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 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 (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. It is the total demand for a country's output, including demands for consumption, investment, government purchases, and net exports.
Aggregate measurement of support: The measurement of subsidy to agriculture used by the WTO as the basis for commitments to reduce the subsidization of agricultural products. It includes the value of price supports and direct subsidies to specific products, as well as payments that are not product specific.
Aggregate supply: The total supply of a country's output, usually assumed to be an increasing function of its price level in the short run but independent of the price level in the long run.
Aggregation: The combining of two or more kinds of an economic entity into a single category. Data on international trade necessarily aggregate goods and services into manageable groups. For macroeconomic purposes, all goods and services are usually aggregated into just one.
Aging accounts receivable: The process of classifying accounts receivable by their age outstanding as of a given date.
Agricultural good: A good that is produced by agriculture. Contrasts with manufactured good.
Agriculture: Production that relies essentially on the growth and nurturing of plants and animals, especially for food, usually with land as an important input; farming. Contrasts with manufacturing.
All-Equity Rate: The discount rate that reflects only the business risks of a project and abstracts from the effects of financing. It is the beta associated with the un-leveraged cash flows of a project or company.
All-in Cost: The effective interest rate on a loan, calculated as the discount rate that equates the present value of the future interest and principal payments to the net proceeds received by the borrower; it is the internal rate of return on the loan. The percentage cost of a financing alternative, including any bank fees or placement fees.
Allocation: An assignment of economic resources to uses. Thus, in general equilibrium, an assignment of factors to industries producing goods and services, together with the assignment of resulting final goods and services to consumers, within a country or throughout the world economy. The question is to whether or not an allocation is efficient. A change from an allocation that is not efficient to one that is may be termed an increase in efficiency.
Allocational efficiency: The efficiency with which a market channels capital toward its most productive uses.
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.
Alternative minimum tax (AMT): An alternative, separate tax calculation based on the taxpayer's regular taxable income, increased by certain tax benefits, collectively referred to as tax preference items. The taxpayer pays the larger of the regularly determined tax or the AMT.
American Depository Receipt (ADR): A certificate of ownership issued by a U.S. bank as a convenience to investors in lieu of the underlying foreign corporate shares it holds in custody. Contrast with European option.
American option: An option that can be exercised anytime until expiration. It is an option that can be exercised at any time up to the expiration date.
American shares: Shares of a foreign corporation issued directly to U.S. investors through a transfer agent in accordance with SEC regulations. Securities certificates issued in the United States by a transfer agent acting on behalf of the foreign issuer. The certificates represent claims to foreign equities.
American terms: Method of quoting currencies; it is expressed as the number of U.S. dollars per unit of foreign currency. It is a foreign exchange quotation that states the U.S. dollar price per foreign currency unit. Contrast with European terms.
Amortization schedule: A table showing the repayment schedule of interest and principal necessary to pay off a loan by maturity.
Amortization: The deduction of an expense in installments over a period of time, rather than all at once.
Amplitude: The extent of the up and down movements of a fluctuating economic variable; that is, the difference between the highest and lowest values of the variable.
Annuity factor: The term used to calculate the present value of the stream of level payments for a fixed period.
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. It is a series of equal payments or receipts occurring over a specified number of periods. In an ordinary annuity, payments or receipts occur at the end of each period; in an annuity due, payments or receipts occur at the beginning of each period.
Anti-dumping duty: Tariff levied on dumped imports. The threat of an anti-dumping duty can deter imports, even when it has not been used, and anti-dumping is therefore a form of non-tariff barrier. Anti-dumping suit is a complaint by a domestic producer that imports are being dumped, and the resulting investigation and, if dumping and injury are found, anti-dumping duty.
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.
Apparel Clothing: The apparel sector is important for trade because, as a very labor intensive sector, it is a likely source of comparative advantage for developing countries.
Apparent consumption: Production plus imports minus exports, sometimes also adjusted for changes in inventories. The intention here is not to distinguish different uses for a good within the country, but only to infer the total that is used there for any purpose.
Applied tariff rate: The actual tariff rate in effect at a country's border.
Appreciation: An increase in a currency value relative to another currency in a floating exchange rate system. A rise in the value of a country's currency on the exchange market, relative either to a particular other currency or to a weighted average of other currencies. The currency is said to appreciate, i.e., revaluation. Opposite of depreciation.
Arab Fund for Economic and Social Development (AFESD): A multilateral Arab fund that actively searches for projects in Arab League countries and then assumes responsibility for project implementation.
Arbitrage pricing theory (APT): A theory where the price of an asset depends on multiple factors and arbitrage efficiency prevails.
Arbitrage: The purchase of securities or commodities on one market for immediate resale on another in order to profit from a price discrepancy. A combination of transactions designed to profit from an existing discrepancy among prices, exchange rates, and/or interest rates on different markets without risk of these changing. Simplest is simultaneous purchase and sale of the same thing in different markets, but more complex forms include triangular arbitrage and covered interest arbitrage. It is finding two assets that are essentially the same, buying the cheaper, and selling the more expensive. 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.
Arm’s-Length Price: Price at which a willing buyer and a willing unrelated seller would freely agree to transact (i.e., a market price).
Arrearage: A late or overdue payment, which may be cumulative.
Asiacurrency ( or Asiadollar) Market: Offshore financial market located in Singapore that channels investment dollars to a number of rapidly growing Southeast Asian countries and provides deposit facilities for those investors with excess funds.
Asian Development Bank (ADB): The ADB guarantees or makes direct loans to member sates and private ventures in Asian/Pacific nations and helps to develop local capital markets by underwriting securities issued by private enterprises.
Ask (i.e. offer) rates: The rate at which a market maker is willing to sell the quoted asset.
Ask: The price at which one can sell a currency. It is also known as the offer price.
Asset allocation policy: The target weights given to various asset classes in an investment portfolio.
Asset approach: It is for determination of the exchange rate that focuses on its role as the price of an asset. With high capital mobility, equilibrium requires that expected returns on comparable domestic and foreign assets be the same.
Asset securitization: The process of packaging a pool of assets and then selling interests in the pool in the form of asset-backed securities (ABS).
Asset: An item of property, such as land, capital, money, a share in ownership, or a claim on others for future payment, such as a bond or a bank deposit.
Asset-backed securities (ABS): Debt securities whose interest and principal payments are provided by the cash flows coming from a discrete pool of assets.
Assets-in-place: Those assets in which the firm has already invested. Compare to growth options.
Assigned (or stated) value: A nominal value assigned to a share of no-par common stock that is usually far below the actual issuing price.
Assignment problem: How to use macroeconomic policies to achieve both internal balance and external balance; specifically, with only monetary and fiscal policies available under fixed exchange rates, which instrument should be assigned to which goal? It is often the case that monetary policy should be assigned to external balance.
Asymmetric information: The failure of two parties to a transaction to have the same relevant information. Examples are buyers who know less about product quality than sellers, and lenders who know less about likely default than borrowers. Both are common in international markets.
Asymmetric shock: An exogenous change in macroeconomic conditions affecting differently the different parts of a country, or different countries of a region. Often it is mentioned as a source of difficulty for countries sharing a common currency, such as the Euro Zone.
At par: At equality. Two currencies are said to be at par if they are trading one-for-one. The significance is more psychological then economic, but the long decline of the Canadian dollar below par with the U.S. dollar, and the more recent decline of the euro from above to below par, also with the U.S. dollar, has been cause for concern.
Atlantic Development Group for Latin America (ADELA): An international private investment company dedicated to the socioeconomic development of Latin America. Its objective is to strengthen private enterprise by providing capital and entrepreneurial and technical services.
At-the-money option: An option with an exercise price that is equal to the current value of the underlying asset. An option whose exercise price is the same as the spot exchange rate.
Autarky price: Price in autarky; that is, the price of something within a country when it is not traded by that country. Relative autarky prices turn out to be the most theoretically robust (but empirically elusive) measures of comparative advantage.
Autarky: In models of international trade, a situation in which there is no cross-border trade. It is the situation of not engaging in international trade; self-sufficiency. Not to be confused with autarchy which in at least some dictionaries is a political term rather than an economic one, and means absolute rule or power?
Automated clearinghouse (ACH) electronic transfer: This is essentially an electronic version of the depository transfer check.
Automatic stabilizer: It is an institutional feature of an economy that dampens its macroeconomic fluctuations, e.g., an income tax, which acts like a tax increase in a boom and a tax cut in a recession.
Autonomous transaction: In the balance of payments, a transaction that is not itself a result of actions taken officially to manage international payments; in contrast with accommodating transaction.
Autonomous: Refers to an economic variable, magnitude, or entity that is caused independently of other variables that it may in turn influence; exogenous.
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.
Average cost: Total cost divided by output.
Average product: The average product of a factor in a firm or industry is its output divided by the amount of the factor employed.
Average tariff: An average of a country's tariff rates. This can be calculated in several ways, none of which are ideal for representing how protective the country's tariffs are. Most common is the trade-weighted average tariff, which under-represents prohibitive tariffs, since they get zero weight.

B2B exchange: Business-to-business Internet marketplace that matches supply and demand by real-time auction bidding.
Back-to-Back Loan: An intercompany loan, also known as a fronting loan or link financing that is channeled through a bank.
Backward bending: Refers to a curve that reverses direction, usually if, after moving out away from an origin or axis, it then turns back toward it. The term is used most frequently to describe supply curves for which the quantity supplied declines as price rises above some point, as may happen in a labor supply curve, the supply curve for foreign exchange, or an offer curve.
Backward innovation: Building a more basic version of an existing product for a lesser-developed market.
Backward integration: Acquisition by a firm of its suppliers.
Backward linkage: The use by one firm or industry of produced inputs from another firm or industry.
Baker Plan: A plan by U.S. Treasury Secretary James Baker under which 15 principal middle-income debtor countries (the Baker countries) would undertake growth-oriented structural reforms, to be supported by increased financing from the World Bank and continued lending from commercial banks.
Balance of merchandise trade: The value of a country's merchandise exports minus the value of its merchandise imports.
Balance of payments adjustment mechanism: Any process, especially any automatic one, by which a country with a payments imbalance moves toward balance of payments equilibrium. Under the gold standard, this was the specie flow mechanism.
Balance of payments argument for protection: A common reason for restricting imports, especially under fixed exchange rates, when a country is losing international reserves due to a trade deficit. It can be argued that this is a second best argument, since a devaluation could solve the problem without distorting the economy and therefore at smaller economic cost.
Balance of payments deficit: A negative balance of payments surplus.
Balance of payments equilibrium: Meaningful only under a pegged exchange rate, this referred to equality of credits and debits in the balance of payments using the traditional definition of the capital account. A surplus or deficit implied changing official reserves, so that something would ultimately have to change.
Balance of payments surplus: A number summarizing the state of a country's international transactions, usually equal to the balance on current account plus the balance on capital account. This equals zero* and is uninformative under the modern definition of the latter, but with official reserve transactions excluded, or omitting also other volatile short-term capital-account transactions, it indicates the stress on a regime of pegged exchange rates.
Balance of payments: Net value of all economic transactions-including trade in goods and services, transfer payments, loans, and investments-between residents of the same country and those of all other countries. The International Money Fund’s accounting system that tracks the flow of goods, services, and capital in and out of each country. It is a list or accounting, of all of a country's international transactions for a given time period, usually one year. Payments into the country (receipts) are entered as positive numbers, called credits; payments out of the country (payments) are entered as negative numbers called debits. A single number summarizing all of a country's international transactions: the balance of payments surplus.
Balance of trade: The difference between a country’s total imports and exports. It is the net flows of goods (exports minus imports) between countries. It is the value of a country's exports minus the value of its imports. Unless specified as the balance of merchandise trade, it normally incorporates trade in services, including earnings (interest, dividends, etc.) on capital.
Balance on capital account: A country's receipts minus payments for capital account transactions.
Balance on current account: A country's receipts minus payments for current account transactions. It equals the balance of trade plus net inflows of transfer payments.
Balance sheet: A statement showing a firm's accounting value on a particular date. It reflects the equation, Assets = Liabilities + Stockholders' equity. It is a summary of a firm's financial position on a given date that shows total assets = total liabilities - owners' equity.
Balanced budget:
1. A government budget surplus that is zero, thus with net tax revenue equaling expenditure.
2. A balanced budget change in policy or behavior is one in which a component of the government budget, usually taxes, is adjusted as necessary to maintain a balanced budget.
Balanced growth: Growth of an economy in which all aspects of it, especially factors of production, grow at the same rate.
Balanced trade:
1. A balance of trade equal to zero. 2. The assumption that the balance of trade must be zero in equilibrium, as would be the case with a floating exchange rate and no capital flows. This is a standard assumption in real models of international trade, which exclude financial assets.
Balance-Sheet exposure: Accounting exposure.
Balassa-Samuelson Effect: The hypothesis that an increase in the productivity of tradable relative to non-tradable, if larger than in other countries, will cause an appreciation of the real exchange rate.
Baldwin envelope: The consumption possibility frontier for a large country, constructed as the envelope formed by moving the foreign offer curve along the country's transformation curve.
Balloon payment: A payment on debt that is much larger than other payments. The ultimate balloon payment is the entire principal at maturity.
Bank capital: The equity capital and other reserves available to protect bank depositors against credit losses.
Bank draft: A draft addressed to a bank. A payment instrument used to make international payments.
Bank for International Settlements (BIS): Organization headquartered in Basle that acts as the central bank for the industrial countries’ central banks. The BIS helps central banks manage and invest their foreign exchange reserves and also holds deposits of central banks so that reserves are readily available. It is an international organization that acts as a bank for central banks, fostering cooperation among them and with other agencies.
Bank loan swap: Debt swap.
Bank rate: The interest rate charged by a central bank to commercial banks for very short term loans; the discount rate.
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: Draft accepted by a bank. It a time draft drawn on and accepted by a commercial bank. Short-term promissory trade notes for which a bank (by having accepted them) promises to pay the holder the face amount at maturity.
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.
Barrier Option: knockout option.
Barrier:
1. Any impediment to the international movement of goods, services, capital, or other factors of production. Most commonly a trade barrier.
2. An entry barrier.
Barter economy: An economic model of international trade in which goods are exchanged for goods without the existence of money. Most theoretical trade models take this form in order to abstract from macroeconomic and monetary considerations.
Barter: The exchange of goods for goods, without using money.
Base year: The year used as the basis for comparison by a price index such as the CPI. The index for any year is the average of prices for that year compared to the base year; e.g., 110 means that prices are 10% higher than in the base year. The base year is also the year whose prices are used to value something in real terms or after adjusting for inflation.
Basic balance: One of the more frequently used measures of the balance of payments surplus or deficit under pegged exchange rates, the basic balance was equal to the current account balance plus the balance of long-term capital flows.
Basis point: One hundred basis points equal one percent of interest.
Basis risk: The risk of unexpected change in the relationship between futures and spot prices.
Basis swap: Swap in which two parties exchange floating interest payments based on different reference rates. It is 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.
Basis: The simple difference between two nominal interest rates.
Bear spread: A currency spread designed to bet on a currency’s decline. It involves buying a put at one strike price and selling another put at a lower strike price.
Bearer Securities: Securities that are unregistered.
Beggar thy neighbor: For a country to use a policy for its own benefit that harms other countries. Examples are optimal tariffs and, in a recession, tariffs and/or devaluation to create employment.
Beggar-Thy-Neighbor Devaluation: A devaluation that is designed to cheapen a nation’s currency and thereby increase its exports at others’ expense and reduce imports. Such devaluations often led to trade wars.
Benchmarking: A systematic procedure of comparing a company’s practices against the best practice and modifying actual knowledge to achieve superior performance.
Bertrand competition: The assumption, assumed to be made by firms in an oligopoly, that other firms hold their prices constant as they themselves change behavior. It contrasts with Cournot competition. Both are used in models of international oligopoly, but Cournot competition is used more often.
Best efforts offering: A security offering in which the investment bankers agree to use only their best efforts to sell the issuer's securities. The investment bankers do not commit to purchase any unsold securities.
Beta: A measure of the systematic risk faced by an asset or project. Beta is calculated as the covariance between returns on the asset and returns on the market portfolio divided by the variance of returns on the market portfolio. It is an index of systematic risk. It measures the sensitivity of a stock's returns to changes in returns on the market portfolio. The beta of a portfolio is simply a weighted average of the individual stock betas in the portfolio.
Bias:
1. Bias of technology, either change or difference, refers to a shift towards or away from use of a factor. The exact meaning depends on the definition of neutral used to define absence of bias. Factor bias matters for the effects of technological progress on trade and welfare.
2. Bias of a trade regime refers to whether the structure of protection favors importable or exportable, based on comparing their effective rates of protection. If these are equal, the trade regime is said to be neutral.
3. Bias of growth refers to economic growth through factor accumulation and/or technological progress and whether if favors one sector or another. Growth is said to be export biased if the export sector expands faster than the rest of the economy, import biased if the import-competing sector does so.
Bicycle Theory: With regard to the process of multilateral trade liberalization, the theory that if it ceases to move forward (i.e., achieve further liberalization), then it will collapse (i.e., past liberalization will be reversed).
Bid rate: The rate at which a market maker is willing to buy the quoted asset.
Bid: The price at which one can buy a currency.
Bid-ask spread: The difference between the buying and selling rates. It is the difference between the price that a buyer must pay on a market and the price that a seller will receive for the same thing. The difference covers the cost of, and provides profit for, the broker or other intermediary, such as a bank on the foreign exchange market.
Bid-offer spread: The difference between the interest rate at which the bank borrows money and lends money.
Bilateral agreement: An agreement between two countries, as opposed to a multilateral agreement.
Bilateral exchange rate: The exchange rate between two countries' currencies, defined as the number of units of either currency needed to purchase one unit of the other.
Bilateral quota: An import (or export) quota applied to trade with a single trading partner, specifying the amount of a good that can be imported from (exported to) that single country only.
Bilateral trade: The trade between two countries; that is, the value or quantity of one country's exports to the other, or the sum of exports and imports between them.
Bilateral transfer: A transfer payment from one country to another.
Bilateral: Between two countries, in contrast to ploy-lateral and multilateral.
Bill of exchange: Any document demanding payment such as a bank draft.
Bill of lading: The receipt given by a transportation company to an exporter when the former accepts goods for transport. It includes the contract specifying what transport service will be provided and the limits of liability. A contract between a carrier and an exporter in which the former agrees to carry the latter’s goods from port of shipment to port of destination. It is also the exporter’s receipt for the goods. 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. It is a shipping document indicating the details of the shipment and delivery of goods and their ownership.
Black market: An illegal market, in which something is bought and sold outside of official government-sanctioned channels. Black markets tend to arise when a government tries to fix a price without itself providing all of the necessary supply or demand. Black markets in foreign exchange almost always exist when there are exchange controls.
Black Market: An illegal market that often arises when price controls or official rationing lead to shortages of goods, services, or assets.
Black-Scholes Option Pricing Model: The most widely used model for pricing options.
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 Currency: A currency that is not freely convertible to other currencies due to exchange controls.
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.
Blue sky laws: State laws regulating the offering and sale of securities.
Bond discount: The amount by which the face value of a bond exceeds its current price.
Bond equivalent yield: A bond quotation convention based on a 365-day year and semiannual coupons. Contrast with effective annual yield.
Bond premium: The amount by which the current price of a bond exceeds its face value.
Bond: A long-term debt instrument issued by a corporation or government. A debt instrument, issued by a borrower and promising a specified stream of payments to the purchaser, usually regular interest payments plus a final repayment of principal. Bonds are exchanged on open markets including, in the absence of capital controls, internationally, providing a mechanism for international capital mobility.
Bonded Warehouse: A warehouse authorized for storage of good on which payment of duty is deferred until the goods are removed from the warehouse. A warehouse authorized by customs authorities for storage of goods on which payment of duties is deferred until the goods are removed.
Book value:
(1) An asset: the accounting value of an asset – the asset's cost minus its accumulated depreciation.
(2) a firm: total assets minus liabilities and preferred stock as listed on the balance sheet.
Boom-bust cycle: A pattern of performance over time in an economy or an industry that alternates between extremes of rapid growth and extremes of slow growth or decline, as opposed to sustained steady growth. For an economy, this indicates an extreme form of the business cycle.
Border price: The price of a good at a country's border.
Border tax adjustment: Rebate of indirect taxes (taxes on other than direct income, such as a sales tax or VAT) on exported goods and levying of them on imported goods. May distort trade when tax rates differ or when adjustment does not match the tax paid.
Borderless world: The concept that national borders no longer matter, perhaps for some specified purpose.
Borrowing: The amount that an entity, usually a country or its government, has borrowed. Thus it is often the (negative of) the net foreign asset position or the national debt.
Boycott: To protest by refusing to purchase from someone, or otherwise do business with them. In international trade, a boycott most often takes the form of refusal to import a country's goods.
BP-Curve: In the Mundell-Fleming model, the curve representing balance of payments equilibrium. It is normally upward sloping because an increase in income increases imports while an increase in the interest rate increases capital inflows. The curve is used under pegged exchange rates for effects on the balance of payments and under floating rates for effects on the exchange rate.
Brady Bonds: New government securities issued under the Brady Plan whose interest payments were backed with money from the International Monetary Fund.
Brady Plan: Plan developed by U.S. Treasury Secretary Nicholas Brady in 1989 that emphasized LDC debt relief through forgiveness instead of new lending. It gave banks the choice of either making new loans or writing off portions of their existing loans in exchange for Brady Bonds.
Brain drain: The migration of skilled workers out of a country.
Branch: A foreign operation incorporated in the home country.
Break-even analysis: Analysis of the level of sales at which a project would make zero profit. It is a technique for studying the relationship among fixed costs, variable costs, sales volume, and profits. It is also called cost/volume/profit (C/V/P) analysis.
Break-even chart: A graphic representation of the relationship between total revenues and total costs for various levels of production and sales, indicating areas of profit and loss.
Break-even point: The sales volume required so that total revenues and total costs are equal; may be expressed in units or in sales dollars.
Bretton Woods System: International monetary system established after World War II under which each government pledged to maintain a fixed, or pegged, exchange rate for its currency vis-à-vis the dollar or gold. As one ounce of gold was set equal to $35, fixing a currency’s gold price was equivalent to setting its exchange rate relative to the dollar. The U.S. government pledged to maintain convertibility of the dollar into gold for foreign official institutions.
Bretton Woods: A town in New Hampshire at which a 1944 conference launched the IMF and the World Bank. These, along with the GATT (General Agreement on Tariffs and Trade), WTO (World Trade Organization) became known as the Bretton Woods Institutions, and together they comprise the Bretton Woods System.
Bribe: A payment made to person, often a government official such as a customs officer, to induce them to treat the payer favorably.
Broker's fee: The fee for a transaction charged by an intermediary in a market, such as a bank in a foreign-exchange transaction.
Brown field investment: FDI (Foreign Direct Investment) that involves the purchase of an existing plant or firm, rather then construction of a new plant. It contrasts with green field investment.
Bubble economy: Term for an economy in which the presence of one or more bubbles in its asset markets is a dominant feature of its performance.
Bubble: A rise in the price of an asset based not on the current or prospective income that it provides but solely on expectations by market participants that the price will rise in the future. When those expectations cease, the bubble bursts and the price falls rapidly.
Budget constraint:
1. For an individual or household, the condition that income equals expenditure (in a static model), or that income minus expenditure equals the value of increased asset holdings (in a dynamic model).
2. For a country, the condition that the value of exports equals the value of imports or, if capital flows are permitted, that exports minus imports equals the net capital outflow. It is equivalent to income from production equaling expenditure on goods plus net acquisition of foreign assets.
3. It is a function usually a straight line representing either of these conditions.
Budget deficit: The negative of the budget surplus; thus the excess of expenditure over income.
Budget surplus: Refers in general to an excess of income over expenditure, but usually refers specifically to the government budget, where it is the excess of tax revenue over expenditure (including transfer and interest payments).
Buffer stock: A large quantity of a commodity held in storage to be used to stabilize the commodity's price. This is done by buying when the price is low and adding to the buffer stock, selling out of the buffer stock when the price is high, hoping to reduce the size of price fluctuations.
Bull Spread: A currency spread designed to bet on a currency’s appreciation. It involves buying a call at one strike price and selling another call at a higher strike price.
Bureau of Economic Analysis: The government agency within the United States Department of Commerce that collects macroeconomic data, especially the National Income and Product Accounts, as well as data on balance of payments and international investment.
Business cycle: The pattern followed by macroeconomic variables, such as GDP and unemployment that rise and fall irregularly over time, relative to trend. There is some tendency for cyclical movements of large countries to cause similar movements in other countries with whom they trade.
Business risk: The inherent uncertainty in the physical operations of the firm. Its impact is shown in the variability of the firm's operating income (EBIT).
Business-to-business (B2B): Communications and transactions conducted between businesses, as opposed to between businesses and end customers. Expressed in alphanumeric form (i.e., B2B), it refers to such transactions conducted over the Internet.

Cabotage:
1. Navigation and trade by ship along a coast, especially between ports within a country. Restricted in the U.S. by the Jones Act to domestic shipping companies.
2. Air transportation within a country. Often restricted to domestic carriers, in an example of barriers to trade in services.
Cairnes-Haberler Model: A trade model in which all factors of production are assumed immobile between industries.
Call option: The right to buy the underlying currency at a specified price and on a specified date. It is a contract that gives the holder the right to purchase a specified quantity of the underlying asset at a predetermined price (the exercise price) on or before a fixed expiration date.
Call premium: The excess of the call price of a security over its par value.
Call price: The price at which a security with a call provision can be repurchased by the issuer prior to the security's maturity.
Call provision: A feature in an indenture that permits the issuer to repurchase securities at a fixed price (or a series of fixed prices) before maturity; also called call feature. Clause giving the borrower the option of retiring the bonds before maturity should interest rates decline sufficiently in the future.
Canonical model of currency crises: This term has been used to refer to the model that used for a currency crisis that results when domestic policy is pursued in a manner inconsistent with a pegged exchange rate.
Capacity building: The term used repeatedly in the Doha Declaration referring to the assistance to be provided to developing countries in establishing and administering their trade policies, conducting analysis, and identifying their interests in trade negotiations.
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 abundant: A country is capital abundant if its endowment of capital is large compared to other countries. Relative capital abundance can be defined by either the quantity definition or the price definition.
Capital account:
1. It refers to a minor component of international transactions, involving unilateral transfers of ownership of property. The common definition, below, describes what is now called the financial account.
2. A country's international transactions arising from changes in holdings of real and financial capital assets, but not income on them, which is in the current account. Includes FDI, plus changes in private and official holdings of stocks, bonds, loans, bank accounts, and currencies.
3. Same as 2 except excluding official reserve transactions. This definition was used under the Bretton Woods System of pegged exchange rates, but is less meaningful under floating exchange rates.
A measure of change in cross-border ownership of long-term financial assets, including financial securities and real estate. It is the net results of public and private international investment and lending activities.
Capital adequacy ratio: The ratio of a bank's capital to its risk-weighted credit exposure. International standards recommend a minimum for this ratio, intended to permit banks to absorb losses without becoming insolvent, in order to protect depositors.
Capital Asset Pricing Model (CAPM): A model for pricing risk. The CAPM assumes that investors must be compensated for the time value of money plus systematic risk, as measured by an asset’s beta. It is an asset pricing model that relates the required return on an asset to its systematic risk. A model that describes the relationship between risk and expected (required) return; in this model, a security's expected (required) return is the risk-free rate plus a premium based on the systematic risk of the security.
Capital augmenting: Said of a technological change or technological difference if one production function produces the same as if it were the other, but with a larger quantity of capital. It is same as factor augmenting with capital the augmented factor. It is also called Solow neutral.
Capital budgeting: The process of identifying, analyzing, and selecting investment projects whose returns (cash flows) are expected to extend beyond one year. Planning and managing expenditures for long-lived assets.
Capital consumption allowance: The name used in the National Income and Product Accounts for depreciation of capital.
Capital control: Any policy intended to restrict the free movement of capital, especially financial capital, into or out of a country.
Capital flight: The transfer of capital abroad in response to fears of political risk. Large financial capital outflows from a country prompted by fear of default or, especially, by fear of devaluation.
Capital formation: The process of increasing the amount of capital goods - also called capital stock - in a country.
Capital gain (loss): The amount by which the proceeds from the sale of a capital asset exceeds (is less than) the asset's original cost. The positive change in the value of an asset, a negative capital gain is a capital loss. The gain in value that the owner of an asset experiences when the price of the asset rises, including when the currency in which the asset is denominated appreciates. It contrasts with capital loss.
Capital good: A good, such as a machine, that, once in place, becomes part of the capital stock.
Capital inflow: A net flow of capital, real and/or financial, into a country, in the form of increased purchases of domestic assets by foreigners and/or reduced holdings of foreign assets by domestic residents. It is Recorded as positive, or a credit, in the balance on capital account.
Capital infusion: An increase in financial capital provided from outside a bank, corporation, or other entity.
Capital intensive: Describing an industry or sector of the economy that relies relatively heavily on inputs of capital, usually relative to labor, compared to other industries or sectors. A measure of the relative use of capital, compared to other factors such as labor, in a production process. It is often measured by the ratio of capital to labor, or by the share of capital in factor payments.
Capital loss: The loss in value that the owner of an asset experiences when the price of the asset falls, including when the currency in which the asset is denominated depreciates. It contrasts with capital gain.
Capital market imperfections: Distortions in the pricing of risk, usually attributable to government regulations and asymmetries in the tax treatment of different types of investment income. Anything that interferes with the ability of economic agents to borrow and lend as much as they wish at a fixed rate of interest that truly reflects probability of repayment. A common source of imperfection is asymmetric information.
Capital market integration: The situation that exists when real interest rates are determined by the global supply and global demand for funds.
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 market segmentation: The situation that exists when real interest rates are determined by local credit conditions.
Capital market: The market for relatively long-term (greater than one year original maturity) financial instruments (e.g., bonds and stocks). The 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 mobility: The ability of capital to move internationally. The degree of capital mobility depends on government policies restricting or taxing capital inflows and/or outflows, plus the risk that investors in one country associate with assets in another.
Capital movement: capital inflow and/or outflow.
Capital outflow: A net flow of capital, real and/or financial, out of a country, in the form of reduced holdings of domestic assets by foreigners and/or increased purchases of foreign assets by domestic residents. It is recorded as negative, or a debit, in the balance on capital account.
Capital productivity: The ratio of output (goods and services) to the input of physical capital (plant and equipment).
Capital rationing: A situation where a constraint (or budget ceiling) is placed on the total size of capital expenditures during a particular period. It is the case where funds are limited to a fixed dollar amount and must be allocated among the competing projects.
Capital scarce: A country is capital scarce if its endowment of capital is small compared to other countries. Relative capital scarcity can be defined by either the quantity definition or the price definition.
Capital stock: The total amount of physical capital that has been accumulated, usually in a country.
Capital structure: The mix of the various debt and equity capital maintained by a firm. It is 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. It is the mix (or proportion) of a firm's permanent long-term financing represented by debt, preferred stock, and common stock equity.
Capital:
1. The plant and equipment used in production.
2. One of the main primary factors, the availability of which contributes to the productivity of labor, comparative advantage, and the pattern of international trade.
3. A stock of financial assets.
Capitalism: An economic system that is based on private ownership; economic development is proportionate to and dependent upon the accumulation and reinvestment of profits.
Capitalization rate: The discount rate used to determine the present value of a stream of expected future cash flows.
Capitalized expenditures: Expenditures that may provide benefits into the future and therefore are treated as capital outlays and not as expenses of the period in which they were incurred.
Capital-saving: A technological change or technological difference that is biased in favor of using less capital, compared to some definition of neutrality.
Capital-using: A technological change or technological difference that is biased in favor of using more capital, compared to some definition of neutrality.
Carrier: A firm that provides transportation of persons or goods. An individual or entity that transports persons or goods for compensation under the contract of carriage.
Cartel: An agreement among, or an organization of, suppliers of a product. A group of firms that seeks to raise the price of a good by restricting its supply. The term is usually used for international groups, especially involving state-owned firms and/or governments.
Cascading tariffs: Same as tariff escalation.
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 budget: A forecast of a firm's future cash flows arising from collections and disbursements, usually on a monthly basis.
Cash concentration: The movement of cash from lockbox or field banks into the firm's central cash pool residing in a concentration bank.
Cash cover: In a letter of credit transaction, money deposited by the applicant with the issuing bank.
Cash cycle: The length of time from the actual outlay of cash for purchases until the collection of receivables resulting from the sale of goods or services; also called cash conversion cycle.
Cash discount period: The period of time during which a cash discount can be taken for early payment.
Cash discount: A percentage (%) reduction in sales or purchase price allowed for early payment of invoices. It is an incentive for credit customers to pay invoices in a timely fashion.
Cash dividend: Cash distribution of earnings to stockholders, usually on a quarterly basis.
Cash equivalents: Highly liquid, short-term marketable securities that are readily convertible to known amounts of cash and generally have remaining maturities of three months or less at the time of acquisition.
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 in order. It is the payment for goods prior to its shipment.
Cash insolvency: Inability to pay obligations as they fall due.
Cash Pooling: Pooling.
Cash-flow exposure: Used synonymously with economic exposure, it measures the extent to which an exchange rate change will change the value of a company through its impact on the present value of the company’s future cash flows.
Central bank: The institution in a country (or a currency area) that is normally responsible for managing to supply of the country's money and the value of its currency on the foreign exchange market. The nation’s official monetary authority.
Central Intelligence Agency: Intelligence gathering (and espionage) agency of the United States government, publisher of the World Fact Book.
Central planning: The guidance of the economy by direct government control over a large portion of economic activity, as contrasted with allowing markets to serve this purpose.
Centrally planned economy: An economy in which the government, rather than free-market activity, controls the allocation of resources.
Certainty equivalent (CE): The amount of cash someone would require with certainty at a point in time to make the individual indifferent between that certain amount and an amount expected to be received with risk at the same point in time.
Certainty: Precise knowledge of an economic variable, as opposed to belief that it could take on multiple values. It contrasts with uncertainty. It is one aspect of complete information.
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.
Chain of comparative advantage: A ranking of goods or countries in order of comparative advantage. With two countries and many goods, goods can be ranked by comparative advantage, e.g., by relative unit labor requirements in the Ricardian model. A country's exports will then lie nearer one end of the chain than its imports. With two goods, many countries can be ordered similarly.
Change in consumer surplus: The change in consumer surplus due to a change in market conditions, usually a price change. For a price change, it is measured by the area to the left of the demand curve between the two prices, indicating a gain if price falls and a loss if it rises.
Change in net working capital: Difference between net working capital from one period to another.
Change in producer surplus: The change in producer surplus due to a change in market conditions, usually a price change. For a price change, it is measured by the area to the left of the (upward sloping part of the) supply curve between the two prices, indicating a gain if price rises and a loss if it falls.
Characteristic line: The line relating the expected return on a security to different returns on the market. It is a line that describes the relationship between an individual security's returns and returns on the market portfolio. The slope of this line is beta.
Chattel mortgage: A lien on specifically identified personal property (assets other than real estate) backing a loan.
Chicago Mercantile Exchange (CME): The largest market in the world for trading standardized futures and options contracts on a wide variety of commodities, including currencies and bonds.
CHIPS (Clearing House Interbank Payments System) : Financial network through which banks in the United States conduct their financial transactions.
CIF: The price of a traded good including transport cost. It stands for cost, insurance, and freight, but is used only as these initials (usually lower case: c.i.f.). It means that a price includes the various costs, such as transportation and insurance, needed to get a good from one country to another. It contrasts with FOB.
CITES: Convention on the International Trade in Endangered Species
Civil society organizations (CSOs): Non-governmental and non-profit groups that work to improve society and the human condition.
Civil society: The name used to encompass a wide and self-selected variety of interest groups, worldwide. It does not include for-profit businesses, government, and government organizations, whereas it does include most NGOs.
Classical: Referring to the writings, models, and economic assumptions of the first century of economics, including Adam Smith, David Ricardo, and John Stuart Mill.
Clayton Act: A 1914 federal antitrust law designed to promote competition that addresses several antitrust matters, including interlocking directorates, race discrimination, exclusive dealing, and mergers.
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.
Clean Draft: A draft unaccompanied by any other papers; it is normally used only for nontrade remittances.
Clean Float: Free float.
Cleanup Clause: A clause inserted in a bank loan requiring the company to be completely out of debt to the bank for a period of at least 30 days during the year.
Clear: A market is said to clear if supply is equal to demand. Market clearing can be brought about by adjustment of the price (or the exchange rate, in the case of the exchange market), or by some form of government (or central bank) intervention in or regulation of the market.
Clearance: The completion of customs entry requirements that results in the release of goods to the importer.
Clearing House Interbank Payments System (CHIPS): A computerized network for transfer of international dollar payments, linking about 140 depository institutions that have offices or affiliates in New York City. An automated clearing system used primarily for international payments. The British counterpart is known as CHAPS.
Clearing system: An arrangement among financial institutions for carrying out the transactions among them, including canceling out offsetting credits and debits on the same account.
Clearing: The settlement of a transaction, often involving exchange of payments and/or documentation.
Closed economy: An economy that does not permit economic transactions with the outside world; a country in autarky.
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.
Coase Theorem: The proposition that the allocation of property rights does not matter for economic efficiency, so long as they are well defined and a free market exists for the exchange of rights between those who have them and those who do not.
Coefficient of variation (CV): The ratio of the standard deviation of a distribution to the mean of that distribution. It is a measure of relative risk.
Collection order: In a collection, the document in which the seller instructs the banks as to how the collection is to be conducted.
Collective action problem: The difficulty of getting a group to act when members benefit if others act, but incur a net cost if they act themselves.
Collectivist society: A society in which people feel more comfortable thinking and acting in groups.
Collusion: Cooperation among firms to raise price and otherwise increase their profits.
Command economy: An economy in which decisions about production and allocation are made by government dictate, rather than by decentralized responses to market forces. 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: An institution that accepts and manages deposits from households, firms and governments and uses a portion of those deposits to earn interest by making loans and holding securities.
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.
Commercial Invoice: A document that contains an authoritative description of the merchandise shipped, including full details on quality, grades, price per unit, and total value, along with other information on terms of the shipment.
Commercial Paper (CP): A short-term unsecured promissory note that is generally sold by large corporations on a discount basis to institutional investors and to other corporations. It is a short-term, unsecured promissory notes generally issued by large corporations (unsecured corporate IOUs). It is a short-term, negotiable debt of a firm; thus a bond of short maturity issued by a company.
Commercial policy: Government policies intended to influence international commerce, including international trade. Includes tariffs and NTBs (Nontariff barrier), as well as policies regarding exports.
Commitment fee: A fee charged by the lender for agreeing to hold credit available.
Commodity pattern of trade: The trade pattern of a country or the world, focusing on goods and services traded as opposed to the factor content of that trade.
Commodity price risk: The risk of unexpected changes in a commodity price, such as the price of oil.
Commodity prices: Usually means the prices of raw materials and primary products.
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.
Commodity: Could refer to any good, but in a trade context a commodity is usually a raw material or primary product that enters into international trade, such as metals (tin, manganese) or basic agricultural products (coffee, cocoa).
Common Agricultural Policy (CAP) : The regulations of the European Union that seek to merge their individual agricultural programs, primarily by stabilizing and elevating the prices of agricultural commodities. The principle tools of the CAP are variable levies and export subsidies.
Common carrier: An organization that transports persons or goods for a fee.
Common currency: A currency that is shared by more than one country. Thus it is the currency of a currency area.
Common external tariff: The single tariff rate agreed to by all members of a customs union on imports of a product from outside the union.
Common market: A group of countries that eliminate all barriers to movement of both goods and factors among themselves, and that also, on each product, agree to levy the same tariff on imports from outside the group. It is equivalent to a customs union plus free mobility of factors.
Common stock: Securities that represent the ultimate ownership (and risk) position in a corporation.
Common tangent: A straight line that is tangent to two or more curves. Used in the Lerner diagram.
Common-size analysis: An analysis of percentage financial statements where all balance sheet items are divided by total assets and all income statement items are divided by net sales or revenues.
Community indifference curve: One of a family of indifference curves intended to represent the preferences, and sometimes the well-being, of a country as a whole. This is a handy tool for deriving quantities of trade in a two-good model, although its legitimacy depends on the existence of community preferences, which in turn requires very restrictive assumptions.
Community preferences: A set of consumer preferences, analogous to those of an individual as might be represented by a utility function, but representing the preferences of a group of consumers. The existence of well-behaved community preferences requires restrictive assumptions about individual preferences and/or incomes.
Comparative advantage: The ability to produce a good at lower cost, relative to other goods, compared to another country. In a Ricardian model, comparison is of unit labor requirements; more generally it is of relative autarky prices. With perfect competition and undistorted markets, countries tend to export goods in which they have 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: Each country should specialize in producing those goods that it is able to produce relatively most efficiently.
Comparative static: Refers to a comparison of two equilibriums from a static model, usually differing by the effects of a single small change in an exogenous variable.
Compensated demand curve: A demand curve constructed under the assumption that demander's income is not held constant, but rather is varied to hold level of utility at a constant level. The change in consumer surplus calculated from particular compensated demand curves measures compensating variation and equivalent variation.
Compensating balance: Demand deposits maintained by a firm to compensate a bank for services provided, credit lines, or loans. As a basis for welfare comparisons, the idea that if a policy change (such as a tariff reduction) could be Pareto improving if it were accompanied by appropriate lump-sum transfers that tax winners in order to compensate losers, then it is viewed as beneficial even when those transfers do not occur. The fraction (usually 10% to 20%) of an outstanding loan balance that a bank requires borrowers to hold on deposit in a non-interest-bearing account.
Compensating variation: An amount of money that just compensates a person, group, or whole economy, for the welfare effects of a change in the economy, thus providing a monetary measure of that change in welfare. It is same as willingness to pay. It contrasts with equivalent variation.
Compensation trade: Counter trade, including especially payment for foreign direct investment out of the proceeds from that investment.
Compensation:
1. The GATT (General Agreement on Tariffs and Trade ) principle that members who violate GATT rules must compensate other countries by lowering tariffs or making other concessions, or be subject to retaliation.
2. The actual or potential payment by the winners from a change in trade or other policy to the losers, intended to undo the harm to the latter. Actual compensation is rare, but the potential for compensation is used as the basis for most evaluations of the gains from trade.
Competition policy: Policies intended to prevent collusion among firms and to prevent individual firms from having excessive market power. Major forms include oversight of mergers and prevention of price fixing and market sharing. It is called anti-trust policy in the U.S.
Competition: The interactions between two or more sellers or buyers in a single market, each attempting to get or pay the most favorable price. Economists usually interpret and model these interactions as among individual economic agents -- firms or consumers. Popular terminology extends also to competition among nations, especially competing exporters.
Competitive advantage: Competitiveness. It contrasts with comparative advantage.
Competitive: Used alone, this usually means perfectly competitive. It contrasts with imperfectly competitive.
Competitiveness: Usually refers to characteristics that permit a firm to compete effectively with other firms due to low cost or superior technology, perhaps internationally. When applied to nations, instead of firms, the word has a mercantilist connotation.
Complete information: The assumption that economic agents (buyers and sellers, consumers and firms) know everything that they need to know in order to make optimal decisions. Types of incomplete information are uncertainty and asymmetric information.
Complete specialization:
1. Non-production of some of the goods that a country consumes, as in definition 2 of specialization.
2. Production only of goods that are exported or no traded, but none that compete with imports.
3. Production of only one good.
4. Being the only country in the world to produce a good.
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.
Composite currency: A currency defined as a specified combination of two or more currencies, normally existing only as a unit of account rather than as a physical currency. Examples include the SDR (Special Drawing Right) and the ECU (European Currency Unit).
Compound interest: Interest paid (earned) on any previous interest earned, as well as on the principal borrowed (lent). It 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 tariff: A tariff that combines both a specific and an ad valorem component.
Compound value: Value of a sum after investing it over one or more periods. It is 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.
Compulsory licensing: A legal requirement for the owner of a patent to let other firms produce its product, under specified terms. Countries sometimes require foreign patent holders to license domestic firms so as to improve access to the patented product at lower cost. This is permitted by the TRIPs (Trade-Related Intellectual Property Rights) Agreement for certain purposes, such as protecting public health.
Computable general equilibrium: Refers to economic models of microeconomic behavior in multiple markets of one or more economies, solved computationally for equilibrium values or changes due to specified policies. The equations are anchored with data from the countries being modeled, while behavioral parameters are either assumed or adapted from estimates elsewhere.
Concentration ratio: A common measure of industry concentration, defined as the percent of sales in the industry accounted for by the largest n firms, n is some small number such as 4 or 6, and the result is called the n-firm concentration ratio.
Concertina tariff reduction: The reduction of a country's highest tariff to the level of the next highest, followed by the reduction of both to the level of the next highest after that, and so forth. It is also called the concertina rule. This is known to raise welfare if all goods are net substitutes.
Concession Agreement: An understanding between a company and the host government that specifies the rules under which the company can operate locally.
Concession: The term used in GATT (General Agreement on Tariffs and Trade) negotiations for a country's agreement to bind a tariff or otherwise reduce import restrictions, usually in return for comparable concessions by other countries. Use of this term, with its connotation of loss, for what economic theory suggests is often a beneficial act, is part of what has been called GATT-Speak.
Concessional financing: Loans made by a government at an interest rate below the market rate as an indirect method of providing a subsidy.
Conditional sales contract: A means of financing provided by the seller of equipment, who holds title to it until the financing is paid off.
Conditionality: The requirements imposed by the IMF and World Bank on borrowing countries to qualify for a loan, typically including a long list of budgetary and policy changes comprising a structural adjustment program.
Confirming bank: Bank that adds its payment undertaking to a letter of credit.
Conservative social welfare function: A social welfare function that takes special account of the costs to individuals of losing relative to the status quo, and that therefore seeks to avoid large losses to significant groups within the population.
Consignee: Party to whom goods are to be delivered.
Consignment: Delivery of merchandise from an exporter (i.e. the consignor) to an agent (i.e. 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. Under this selling method, goods are only shipped, but not sold, to the importer. The exporter (consignor) retains title to the goods until the importer (consignee) has sold them to a third party. This arrangement is normally made only with a related company because of the large risks involved.
1. Something that is put into the care of another, as when a batch of traded goods is consigned to a shipper for transport to another location.
2. A method of marketing in which the seller entrusts a product to an agent, who then attempts to sell it on the seller's behalf, or on consignment.
Consol: A bond that never matures; a perpetuity in the form of a bond.
Consolidated income: The sum of income across all of the multinational corporation’s domestic and foreign subsidiaries.
Consolidation: The combination of two or more firms into an entirely new firm. The old firms cease to exist. Though technically different, the terms merger (where one firm survives) and consolidation tend to be used interchangeably. It is a form of corporate reorganization in which two firms pool their assets and liabilities to form a new company.
Constant dollars: Dollars of constant purchasing power. That is, corrected for inflation. More precisely includes reference to a base year for comparison, e.g. in constant 1992 dollars. It is same as constant prices.
Constant elasticity of transformation function: A function representing an economy's transformation curve along which the elasticity of transformation is constant.
Constant returns to scale (CRTS) : A property of a production function such that scaling all inputs by any positive constant also scales output by the same constant. Such a function is also called homogeneous of degree one or linearly homogeneous. CRTS is a critical assumption of international trade. It contrasts with increasing returns and decreasing returns.
Consular Invoice: An invoice, which varies in its details and information requires from nation to nation, that is presented to the local consul in exchange for a visa.
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.
Consumer movement: One of four modes of supply of traded services, this one entails the buyer moving (temporarily) to the foreign location of the seller, as in the case of tourism.
Consumer price index: A price index for the goods purchased by consumers in an economy, usually based on only a small sample of what they consume. It contrasts with the implicit price deflator.
Consumer support estimate (CSE) : Introduced by the OECD (Organization for Economic Co-operation and Development ) to quantify agricultural policies, this measures transfers to or from consumers that are implicit in these policies. Since industrialized-country agricultural producers are routinely supported by raising prices, CSE estimates are usually negative.
Consumer surplus: The difference between the maximum that consumers would be willing to pay for a good and what they actually do pay. For each unit of the good, this is the vertical distance between the demand curve and price. For all units purchased at some price, it is the area below the demand curve and above the price. It is normally useful only as the change in consumer surplus.
Consumption externality: An externality arising from consumption.
Consumption possibility frontier: A graph of the maximum quantities of goods (usually two) that an economy can consume in a specified situation, such as autarky and free trade. It is used to illustrate the potential benefits from trade by showing that it can expand consumption possibilities.
Contagion: The phenomenon of a financial crisis in one country spilling over to another, which then suffers many of the same problems.
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.
Continuum-of-goods model: A class of trade models in which goods are indexed by a continuous variable, approximating the case of very large numbers of goods.
Contract curve
1. In an Edgeworth Box for consumption, the allocations of 2 goods to 2 consumer that are Pareto efficient. Starting with an allocation that may not be on the contract curve, it shows the ways that the consumers might contract to exchange the goods with each other.
2. In an Edgeworth Box for production, this name is sometimes also used for the efficiency locus.
Contract manufacturing: A firm allowing another firm to manufacture a pre-specified product.
Contracting party: A country that has signed the GATT (General Agreement on Tariffs and Trade). The term Contracting Parties with both words capitalized means all Contracting Parties acting jointly.
Contractionary: Tending to cause aggregate output (GDP: Gross domestic product) and/or the price level to fall. Term is typically applied to monetary policy (a decrease in the money supply or an increase in interest rates) and to fiscal policy (a decrease in government spending or a tax increase), but may also apply to other macroeconomic shocks. It contrasts expansionary.
Contribution margin: Amount that each additional product, such as a jet engine, contributes to after-tax profit of the whole project.
Controlled disbursement: A system in which the firm directs checks to be drawn on a bank (or branch bank) that is able to give early or mid-morning notification of the total dollar amount of checks that will be presented against its account that day.
Controlled Foreign Corporation (CFC): A foreign corporation whose young stock is more than 50% owned by U.S. stockholders, each of whom owns at least 10% of the voting power. In the U.S. tax code, a foreign corporation owned more than 50 percent either in terms of market value or voting power.
Convergence: The process of becoming quantitatively more alike. In an international context, it often refers to countries becoming more alike in terms of their factor prices or in terms of their per capita incomes, perhaps as a result of trade or other forms of economic integration.
Conversion price: The price per share at which common stock will be exchanged for a convertible security. It is equal to the face value of the convertible security divided by the conversion ratio.
Conversion ratio: The number of shares of common stock into which a convertible security can be converted. It is equal to the face value of the convertible security divided by the conversion price.
Conversion value: The value of the convertible security in terms of the common stock into which the security can be converted. It is equal to the conversion ratio Verdana the current market price per share of the common stock.
Convertible bonds: Fixed-rate bonds that are convertible into a given number of shares prior to maturity. 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 pre-specified conversion price.
Convertible currency: A currency that can be traded for other currencies at will. A currency that can legally be exchanged for another or for gold. In times of crisis, governments sometimes restrict such exchange, giving rise to black market exchange rates.
Convertible security: A bond or a preferred stock that is convertible into a specified number of shares of common stock at the option of the holder.
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.
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.
Core inflation: The rate of inflation excluding certain sectors whose prices are most volatile, specifically food and energy.
Core propositions: The core propositions are the factor price equalization theorem
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 system by which corporations are managed and controlled. It encompasses the relationships among a company's shareholders, board of directors, and senior management. The way in which the major stakeholders exert control over the modern corporation. The means whereby companies are controlled.
Corporate income tax: A tax on the profits of corporations. Differences in corporate tax rates across countries can be a cause of foreign direct investment as well as transfer pricing.
Corporate restructuring: Any change in a company's capital structure, operations, or ownership that is outside its ordinary course of business.
Corporate social responsibility: 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. A business form legally separate from its owners. Its distinguishing features include limited liability, easy transfer of ownership, unlimited life, and an ability to raise large sums of capital.
Correlation coefficient: A standardized statistical measure of the linear relationship between two variables. Its range is from -1.0 (perfect negative correlation), through 0 (no correlation), to 1.0 (perfect positive correlation).
Correlation: A measure of the covariability of two assets that is scaled for the standard deviations of the assets.
Correspondent bank: A bank that, in its own country, handles the business of a foreign bank. A bank located in any other city, state, or country that provides a service for another bank.
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.
Cost advantage: Possession of a lower cost of production or operation than a competing firm or country. In the case of countries, this could refer to an absolute advantage, although it is more likely a comparative advantage.
Cost and Freight: A pricing term that indicates that the cost of the goods and freight charges are included in the quoted price.
Cost function: A function relating the minimized total cost in a firm or industry to output and factor prices.
Cost of capital: The required rate of return on the various types of financing. The overall cost of capital is a weighted average of the individual required rates of return (costs).
Cost of debt (capital: The required rate of return on investment of the lenders of a company.
Cost of equity capital: The required rate of return on investment of the common shareholders of the company. It is 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. It is the minimum rate of return necessary to induce investors to buy or hold a firm’s stock. It equals a basic yield covering the time value of money plus a premium for risk.
Cost of goods sold: Product costs (inventoriable costs) that become period expenses only when the products are sold; equals beginning inventory plus cost of goods purchased or manufactured minus ending inventory.
Cost of preferred stock (capital): The required rate of return on investment of the preferred shareholders of the company.
Cost, Insurance, and Freight (CIF): The price of a traded good including transport cost. It means that a price includes the various costs, such as transportation and insurance, needed to get a good from one country to another. It contrasts with FOB.
Cost-benefit analysis: The use of economic analysis to quantify the gains and losses from a policy or program as well as their distribution across different groups in a society.
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. Generic term for barter and other forms of trade that involve the international sale of goods or services that are paid for – in whole or in part – by the transfer of goods or services from a foreign country. A form of barter in which the exporting firm is required to take the countervalue of its sale in local goods or services instead of in 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. A tariff levied against imports that are subsidized by the exporting country's government, designed to offset (countervail) the effect of the subsidy.
Country of origin: The country in which a good was produced, or sometimes, in the case of a traded service, the home country of the service provider.
Country risk: The risk associated with operating in, trading with, or especially holding the assets issued by, a particular country. In the case of assets, country risk helps to explain why borrowers in some country must pay higher interest rates than borrowers from other countries, thus paying a country risk premium. The general level of political and economic uncertainty in a country affecting the value of loans or investments in that country. From a bank’s standpoint, it refers to the possibility that borrowers in a country will be unable to service or repay their debts to foreign lenders in a timely manner. The political and financial risks of conducting business in a particular foreign country.
Country size: Any of many measures of the size of a country. For most economic comparisons, however, country size refers to GDP (Gross domestic product).
Coupon rate: The stated rate of interest on a bond; the annual interest payment divided by the bond's face value.
Coupon swap: Swap in which one party pays a fixed rate calculated at the time of trade as a spread to a particular Treasury bond, and the other side pays a floating rate that resets periodically throughout the life of the deal against a designated index. A fixed-for-floating interest rate swap.
Coupon: The stated interest on a debt instrument. The interest payment on a bond, so-named because bonds originally were pieces of paper with small sections, called coupons, that were cut off and exchanged for the interest payments.
Cournot competition: The assumption, assumed to be made by firms in an oligopoly, that other firms hold their outputs constant as they themselves change behavior. It contrasts with Bertrand competition. Both are used in models of international oligopoly, but Cournot competition is used more often.
Cournot's law: That the sum of the balances of payments or of trade across all countries must be zero.
Covariance: A measure of the covariability of two assets. It is a statistical measure of the degree to which two variables (e.g., securities' returns) move together. A positive value means that, on average, they move in the same direction.
Covenant: A restriction on a borrower imposed by a lender: for example, the borrower must maintain a minimum amount of working capital.
Cover note: Insurance document evidencing that insurance cover for a consignment has been taken out, but not giving full details.
Cover: To use the forward market to protect against exchange risk. Typically, an importer with a future commitment to pay in foreign currency would buy it forward, and exporter with a future receipt would sell it forward, and a purchaser of a foreign bond would sell forward the expected proceeds at maturity.
Coverage ratios: Ratios that relate the financial charges of a firm to its ability to service, or cover, them.
Covered interest arbitrage: Movement of short-term funds between two currencies to take advantage of interest differentials with exchange risk eliminated by means of forward contracts.
Covered interest differential: The difference between the domestic interest rate and the hedged foreign interest rate.
Covered interest parity: Equality of returns on otherwise comparable financial assets denominated in two currencies, assuming that the forward market is used to cover against exchange risk. As an approximation, covered interest parity requires that i = i* + p where i is the domestic interest rate, i* is the foreign interest rate, and p is the forward premium. A combination of transactions on two countries' securities and exchange markets designed to profit from failure of covered interest parity. A typical set of transactions would include selling bonds in one market, using the proceeds to buy spot foreign currency and foreign bonds, and selling forward the return at a future date.
Covered interest rate: The covered interest rate, in a currency other than your own, is the nominal interest rate plus the forward premium on the currency; thus the percent you will earn holding the foreign asset while protecting against exchange-rate change by selling the foreign currency forward.
Crawling peg: An exchange rate that is pegged, but for which the par value is changed frequently in a preannounce fashion in response to signals from the exchange market.
Credit crunch: A shortage of available loans. In well-functioning markets, this would simply mean a rise in interest rates, but in practice it often means that some borrowers cannot get loans at all, a situation of credit rationing.
Credit period: The total length of time over which credit is extended to a customer to pay a bill.
Credit risk insurance: Insurance that covers the risk of nonpayment for delivered goods.
Credit standard: The minimum quality of creditworthiness of a credit applicant that is acceptable to the firm.
Credit:
1. Recorded as positive (+) in the balance of payments, any transaction that gives rise to a payment into the country, such as an export, the sale of an asset (including official reserves), or borrowing from abroad. It is opposite of debit.
2. A loan, for example, a trade credit.
Creditor nation: A country whose assets owned abroad are worth more than the assets within the country that are owned by foreigners. It contrasts with debtor nation.
Credit-scoring system: A system used to decide whether to grant credit by assigning numerical scores to various characteristics related to creditworthiness.
Creeping inflation: This term seems to be used both for a rate of inflation that is low but nonetheless high enough to cause problems, and for a rate of inflation that itself gradually moves higher over time.
Crony capitalism: Used to describe a capitalist economy in which government or corporate officials and insiders provide lucrative opportunities for their friends and relatives. Term became popular during the Asian Crisis to describe some of the victim countries, but is now often used elsewhere as well.
Cross elasticity:
1. An elasticity that has been ignored by a student in a problem set.
2. The elasticity of supply or demand for one good or service with respect to the price of another.
Cross rate:
1. The exchange rate between two currencies as implied by their values with respect to a third currency.
2. Thus, since most currencies are commonly quoted in U.S. dollars, the exchange rate between any two currencies other than the dollar. A futures hedge using a currency that is different from, but closely related to, the currency of the underlying exposure.
Cross subsidy: The use of profits from one activity to cover losses from another. Thus the use of high prices for some of a firm's products, for example, to permit it to price below cost for others. In international trade, this could be one explanation for dumping.
Cross-border supply: The provision of an internationally traded service across national borders without requiring physical movement of buyer or seller, as when the service can be provided by long-distance communication. One of four such modes of supply of traded services.
Cross-Default Clause: Clause in a loan agreement which says that a default by a borrower to one lender is a default to all lenders.
Cross-hauling: The simultaneous shipment of the same product in opposite directions over the same route. The export of the same good by two countries to each other would be cross-hauling, if it occurs at the same time.
Cross-Hedge: Hedging exposure in one currency by the use of futures or other contracts on a second currency that is correlated with the first currency.
Cross-Rate: The exchange rate between two currencies, neither of which is the U.S. dollar, calculated by using the dollar rates for both currencies.
CTD: WTO Committee on Trade and Development
Cultural argument for protection: The view that imports undermine a country's culture and identity -- for example by changing consumption patterns to ones more similar to those abroad, or by reducing demands for domestically produced art and music -- and therefore that imports should be restricted.
Culture: Collective mental paradigms that a society imparts to individuals in the form of behavior patterns, shared values, norms and institutions.
Cumulation: In an anti-dumping case against imports from more than one country, the summation of these imports for the purpose of determining injury. That is, the imports are deemed to have caused injury if all of them together could have done so, even if individually they would not.
Cumulative dividends feature: A requirement that all cumulative unpaid dividends on the preferred stock be paid before a dividend may be paid on the common stock.
Cumulative translation adjustment (CTA): An equity account under FAS #52 that accumulates gains or losses caused by translation accounting adjustments.
Cumulative voting: A method of electing corporate directors, where each common share held carries as many votes as there are directors to be elected and each shareholder may accumulate these votes and cast them in any fashion for one or more particular directors.
Currency arbitrage: Taking advantage of divergences in exchange rates in different money markets by buying a currency in one market and selling it in another.
Currency area: A group of countries that share a common currency. Originally it is defined as a group that has fixed exchange rates among their national currencies.
Currency basket: A group of two or more currencies that may be used as a unit of account, or to which another currency may be pegged.
Currency bloc:
1. A group of countries that share a common currency; a currency area.
2. A group of countries that peg their different national currencies to a single currency.
Currency board: An extreme form of pegged exchange rate in which management of both the exchange rate and the money supply are taken away from the central bank and given to an agency with instructions to back every unit of circulating domestic currency with a specified amount of foreign currency. It operates similar to the gold standard.
Currency call option: A financial contract that gives the buyer the right, but not the obligation, to buy a specified number of units of foreign currency from the option seller at a fixed dollar price, up to the option’s expiration date.
Currency collar: A contract that provides protection against currency moves outside an agreed-upon range. It can be created by simultaneously buying an out-of-the-money put option and selling an out-of-the-money call option of the same size. In effect, the purchase of the put option is financed by the sale of the call option.
Currency controls: Exchange controls.
Currency coupon swap: A fixed-for-floating rate nonamortizing currency swap traded primarily through international commercial banks.
Currency crisis: The crisis that occurs when participants in an exchange market come to perceive that an attempt to maintain a pegged exchange rate is about to fail, causing speculation against the peg that hastens the failure and forces a devaluation.
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 factor: The portion of a rate of return that is due to the currency in which the asset is denominated. The currency factor can be nonzero either because of currency risk or because of expected appreciation or depreciation.
Currency foreign exchange risk: The risk of unexpected changes in foreign currency exchange rates.
Currency futures contract: Contract for future delivery of a specific quantity of a given currency, with the exchange rate fixed at the time the contract is entered. Futures contracts are similar to forward contracts except that they are traded on organized futures except that they are traded on organized futures exchanges and the gains and losses on the contracts are settled each day.
Currency in circulation: The amount of a country's currency that is in the hands of the public (households, firms, banks, etc), as opposed to sitting in the vaults of the central bank.
Currency of denomination: Currency in which a transaction is stated. Currency whose value determines a given price.
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 financial contract that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a specified number of foreign currency units to the option seller at a fixed dollar price, up to the option’s expiration date. A contract that gives the holder the right to buy (call) or sell (put) a specific amount of a foreign currency at some specified price until a certain (expiration) date. 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 (i.e. seller) holds the obligation to fulfill the other side of the contract.
Currency put option: A financial contract that gives the buyer the right, but not the obligation, to sell a specified number of foreign currency units to the option seller at a fixed dollar price, up to the option’s expiration date.
Currency realignment: A change in the par value of a pegged exchange rate.
Currency risk sharing: An agreement by the parties to a transaction to share the currency risk associated with the transaction. The arrangement involves a customized hedge contract imbedded in the underlying transaction.
Currency risk: Uncertainty about the future value of a currency.
Currency speculation: To buy or sell a currency in anticipation of its appreciation or depreciation respectively, the intent being to make a profit or avoid a loss.
Currency spread: An options position created by buying an option at one strike price and selling a similar option at a different strike price. It allows speculators to bet on the direction of a currency at a lower cost than buying a put or a call option alone but at the cost of limiting the position’s upside potential.
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. It is a simultaneous borrowing and lending operation whereby two parties exchange specific amounts of two currencies at the outset at the spot rate. They also exchange interest rate payments in the two currencies. The parties undertake to reverse the exchange after a fixed term at a fixed exchange rate.
Currency union: A group of countries that agree to peg their exchange rates and to coordinate their monetary policies so as to avoid the need for currency realignments.
Currency:
1. The money used by a country; e.g., the national currency of Japan is the yen.
2. The physical embodiment of money, in the forms of paper bills or notes, and metal coins.
Current account: A measure of a country’s international trade in goods and services. Net flow of goods, services, and unilateral transactions (gifts) between countries. 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. A country's international transactions arising from current flows, as opposed to changes in stocks which are part of the capital account. Includes trade in goods and services, including payments of interest and dividends on capital, plus inflows and outflows of transfers.
Current assets: Short-term assets, including cash, marketable securities, accounts receivable, and inventory.
Current Exchange Rate: Exchange in effect today.
Current Liabilities: Short-term liabilities, such as accounts payable and loans expected to be repaid within one year.
Current prices: Refers to prices in the present, rather than in some base year; e.g., GDP at current prices means GDP as measured, in contrast to real GDP, or GDP at XXXX prices, where the latter is measured in the prices of year XXXX.
Current rate method: Under this currency translation, all foreign currency balance-sheet and income items are translated at the current exchange rate. 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.
Current ratio: Current assets divided by current liabilities. It shows a firm's ability to cover its current liabilities with its current assets.
Current/Noncurrent Method: Under this currency translation method, all of a foreign subsidiary’s current assets and liabilities are translated into home currency at the current exchange rate while noncurrent assets and liabilities are translated at the historical exchange rate (that is, at the rate in effect at the time the asset was acquired or the liability incurred).
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 (i.e. importers) to enter and declare goods through customs.
Customs area: A geographic area that is responsible for levying its own customs duties at its border.
Customs classification:
1. The category defining the tariff to be applied to an imported good.
2. The act of determining this category, which may be subject to various rules and/or to the discretion of the customs officer.
Customs Cooperation Council Nomenclature (CCCN) : An international system of classification of goods for specifying tariffs, called the Brussels Tariff Nomenclature prior to 1976, and later superceded by the Harmonized System of Tariff Nomenclature
Customs duty: An import tariff.
Customs officer: The government official who monitors goods moving across a national border and levies tariffs.
Customs procedure: The practices used by customs officers to clear goods into a country and levy tariffs. Includes clearance procedures such as documentation and inspection, methods of determining a good's classification, and methods of assigning its value as the base for an ad valorem tariff. Any of these can impede trade and constitute a NTB (Nontariff barrier).
Customs station: An office through which imported goods must pass in order to be monitored and taxed by customs officers.
Customs union: A group of countries that adopt free trade (zero tariffs and no other restrictions on trade) on trade among themselves, and that also, on each product, agree to levy the same tariff on imports from outside the group. Equivalent to an FTA plus a common external tariff.
Customs valuation: The method by which a customs officer determines the value of an imported good for the purpose of levying an ad valorem tariff. When this method is biased against importing, it becomes an NTB (Nontariff barrier).
Customs: The authorities designated to collect duties levied by a country on imports and exports.
Cyclical unemployment: The portion of unemployment that is due to the business cycle and thus rises in recessions but then disappears eventually after the recession ends.
Cylinder: The payoff profile of a currency collar created through a combined put purchase and call sale.

Deadweight loss: The net loss in economic welfare that is caused by a tariff or other source of distortion, defined as the total losses to those who lose, minus the total gains to those who gain. Usually identified in a supply-and-demand diagram in terms of change in consumer and producer surplus together with government revenue. The net of these appears as one or two welfare triangles.
Dealing desk (trading desk): The desk at an international bank that trades spot and forward foreign exchange.
Debase: To reduce the value of. Classically, a currency is debased if its value in terms of gold or other precious metal is reduced.
Debenture: A long-term, unsecured debt instrument.
1. A debt that is not backed by collateral, but only by the credit and good faith of the borrower.
2. A certificate issued by customs authorities entitling an exporter of imported goods to be paid back duties that have been paid when they were imported. Such a refund is called a drawback.
Debit: Recorded as negative (-) in the balance of payments, any transaction that gives rise to a payment out of the country, such as an import, the purchase of an asset (including official reserves), or lending to foreigners. Opposite of credit.
Debt burden: The debt of a country, when large enough that servicing it has become difficult.
Debt cancellation: The most extreme form of debt relief, in which a country's debts are completely forgiven, so that no repayment of interest or principal is required.
Debt capacity: The amount of debt that a firm chooses to borrow to support a project. The maximum amount of debt (and other fixed-charge financing) that a firm can adequately service.
Debt crisis: A situation in which a country, usually an LDC, finds itself unable to service its debts.
Debt overhang: A situation in which the external debt of a country is larger than it will be able to repay. Often due to having borrowed in foreign currency and then had its own currency depreciate.
Debt ratios: Ratios that show the extent to which the firm is financed by debt.
Debt relief: Any arrangement intended to reduce the burden of debt on a country, usually including forgiveness of part or all of what is owed to creditors who may include private banks and other entities, government, or international financial institutions. Reducing the principal and/or interest payments on LDC loans.
Debt service: The payments made by a borrower on their debt, usually including both interest payments and partial repayment of principal.
Debt sustainability: The ability of a debtor country to service its debt on a continuing basis and not go into default. After a debt crisis, sustainability may be restored through debt rescheduling.
Debt Swap: A set of transactions (also called a debt-equity swap) in which a firm buys a country’s dollar bank debt at a discount and swaps this debt with the central bank for local currency that it can use to acquire local equity.
Debt/equity swap: An exchange of debt for equity, in which a lender is given a share of ownership to replace a loan. It is used as a method of resolving debt crises.
Debt: The amount that is owed, as a result of previous borrowing. A country's debt may refer to the debt of its government or to the country as a whole.
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 country whose assets owned abroad are worth less than the assets within the country that are owned by foreigners. It contrasts with creditor nation.
Debt-service burden: Cash required during a specific period, usually a year, to meet interest expenses and principal payments. Also called simply debt service.
Decile: One of ten segments of a distribution that has been divided into tenths. For example, the second-from-the-bottom decile of an income distribution is those whose income exceeds the incomes of from 10% to 20% of the population.
Decision trees: A graphical analysis of sequential decisions and the likely outcomes of those decisions.
Declaration date: The date that the board of directors announces the amount and date of the next dividend.
Declining-balance depreciation: Methods of depreciation calling for an annual charge based on a fixed percentage of the asset's depreciated book value at the beginning of the year for which the depreciation charge applies.
Decouple: Refers to the provision of support to an enterprise, usually a farm, in a manner that does not provide an incentive to increase production. Farm subsidies that are decoupled are included in the green box and are therefore permitted by the WTO.
Decreasing cost: Average cost that declines as output increases, due to increasing returns to scale.
Decreasing returns to scale: A property of a production function such that changing