A Collection of Financial Keywords and Phrases Abbreviations: CCCN: Customs Cooperation Council Nomenclature CPI: Consumer price index EC: European Communities ECU: European Currency Unit EEC: European Economic Community EU: European Union LDC: Least Developed Country FDI: Foreign Direct Investment FIR: Factor intensity reversal FTA: Free trade area GATT: General Agreement on Tariffs and Trade GDP: Gross domestic product GMO: Genetically modified organism ICA: International commodity agreement ITA: International Trade Administration ITC: International Trade Commission NAFTA: North American Free Trade Agreement NGO: Non-governmental organization NIC: Newly Industrializing Country NTB: Nontariff barrier MNC: Multinational Corporation MNE: Multinational Enterprise OECD: Organization for Economic Co-operation and Development SDR: Special Drawing Right TRIP: Trade-Related Intellectual Property Rights UNCTAD: United Nations Conference on Trade and Development VER: Voluntary export restraint WTO: World Trade Organization Abandonment value: The value of a project if the project's assets were sold externally; or alternatively, its opportunity value if the assets were employed elsewhere in the firm. ABC method of inventory control: Method that controls expensive inventory items more closely than less expensive items. Absolute advantage: The ability to produce a good at lower cost, in terms of labor, than another country. An absolute advantage exists when a nation or other economic region is able to produce a good or service more efficiently than a second nation or region. Absolute-priority rule: The rule in bankruptcy or reorganization that claims of a set of claim holders must be paid, or settled, in full before the next, junior, set of claim holders may be paid anything. Absorption and balance of trade: Total demand for goods and services by all residents (consumers, producers, and government) of a country (as opposed to total demand for that country's output). The balance of trade is equal to income minus absorption. Accelerated depreciation: Methods of depreciation that write off the cost of a capital asset faster than Page 1 of 147 under straight-line depreciation. Acceptance: A time draft that is accepted by the drawee. Accepting a draft means writing accepted across its face, followed by an authorized person’s signature and the date. The party accepting a draft incurs the obligation to pay it at maturity. Accession: The process of adding a country to an international agreement, such as the GATT (General Agreement on Tariffs and Trade), WTO (World Trade Organization), EU (European Communities), or NAFTA (North American Free Trade Agreement). Accommodating transaction: In the balance of payments, a transaction that is a result of actions taken officially to manage international payments; in contrast with autonomous transaction. Thus official reserve transactions are accommodating, as may be short-term capital flows that respond to expectations of intervention. Accounting (translation) exposure: Changes in a corporation’s financial statements as a result of changes in currency values. The change in the value of a firm’s foreign-currency-denominated accounts due to change in exchange rates. Accounts receivable: Amounts of money owed to a firm by customers who have bought goods or services on credit. A current asset, the accounts receivable account is also called receivables. Accrued expenses: Amounts owed but not yet paid for wages, taxes, interest, and dividends. The accrued expenses account is a short-term liability. Acid-test (quick) ratio: Current assets less inventories divided by current liabilities. It shows a firm's ability to meet current liabilities with its most liquid (quick) assets. 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 pre-acquisition value of the target firm. Act of State Doctrine: This doctrine says that a nation is sovereign within its own borders and its domestic actions may not be questioned in the courts of another nation. Active fund management: An investment approach that actively shifts funds either between asset classes (i.e. asset allocation) or between individual securities (i.e. security selection). Active income: In the U.S. tax code, income from an active business as opposed to passive investment income. Activity based cost (i.e. ABC) : An accounting method that allocates costs to specific products based on breakdowns of cost drivers. Activity ratios: Ratios that measure how effectively the firm is using its assets. Ad valorem tariff: A tariff assessed as a percentage of the value of an import. Additional paid-in capital: Funds received by a company in a sale of common stock that are in excess of the par or stated value of the stock. Adjustable peg: An exchange rate that is pegged, but for which it is understood that the par value will be changed occasionally. This system can be subject to extreme speculative attack and financial crisis, since speculators may easily anticipate these changes. Adjusted beta: An estimate of a security's future beta that involves modifying the security's historical (measured) beta owing to the assumption that the security's beta has a tendency to move over time toward the average beta for the market or the company's industry. Adjusted for inflation: Corrected for price changes to yield an equivalent in terms of goods and services. The adjustment divides nominal amounts for different years by price indices for those years -- e.g. the CPI (Consumer price index) or the implicit price deflator -- and multiplies by 100. This converts to real values, i.e. valued at the prices of the base year for the price index. Adjusted present value (APV): The sum of the discounted value of a project's operating cash flows Page 2 of 147 (assuming equity financing) plus the value of any tax-shield benefits of interest associated with the project's financing minus any flotation costs. It is a valuation method that separately identifies the value of an un-levered project from the value of financing side effects. It is the net present value of a project using the all-equity rate as a discount rate. The effects of financing are incorporated in separate terms. Administered price: A price for a good or service that is set and maintained by government, usually requiring accompanying restrictions on trade if the administered price differs from the world price. Administered protection: Protection, tariff or NTB (Nontariff barrier), resulting from the application of any one of several statutes that respond to specified market circumstances or events, usually as determined by an administrative agency. Several such statutes are permitted under the GATT (General Agreement on Tariffs and Trade), including anti-dumping duties, countervailing duties, and safeguards protection. Administrative agency: A unit of government charged with the administration of particular laws. In the United States, those most important for administering laws related to international trade are the ITC (International Trade Commission) and ITA (International Trade Administration). Administrative pricing rule: IRS rules used to allocate income on export sales to a foreign sales corporation. Advance deposit requirement: A requirement that some proportion of the value of imports, or of import duties, be deposited prior to payment, without competitive interest being paid. 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. Advance pricing agreement (APA): Procedure that allows the multinational firm, the IRS, and the foreign tax authority to work out, in advance, a method to calculate transfer prices. 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. Adverse Incentives: moral hazard. Adverse selection: The possibility that only the highest-risk customers will seek insurance. Adverse terms of trade: A terms of trade that is considered unfavorable relative to some benchmark or to past experience. Developing countries specialized in primary products are sometimes said to suffer from adverse or declining terms of trade. 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 Development Bank (AFDB): The AFDB makes or guarantees loans and provides technical assistance to member states for various development projects. Agency (theory): A branch of economics relating to the behavior of principals (such as owners) and their agents (such as managers). Agency costs: Costs that stem from conflicts between managers and stockholders and between stockholders and bondholders. The costs incurred to ensure that agents act in the best interest of the principal. Costs associated with monitoring management to ensure that it behaves in ways consistent with the firm's contractual agreements with creditors and shareholders. Agent: In Principal-Agent Theory, the person whose job it is to act to the benefit of someone else (the principal), but who may require some incentive to do so. Agent(s) are the Individual(s) authorized by another person, called the principal, to act in the latter's behalf. Agglomeration economy: Any benefit that accrues to economic agents as a result of having large numbers of other agents geographically close to them, thus tending to lead to agglomeration. This is a basic feature of the New Economic Geography. Aggregate demand: The total demand of all potential buyers of a commodity or service.