse

Seeking stability rather than risk.

Risk Premium

The excess return on the risky asset that is the difference between expected return on risky assets and the return of risk-free assets.

Risk Profile

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

Roll’s Critique

The CAPM holds by construction when performance is measured against a mean-variance efficient index. Otherwise, it holds not at all.

Royalty

Payment made for the use of a person or business’s property based on an agreed percentage of the income arising from its use.

Rule #1

Always keep track of your currency units.

Rule #2

Always think of buying and selling the currency in the denominator of a foreign exchange quote.

Rules of Origin

Rules used to determine in what country a good will be considered as actually made for tariff and other trade purposes.

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).

Tangibility

Tangible assets are real assets that can be used as collateral to secure debt.

Tare Weight

The weight of a container and packing materials that excludes the weight of the goods it contains.

Targeted Registered Offerings

Securities issues sold to “targeted” foreign financial institutions according to U.S. SEC guidelines. These foreign institutions then maintain a secondary market in the foreign market.

Tariff Anomaly

The state of having a tariff on raw materials or semi-processed products be higher than the tariff on the corresponding finished product.

Tariff Escalation

The situation which duties are low or non-existent for raw materials, moderate for semi-manufactured goods and relatively high for finished products.

Tariff-quota

A tariff that is set at a lower rate until a specified quantity (the quota) of goods has been imported, at which point the tariff increases for additional imports.

Tariffs

Taxes on imported goods and services, levied by governments to raise revenues and create barriers to trade.

Tax Arbitrage

Arbitrage using a difference in tax rates or tax systems as the basis for profit.

Tax Clienteles

Clienteles of investors with specific preferences for debt or equity that are driven by differences in investors’ personal tax rates.

Tax Haven

A country or region imposing low or no taxes on foreign source income.

Tax Haven Affiliate

A wholly owned affiliate that is in a low-tax jurisdiction and that is used to channel funds to and from the multinational’s foreign operations. The tax benefits of tax-haven affiliates were largely removed in the United States by the Tax Reform Act of 1986.

Tax Holiday

A reduced tax rate provided by a government as an inducement to foreign direct investment.

Tax Neutrality

Taxes that do not interfere with the natural flow of capital toward its most productive use.

Tax Preference Items

Items such as tax-loss carryforwards and carrybacks and investment tax credits that shield corporate taxable income from taxes.

Technical Analysis

Any method of forecasting future exchange rates based on the history of exchange rates.

Temporal Method

A translation accounting method (such as FAS #8 in the United States) that translates monetary assets and liabilities at current exchange rates and all other balance sheet accounts at historical exchange rates. Also known as monetary/nonmonetary method.

Territorial Tax System

A tax system that taxes domestic income but not foreign income. This tax regime is found in Hong Kong, France, Belgium, and the Netherlands.

The National Trade Data Bank (NTDB)

Is the U.S. Government's most comprehensive source of international trade data and export promotion information. Types of information on the NTDB include: international market research, export opportunities; indices of foreign and domestic companies; how-to market guides; reports on demographic, political, and socio-economic conditions for hundreds of countries; and much more.

Tied Loan

A loan issued by a government requiring the borrower to spend the funds in the lending country.

Time Draft

A draft that is payable on a specified future dare.

Time Value of an Option

The difference between the value of an option and the option’s intrinsic value.

Timing Option

The ability of the firm to postpone investment (or disinventment) and to reconsider the decision at a future date.

Total Cash Flow of the Firm

Total cash inflow minus total cash outflow.

Total Quality Management (TQM)

An organization-wide approach to continuously improving the overall quality of its process, products, and service.

Total Risk

The sum of systematic and unsystematic risk (measured by the standard deviation or variance of return).

Trade Acceptance

A time draft that is drawn on and accepted by an importer.

Trade Balance

A country’s net balance (exports minus imports) on merchandise trade.

Trade Barrier

A governmental policy, action, or practice that intentionally interrupts the free flow of goods or services between countries.

Trade Deficit

A trade deficit occurs when the value of a country's exports is less than the value of its imports.

Trade Surplus

A trade surplus occurs when the value of a country's exports is greater than the value of its imports.

Trade-in Allowance

Price discount granted for a new item by turning in an old item at the time of purchase.

Trademark

A registration process under which a name, logo, or characteristic can be identified as exclusive.

Tradeoffs

A kind of interaction involving the offsetting of high costs in one section with lower or diminished costs in another.

Trading Desk

The desk at an international bank that trades spot and forward foreign exchange. Also known as dealing desk.

Transaction Exposure

Changes in the value of contractual (monetary) cash flows as a result of changes in currency values.

Transaction Statement

A document that clearly outlines the terms and conditions agreed upon between an importer and an exporter.

Transfer Prices

Prices on intracompany sales

Transfer Pricing

The price one unit of a company charges to another unit of the same company for goods or services exchanged between the two.

Translation Exposure

Changes in a corporation’s financial statements as a result of changes in currency values. Also known as accounting exposure.

Transparency

The observed degree of clarity, openness, measurability, and verifiability in a law, regulation, agreement, or trade practice.

Treaty of Tordesillas

Treaty between Spain and Portugal that divided the South American continent (among other lands) between the two countries. Ratified in 1494, it originally gave Spain much more land than Portugal.

Trustee

A bank or trust company that holds title to or a security interest in leased property for the benefit of the lessee, lessor, and/or creditors of the lessor.

Turnkey Contract

An agreement in which a contractor is responsible for setting up a facility from start to finish for another firm.

Tying Arrangement

The condition imposed by a seller which obliges a buyer to agree to purchase an additional product (tied product) if they wish to purchase their desired product (tying product).

Umbrella Rate

In shipping, the umbrella rate is a rate system designed to protect less competitive carriers by setting artificially high minimum rates.

Unbiased Expectations Hypothesis

The hypothesis that forward exchange rates are unbiased predictors of future spot rates (see forward parity).

Uncertainty Avoidance

The extent to which a society tolerates uncertainty and ambiguity.

Unemployment Rate

The ratio of the total number of unemployed persons to the total number of persons in the labor force.

Union Economique et Monetaire Ouest Africaine (UEMOA)

UEMOA is composed of Bening, Burkina Faso, Cote d'Ivoire, Mali, Guinea-Bissau, Niger, Senegal, and Togo. Its purpose is to unite members through competition in an open market.

United Nations Conference on Trade and Development (UNCTAD)

UNCTAD was established in 1964 with the goal of promoting sustainable development while integrating developing countries into the world economy. It works to achieve this goal by acting as a forum for intergovernmental deliberations with an aim at consensus building; conducting research, policy analysis, and data collection; and by providing technical assistance tailored to the specific needs of different developing countries.

United Nations Industrial Development Organization (UNIDO)

UNIDO helps developing countries and countries with economies in transition in their fight against marginalization in today's globalized world. It mobilizes knowledge, skills, information, and technology to promote productive employment, a competitive economy, and a sound environment.

Unlevered Beta

The beta (or systematic risk) of a project as if it were financed with 100 percent equity. Also known as systematic business risk.

Unlevered Cost of Equity

The discount rate appropriate for an investment assuming it is financed with 100 percent equity.

Unsustainable Debt

A financial condition in which a country is unable to service its foreign (external) debt without decimating its economy.

Unsystematic Risk

Risk that is specific to a particular security or country and that can be eliminated through diversification.

Usury

The practice of charging or paying exorbitant interest on a loan or other transaction. Note: in Islamic societies, charging, or receiving any amount of interest is considered usury.

Value Chain

A value-added process in a firm to transform raw materials and other inputs to finished goods, which creates value to customers.

Value Date

Date on which a foreign exchange contract is executed, i.e. seller delivers.

Value Stocks

Stocks with low price/book ratios or price/earnings ratios. Historically, value stocks have enjoyed higher average returns than growth stocks (stocks with high price/book or PE ratios) in a variety of countries.

Value-added Reseller

A company that purchases products from a variety of sources to produce a new finished product for sale.

Value-added Tax (VAT)

A sales tax collected at each stage of production in proportion to the value added during that stage.

Variable Costs

A cost that varies directly with volume and is zero when production is zero.

Venture Capital

An investment in a start-up business that is perceived to have excellent growth prospects but that does not have access to capital markets.

Virtual Corporation

Partnerships so close those two partners become a single firm for all operational purposes.

Voluntary Export Restraint (VER)

One country promises another country to limit its imports; this is often done when the promising country fears increased tariffs or quotas if it does not self-regulate.

Warehouse Receipt

A receipt issued by a warehouse listing the goods received.

Warehouse-to-Warehouse

An insurance policy that covers goods over the entire journey from the seller's to the buyer's premises.

Warrant

An option issued by a company that allows the holder to purchase equity from the company at a predetermined price prior to an expiration date. Warrants are frequently attached to Eurobonds.

Weak Form Efficient Market

It is a market in which prices fully reflect the information in past prices.

Weight Note

A document issued by either the exporter or a third party declaring the weight of goods in a consignment.

Weighted Average Cost of Capital (WACC)

A discount rate that reflects the after-tax required returns on debt and equity capital.

West African Economic and Monetary Union (UEMOA)

A regional alliance of Francophone West African countries dedicated to promoting economic integration among the seven member countries. The country members are Benin, Burkina Faso, Cote d’Ivoire, Mali, Niger, Senegal, and Togo. They all share a common currency and have a central bank to oversee it.

Wharfage Charge

A charge assessed by a pier or dock owner for handling incoming or outgoing cargo.

Withholding Tax

A tax on dividend or interest income that is withheld for payment of taxes in a host country. Payment is typically withheld by the financial institution distributing the payment.

Without Reserve

In shipping this indicates that a shipper’s agent has the power to make important decisions abroad without the consent of those the agent represents.

Working Capital

An accounting term that indicates the difference between current assets and current liabilities.

World Bank

An international organization created at Breton Woods in 1944 to help in the reconstruction and development of its member nations. Its goal is to improve the quality of life for people in the poorer regions of the world by promoting sustainable economic development. See also International Bank for Reconstruction and Development.

World Customs Organization (WCO)

The WCO is an international organization whose function is the facilitation of trade between member states through the simplification and standardization of customs practices. The WCO was established in 1952 as the Customs Co-operation Council. This name was then changed in 1994 to the World Customs Organization. Today WCO provides regulations and standards to 169 Customs administrations worldwide.

World Intellectual Property Organization (WIPO)

The World Intellectual Property Organization (WIPO) is an international organization focused on the protection of intellectual property. WIPO administers 23 international treaties and is one of 16 specialized agencies of the Untied Nations. 183 nations are part of the WIPO and its headquarters is in Geneva, Switzerland.

World Trade Organization (WTO)

The WTO is a multilateral organization that promotes free and fair trade among the nations of the world. It was created in 1994 by 121 nations at the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). The WTO is responsible for implementation and administration of the trade agreement.

Worldwide Tax System

A tax system that taxes worldwide income as it is repatriated to the parent company. It is utilized in Japan, the United Kingdom, and the United States.

Writ

A judicial order to an officer of the law, such as a judge or a sheriff, to perform or have performed a specified act.

WTO Committee on Trade and Development (CTD)

The WTO Committee on Trade and Development is a forum for discussion on all multi-interest issues of special interest to developing countries.

Y2K Issues

The abbreviation used to refer to the Year 2000 computer problems resulting from the use of two-digit year inputs. Left uncorrected, computers would have recognized the input 00 to mean 1900 and not 2000.

Yield to Maturity

The discount rate that equates the present value of interest payments and redemption value with the present price of the bond.

Zaibatsu

Large family-owned conglomerates that controlled much of the economy of Japan prior to World War II. The four most historically significant zaibatsus, the Big Four, are Mitsubishi, Mitsui, Yasuda, and Sumitomo whose roots date back to the Japanese Edo period.

Zeitgeist

A German expression that can be interpreted to mean “the spirit of time.” It indicates the general intellectual state and outlook of an era or generation.