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AB	Appellate Body
Accounting (translation) exposure	Changes in a corporation’s financial statements as a result of changes in currency values.
ACP	African, Caribbean and Pacific countries
Acquisition of assets	In an acquisition of assets, one firm acquires the assets of another company. None of the liabilities supporting that asset are transferred to the purchaser.
Acquisition of stock	In an acquisition of stock, one firm buys an equity interest in another.
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 cost (ABC)	An accounting method that allocates costs to specific products based on breakdowns of cost drivers.
Ad valorem	According to value
ADB	Asia Development Bank, head quartered in Manila, Philippines.
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.
Adviory Capacity	Used to indicate that a shippers agent or reprentative is not empowered to make definitive changes or adjustments without approval of the group or individual represented.
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.
Agency costs	The costs of monitoring management and ensuring that it acts in the best interest of other stakeholders.
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 who have the ability, willingness, and authority to purchase such products.
Air waybill	A nonnegotiable instrument of domestic and international air transport which 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.
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 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.
APEC	Asia-Pacific Economic Cooperation
Appreciation	An increase in a currency value relative to another currency in a floating exchange rate system.
Arbitrage	The process of purchasing and selling foreign exchange, stocks, bonds and other commodities in several markets intending to make profit from the difference in price.
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 Pact (APEC)	A loose economic affiliation of Southeast Asian and Far Eastern nations. The most prominent members are China, Japan, and Korea.
Ask (offer) rates	The rate at which a market maker is willing to sell the quoted asset.
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)	A loose economic and geopolitical affiliation that includes Singapore, Brunei, Malaysia, Thailand, the Philippines, Indonesia, and Vietnam. Future members are likely to include Burma, Laos, and Cambodia.
At-the-money option	An option with an exercise price that is equal to the current value of the underlying asset.
ATC	Agreement on Textiles and Clothing
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.
Balance of payments	The International Money 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.
Balance sheet	A statement showing a firm's accounting value on a particular date. It reflects the equation, Assets = Liabilities + Stockholders' equity.
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 draft	A payment instrument used to make international payments.
Banker’s acceptance	A time draft drawn on and accepted by a commercial bank.
Bargain Purchase Option	A lease provision allowing the lessee, to purchase the equipment for a price predetermined at lease inception, that 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.
Basic IRR rule	Accept the project if IRR is greater than the discount rate; reject the project if IRR is less than the discount rate.
Basis	The simple difference between two nominal interest rates.
Basis point	Equal to 1/100 of one 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 six-month LIBOR versus thirty-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 CAPM) 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 Capital Asset Pricing Model).
Bid rate	The rate at which a market maker is willing to buy the quoted asset.
Bill of lading	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.
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.
Bond equivalent yield	A bond quotation convention based on a 365-day year and semiannual coupons. (Contrast with effective annual yield.)
Bonded warehouse	A warehouse authorized by customs authorities for storage of goods on which payment of duties is deferred until the goods are removed.
Bonded Warehouse	- a warehouse authorized for storage of good on which payment of duty is deferred until the goods are removed from the warehouse.
Break-even analysis	Analysis of the level of sales at which a project would make zero profit.
Bretton Woods	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, that established the International Monetary Fund and the World Bank.
CAA	Clean Air Act (USA)
Call option	The right to buy the underlying currency at a specified price and on a specified date.
Capital (financial) structure	The proportion of debt and equity and the particular forms of debt and equity chosen to finance the assets of the firm.
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 gain	The positive change in the value of an asset, a negative capital gain is a capital loss.
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, 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.
Carrier	An individual or entity that transports persons or goods for compensation under the contract of carriage.
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	Payment for goods prior to shipment.
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 in order.
Centrally planned economy	An economy in which the government, rather than free-market activity, controls the allocation of resources.
Certiciate of manufacture	: A statement which 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 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 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.
CHIPS (Clearing House Interbank Payments System)	Financial network through which banks in the United States conduct their financial transactions.
CITES	Convention on the International Trade in Endangered Species
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 which results in the release of goods to the importer.
Clearing	The settlement of a transaction, often involving exchange of payments and/or documentation.
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.
Codex	Codex Alimentarius Commission (a world food standards body)
Collection order	In a collection, the document in which the seller instructs the banks as to how the collection is to be conducted.
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.
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.
Comparative advantage	The rule of economics that states that each country should specialize in producing those goods that it is able to produce relatively most efficiently.
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 value	Value of a sum after investing it over one or more periods. 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.
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.
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.
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.
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.
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.
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.
Counter credit	Another name for back-to-back letter of credit.
Counter trade	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.
Countertrade	Exchange of goods or services without the use of cash.
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.
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.
Credit Risk Insurance	: Insurance that covers the risk of nonpayment for delivered goods.
Cross-hedge	A futures hedge using a currency that is different from, but closely related to, the currency of the underlying exposure.
CTD	WTO Committee on Trade and Development
Culture	A 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 (foreign exchange) risk	The risk of unexpected changes in foreign currency exchange rates.
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 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.”
Custom union	A form of regional economic integration group that eliminates tariffs among member nations and establishes common external tariffs.
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.
Dealing desk (trading desk)	The desk at an international bank that trades spot and forward foreign exchange.
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.
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.
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.
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	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.
Devaluation	A decrease in a currency value relative to another currency in a fixed exchange rate system.
Devaluation	The official lowering of the value of one country's currency in terms of one or more foreign currencies.
DFID	Department for International Development (UK)
Difference check	The difference in interest payments that is exchanged between two swap counterparties.
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.
Distributor	A foreign agent who sells for a supplier directly and maintains an inventory of the supplier’s product.
Diversifiable (unique) (unsystematic) risk	A risk that specifically affects a single asset or a small group of assets. Also called unique or unsystematic risk.
DOC	Department of Commerce (USA)
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.
Draft (trade bill, bill of exchange)	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).
DSB	Dispute Settlement Body
DSP	Dispute Settlement Panel
DSU	Dispute Settlement Understanding
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.
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.
Eclectic paradigm	A theory of the multinational firm that posits three types of advantage benefiting the multinational corporation: ownership-specific, location-specific, and market internalization advantages.
Economic exposure	Change in the value of a corporation’s assets or liabilities as a result of changes in currency values.
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 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.
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.)
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 quota that totally disallows the imports of a specific product or all products from a specific country.
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. Eurobonds: Fixed rate Eurocurrency deposits and loans and Eurocurrencies with longer maturities than five years.
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. EMU members are Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, 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).
Eurodollars	Dollar-denominated deposits held in a country other than the United States.
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 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)	Formerly the European Economic Community, a regional trade pact that includes Belgium, France, Germany, Italy, the Netherlands, Portugal, Spain, and the United Kingdom (England, Wales, Northern Ireland, and Scotland).
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 rate	The price of one currency in terms of another.
Exchange rate	The price of one currency in terms of another.
Exchange risk	The risk that losses may result from the changes in the relative values of different currencies.
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	An entry mode into international markets that relies on domestic production and shipments to foreign markets through sales agents or distributors, foreign sales branches, or foreign sales subsidiaries.
Export Administration Regulations (EAR)	It stands for Export Administrative Regulations which 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 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 management company	A foreign or domestic company that acts as a sales agent and distributor for domestic exporters in international markets.
Export Management Company	A private firm that transacts export business on behalf of its client companies in return for a commission, salary, or retainer.
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 concern 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.
FDA (Food and Drug Administration)	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.
Financial (capital) structure	The proportion of debt and equity and the particular forms of debt and equity chosen to finance the assets of the firm.
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 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.
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.
Fixed forward contract	Currency is bought or sold at a given future date.
FOB Endorsement	Used with FOB, 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.
Force Mjeure	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, war.
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 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 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 is a company.
Foreign exchange	Currency of another country, or a financial instrument that facilitates payment from one currency to another.
Foreign exchange (currency) risk	The risk of unexpected changes in foreign currency exchange rates.
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 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 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.)
Franchise agreement	An agreement in which a domestic company (the franchisor) 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 port	An area such as a port city into which merchandise may legally be moved without payment of duties.
Free trade zone	An area to which goods may be imported for processing and subsequent export on duty-free basis.
Free-trade zone	A port designated by the government of a country for duty-free entry on any non-prohibited good. 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 (freight forwarders)	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 one or more 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.
General Agreement on Tariffs and Trade (GATT)	A worldwide trade agreement designed to reduce tariffs, protect intellectual property, and set up a dispute resolution system. The agreement is overseen by the World Trade Organization (WTO).
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.
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.
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.
Gray-market imports	Gray-market imports are parallel distribution of genuine goods by intermediaries other than authorized channel members.
Greenfield	Form of investment in which the firm designs and builds a new factory from scratch, starting with nothing but a "greenfield." A "greenfield strategy" is a form of Foreign Direct Investment (FDI) that involves building new facilities.
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 U.S. firms overseas, as well as the share of reinvested earning in U.S. firms' foreign-based operations.
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-NPV 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.
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 5 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 inestments, profits, and dividends.
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 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	IRR on the incremental investment from choosing a large project instead of a smaller project.
Indeminity 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 which they have 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.)
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. In the text, individual items of intellectual property are referred to as works or properties.
Intellectual property rights	Patents, copyrights, and proprietary technologies and processes that are the basis of the multinational corporation’s competitive advantage over local firms.
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 that are 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 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	International non-governmental body concerned with promotion of trade and harmonisation of trading practice. Responsible for drafting and publishing:
International Monetary Fund (IMF)	An international organization that 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.
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.
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.
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.
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.
Landed cost	The quoted or invoiced cost of a commodity, plus any inbound transportation charges.
Law of one price (purchasing power parity)	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.
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-Developed Country (LDC)	A country whose annual per capita income is between $300 and $700. LDCs are formally recognized as such by the United Nations Conference on Trade and Development, which promotes the economic development of LDCs.
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.).
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.