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P - When the fifth letter of a NASDAQ stock symbol is a
P, the represented stock is the company’s first class of preferred
shares.
P&L - Slang for a profit and loss statement
P&S - Slang for a purchase and slang statement. A statement provided by
a broker showing change in a customer’s balance.
P/E - Price to earnings ratio.
P/E Effect - The thought that portfolios constructed of low P/E stocks
will have a higher average risk-adjusted return than those constructed
of high P/E stocks.
P/E Ratio - A measure calculated by dividing the current stock price by
trailing annual earnings per share or by expected annual earnings per
share.
Pac-Man Strategy - A takeover defense strategy whereby the target firm
launches a counter attack by attempting to takeover the other firm.
Pacific Stock Exchange - A regional exchange where a limited number of
securities are bought and sold in the third market. The Pacific Stock
Exchange is located in Los Angeles and San Francisco.
Pack - A group of four semi-annual (three-month) Eurodollar contracts
used to create a one-year Eurodollar strip.
Paid In Capital - Capital received by a corporation for the sale of its
common stock and other securities, capital generated through earnings is
not included in "Paid in Capital".
Painting The Tape - An illegal practice where investors conspire to
execute trades in an effort to manipulate trade activity.
Paired Off - Referring to listed equity securities, buy and sell market
orders that are matched.
Pairoff - A buy-back executed in order to offset a prior sale of
securities.
Pairs Trading - Originally, a portfolio management technique based on a
classic hedge: a manager looks at stocks in pairs, buying the one he
expects to perform best and selling short the one he expects to
underperform. The concept has been generalized to accommodate long and
short portfolios with different performance expectations. Also called
Long-Short Portfolio.
Paper - A slang term meaning any quantity of a security; also commercial
paper, money market instruments, etc.
Paper Gain/Loss - An unrealized capital gain (loss) of a particular
portfolio calculated by comparing current market price to original cost.
Par - Equal to the face value of a security.
Par Cap - The limit on par value instruments in a mortgage pool.
Par Value - The amount that an issuer agrees to pay at the maturity
date; also called the face value or maturity value.
Par Value Swap - Swap that involves no initial exchange of principal.
Parallel Loan - Agreement whereby two companies in different countries
borrow each other’s currency for a period of time, and then repay each
other. This is done in an effort to reduce foreign exchange risk.
Parallel Shift In The Yield Curve - A shift in the yield curve where the
change in the yield on all maturities is the same number of basis
points.
Parameter - A guideline that characterizes a part of a model; parameters
are used as the basis of a model.
Pareto Optimality or Efficiency - A transaction in which at least one
party is better off as a result of the change and no one is worse off.
Pari Passu - Term used when two instruments have equal rights to
payment.
Paris Interbank Offer Rate - Abbreviated as PIBOR, the deposit rate on
interbank transactions in Eurocurrencies.
Parity - Used in the context of convertibles, when a security’s market
price equals the total value of the underlying common stock.
Parity Graph - A graph of a financial instrument when any premium value
of an option or futures contract wears away with time.
Parking a Security - An illegal transaction in which an investor buys
shares from another party and resells them to the original holder who
uses the sell-buy transaction to create a tax loss.
Parking Violation - Referring to risk arbitrage, the illegal holding of
stock by a third party in order to conceal ownership by a raider.
Part Contingent Knock-In Option - A knock-in option with a low initial
premium and a greater additional premium paid if the knock-in trigger is
activated.
Partial - Referring to general equities, trade of only part of the
customer’s total order.
Partial Collar - A collar used to limit downside exposure as well as
upside participation on a part of a portfolio.
Partial Delivery - A partial or incomplete delivery of securities.
Partial Duration - Analysis of the way in which part of a yield curve
will be affected by rate changes.
Partial Lookback Warrant or Option - A warrant or option that allows a
specific which the strike price can be reset at the most favorable level
during that period. When that period ends, the option is exercisable
American-style.
Partially Protected Equity- Linked Note - An equity-linked note (ELN) in
which the investor has full participation on the upside but only partial
protection on the downside.
Participating Account - A separate account at a financial institution
used as a guaranteed investment contract. This account is exempt to
claims by the institution's general creditors.
Participating Cap - A partial cap that reduces but does not eliminate an
upward price or rate risk.
Participating Collar - Collar used primarily to receive a definite
minimum return for a reduced participation on an upside move in the
underlying.
Participating Fees - Portion of total fees that go to the participating
banks.
Participating Forward Contract - A conditional forward contract in which
the buyer accepts a floor price below the current forward market in
return for a fixed-percentage return in any favorable difference between
the spot at expiration and the floor rate.
Participating GIC - A guaranteed investment contract that does not
guarantee the policyholder a crediting rate, but does offer a return
based on the actual experience of the portfolio.
Participating Interest Rate Agreement (PIRA) - An interest rate
agreement designed to reduce exposure to adverse interest rate changes
while providing limited participation in favorable interest rate
changes.
Participating Mortgage - A provisional mortgage loan that allows the
lender to participate in any increase in the value of the underlying
property in return for a lower basic interest rate.
Participating Mortgage Strip - A fixed rate senior obligation covered by
the minimum cash flows due on a pool of participating mortgages.
Participating Option - An option that changes the rate of participation
in a movement beyond the strike price.
Participating Range Forward - A range forward with participation in
movement of the underlying below the lower strike or above the upper
strike.
Participating Swap - An interest rate swap agreement with a
participating interest rate agreement or cap on part of the notional
principal altering the floating rate payments.
Participation - An option-like structure which provides a floor (capped)
return combined with reduced exposure to a favorable (unfavorable)return
on the underlying.
Participation Bond - A bond with a minimum required coupon and an
additional payment based on the issuer's earnings.
Participation Certificate - Referring to general equities, document
showing an interest in a pool of funds.
Partly Paid Bonds - Bonds issued in the United Kingdom with part of the
price paid at issuance and the balance paid in installments.
Partner - Business associate with equity in a company.
Partnership - Form of a company where ownership is shared among two or
more people.
Party at Interest - All persons providing services to an employee
benefit plan subject to ERISA regulation.
Pass-Through Coupon Rate - The interest rate paid on a pool of assets
which is less than the rate paid on the underlying loans by the amount
paid for guaranteeing and servicing fees.
Pass-Through Rate - Net interest rate passed through to the investor
once the management, servicing, and guarantee fees are deducted from the
gross mortgage coupon.
Pass-Through Securities - Fixed-income securities backed by a group of
assets (often mortgages) where the holder receives principal and
interest payments.
Passing the Book - Procedure by which control of a financial
intermediary’s risk positions are passed from one time zone to another
as to be tradable in a 24-hour market.
Passive Investment Management - Approach to investing where the manager
builds a well-diversified portfolio without making an effort to seek out
mispriced securities.
Passive Manager - An asset manager who invests assets in index
portfolios or in a diversified portfolio without attempting to select
individual securities.
Path Dependency - A situation in which the terminal value of a risk
management strategy depends on the particular path of the underlying
asset's price changes.
Path Dependent Option - An option whose value is determined by a
sequence of prices for the underlying asset as opposed to being
determined by just the final price of the underlying asset.
Path-Dependent Floating Rate Note - A floating rate note with embedded
caps or collars that limit the floating rate adjustment from one reset
to the next.
Pay Later Option (PLO) - Contract in which there is no upfront premium
paid, with the premium paid at expiration dependent on the price of the
underlying.
Pay-In-Kind (PIK) Securities - Securities with interest or dividends
paid in securities rather than cash.
Pay-Up - Referring to general equities, paying a higher price for shares
of a company one feels is worth it; the opposite of pay-down.
Payable Through Drafts - A method of making payment where the payer’s
bank delivers a document to the payer, the payer approves it, and
returns it to the bank. Payment is then received.
Payables - Short for accounts payable.
Payback - The length of time needed to recover a project’s initial cost,
not taking into account the time value of money.
Paydown - Referring to general equities, to pay a lessor price in the
accumulation of stock; the opposite of pay up.
Payer's Swaption - A swap option giving the holder the right to pay a
fixed rate and receive a floating rate in an interest rate swap.
Payment Date - Date on which shareholders of record are sent a dividend
check.
Payment Float - Company checks that have not yet cleared the bank.
Payment Netting - Term used when one party pays the net amount due when
partially offsetting swap payments are due on the same date.
Payment Versus Payment (PVP) - A simultaneous completion of payments in
foreign exchange markets.
Payment-In-Kind Bond - A bond that allows for the option to make coupon
payments either in cash or in additional bonds.
Payoff Diagram - A graph showing the value of an option position at
expiration as related to the underlying asset price.
Payout - The value of an option at expiration.
Payout Protected Option - A put or call with a strike adjustment feature
to offset unusual cash payouts.
Payout Ratio - A company’s cash dividend divided by the company’s
earnings in the same reporting period; the proportion of earnings paid
to the stockholders as cash dividends.
Peak - The point at which a price begins to decline after a period of
rising.
Pecking-Order View - Referring to capital structure, the opinion that
company’s have an order of preferred sources of financing, all things
equal. The most preferred source of funds is internally generated funds.
Pegging - The use of firm bid and offers which keeps a security price at
a designated level or within a narrow range. This form of price
stabilization is only legal during underwritings.
Penalty Bid - A stabilizing syndicate bid that leads to the loss of
selling concession by any syndicate member whose customers hit the bid.
Penny Stock - Referring to general equities, an over-the-counter stock
that generally trades for less than one dollar per share and is
considered to be a high risk stock.
Pension Benefit Guaranty Corporation - A federal agency that provides
insurance for the vested benefits of pension plan participants.
Pension Benefit Guaranty Corporation (PBGC) - United States government
agency that collects insurance premiums from sponsors of defined benefit
pension plans and assumes the assets liabilities of failed plans.
Pension Livrée - Strategy in French markets comparable to a repurchase
agreement.
Pension Plan - A fund established by a company for the payment of
retirement benefits to participating employees.
Pension Sponsors - Organizations that have pension plans in place.
Percent Cap - An interest rate cap contract with a payout that has a
percentage relationship to the payout on a normal cap.
Percent To Double - The percent that a stock price needs to rise (fall)
in order to double the price of the call (put).
Percentage Order - Referring to listed equity securities, a price order,
limited by the market, to buy/sell a percentage of the shares traded.
Percentage Premium - Often referring to convertible securities, the
premium over parity of a convertible bond divided by parity.
Perfect Capital Market - A market with no arbitrage opportunities.
Perfect Competition - A market where every participant is too small to
affect market price individually; no trader has enough influence to
change the prices of goods and services.
Perfect Hedge - A result where the profit and loss from the hedge
position and the underlying asset are equal.
Perfect Market View - Referring to capital structure, the opinion that a
company’s capital structure decisions are inconsequential in a perfect
capital market. Referring to dividend policy the opinion that a
company’s dividend policy is inconsequential in a perfect capital
market.
Perfected First Lien - A first lien that is recorded with the
appropriate government agency so that the lender will have recourse in
the event of default by the borrower.
Perfectly Competitive Financial Markets - A market where no single
trader has enough influence to change the prices of goods and services.
Performance Attribution System - System that breaks down the performance
of the separate decisions that build a portfolio.
Performance Bond - Any surety used to collateralize futures contract.
Performance Evaluation - The process of examining a money manager’s
performance.
Performance Index Paper (PIP) - Short term obligation in which the rate
is denominated and paid in a base currency but the rate movement is
based on the exchange rate with an alternate currency.
Performance Plus Shares - Instruments issued by a financial intermediary
which promises the buyer the total return from the underlying security
or index plus an additional return that the intermediary can obtain more
easily than the investor can.
Performance Shares - Shares of stock in the company given to management
based on job performance.
Performance-Linked Equity Securities (Perles) - Synthetic sharesin a
publicly traded corporation issued by a financial intermediary, often as
a mechanism to avoid tax or a regulatory obstacles.
Peril - An exposure to uncertain change.
Period Specific - The notion that a result depends on the particular
period it is measured in and is not representative of other past periods
or of the future performance.
Periodic Auction Reset Securities (PARS) - A synthetic tax exempt
floating rate note.
Periodic Cap - A condition of an adjustable rate mortgage that limits
the maximum rate charged for a specific period of time., typically 6-12
months.
Periodic Rate - The effective monthly interest rate.
Periodic Reset Swap - A swap with a floating rate payment based on the
average rate on the reference index rate rather than the rate on one
day.
Periodic Return - The percentage change in the value of an asset or
investment from the beginning to the end of a period, assuming no
additional contributions or withdrawals.
Perpetual Floating Rate Note - A floating rate note with no stated
maturity date.
Perpetual Preferred Stock - Fixed-rate preferred stock with no
participation in the issuer's profit and no promise of principal
repayment.
Perpetual Warrant - A warrant with no expiration date.
Perpetuity - An unending flow of cash in identical payments.
Perquisites - Benefits given to an employee, for example, a company car.
Personal Tax View - Referring to capital structure, opinion that the
difference in personal tax rates (income from debt and income from
equity) offsets the disadvantage due to the double taxation of equity
income (personal and corporate).
Personal Trust - A trust, or interest in an asset, that is controlled by
a trustee for the benefit of another person.
Peso Problem - Perception that currency which trades at a excessive
discount to a standard currency because of fear of a greater
devaluation.
Petrobond - A debt instrument with the principal repayment related to
oil prices.
Phantom Income - Reportable or taxable income attained without altering
an income statement or balance sheet.
Philadelphia Stock Exchange - Abbreviated as PHLX, a regional stock
exchange where a limited number of securities are bought and sold in the
third market.
Phillips Curve - A graphical expression of the relationship between
inflation and unemployment.
Phone Switching - Transferring shares between mutual funds in the same
family by telephone.
Physical Commodities - Agricultural and industrial products that may
underlie commodity futures contracts.
Pickup - The yield gained as a result of swapping a block of bonds for
another block with higher coupon rates.
Picture - Referring to listed equity securities, the bid and ask prices
quoted for a specific security.
Pie Model Of Capital Structure - Model of a company’s debt to equity
ratio shown in a pie chart.
Piece - Often refers to convertible securities, an increment of bonds
traded in portions.
Piggyback Registration - When an offering of new shares is sold in
combination with some existing shares.
Pin Risk - Risk that a small move in the underlying can have a highly
leveraged impact on the value of an at-the-money option shortly before
expiration.
Pink Sheets - Referring to over-the-counter trading, publication that
details bid and ask prices of unlisted stocks, published by the National
Quotation Bureau.
Pip - Referring to listed equity securities, the smallest denomination
of a currency.
Pit - A part of the trading floor where commodities, futures, and option
contracts are traded.
Pit Committee - - A committee that oversees the daily settlement of
futures contracts.
Pivot - A price level that is considered to be significant for a
particular security.
Placement - The deposit or sale of Eurodollars between two banks.
Plain Vanilla - Referring to derivative securities, simple,
uncomplicated.
Plan Assets - Classification of assets an employee benefit plan can
legally hold.
Plan For Reorganization - Plan put in place during a bankruptcy process.
Plan Sponsor - A person or other entity that acts on behalf of a plan’s
members.
Planned Amortization Class - A class of collateralized mortgage
obligations that is considered to be the lease risky due to a stable
cash flow.
Planning Horizon - The time period that is used by a model; the length
of time projected into the future.
Player - Referring to general equities, trader who is involved in the
stock market.
Playing the Yield Curve - Funding a long-term asset with short-term
liabilities.
Plaza Accord - An agreement reached in 1985 that attempted to drive down
the price of the dollar against other currencies and balance the U.S.
trade deficit.
Plug - A variable used to represent slack in a financial plan.
Plus - A plus at the end of a quote indicates the addition of 1/64th to
the quoted price.
Plus A Match - Referring to listed equity securities, term that
indicates that there is a trader on the floor who has equal standing to
yours, and wants to buy or sell at least as many shares at the same
price as your order.
Plus Tick - Referring to general equities, the opposite of minus tick; a
trade transacted at a price higher than that of the previous sale, also
called an up tick.
Plus Tick Seller - Referring to listed equity securities, another name
for a short seller.
Point - The smallest unit of price change.
Point And Figure Chart - A chart that records changes in prices.
Poison Pill - A strategy used to avoid takeover that entails the
purchase of firm stock at deep discounts.
Poison Put - A bond rule that allows the holder to demand repayment in
the event of a hostile takeover.
Political Risk - The risk inherent in doing business in a particular
country or political climate.
Ponzi Scheme - Any investment program that pays high returns to early
investors out of the capital contributed by later investors. Also called
Pyramid Scheme.
Pool Factor - A numeric expression (in decimals) of the outstanding
principal balance divided by the original principal balance.
Pooling Of Interests - Often referring to merged companies, the
combining of assets.
Portfolio - A group, or collection of investments; the collective
security holdings of an individual or group.
Portfolio Approach to Risk Management - Strategy by which an asset or
liability manager attempts to achieve an overall balance of risk and
return rather than focus on the risk of each position.
Portfolio Beta - Referring to general equities, a comparison between the
risk factor of a portfolio and that of the market in general.
Portfolio Insurance - A strategy used in order to ensure that a
portfolio’s value will not fall below a certain level.
Portfolio Internal Rate Of Return - A rate of return calculated by using
the cash flows for all the bonds in the portfolio in conjunction with
the interest rate that will make the present value of the cash flows
equal to the market value of the portfolio.
Portfolio Level - Referring to general equities, in the consideration of
the portfolio manager.
Portfolio Management - Another term for investment management.
Portfolio Manager - Referring to general equities, a person who is
responsible for a particular portfolio and its investments.
Portfolio R2 - Referring to general equities, the square of the
correlation of movement between the portfolio and the index; a number
between zero and one.
Portfolio Restructuring - Referring to derivative products, the process
of selling off undesired assets and purchasing desired assets.
Portfolio Separation Theorem - Assumption that an investor’s choice of
risky investments for a portfolio is not related to his/her personal
attitude toward risk.
Portfolio System for Institutional Trading - An electronic order trading
system for common stocks used primarily by institutional investors.
Portfolio Tilting - Technique in which investments are altered among
sectors in order to improve the overall performance of a portfolio.
Portfolio Trade - A transaction involving of a basket of stocks.
Portfolio Turnover Rate - The rate found by dividing the lesser of
purchases and sales by the average of portfolio assets.
Portfolio Variance - A measure of a portfolio’s variance found by
figuring the weighted sum of the portfolio’s asset covariance and
variances.
Position - An investor’s long or short holdings of a particular stock or
other security.
Position Diagram - A diagram that illustrates possible payoffs (returns)
form an investment.
Position Limit - Referring to derivative products, the maximum position
available in any one future or option contract.
Position Self - Referring to general equities, going long or short in
expectation of a stock’s movement.
Position Sheet - Referring to general equities, a sheet of paper showing
the long and short positions of a trader.
Position Trading - A trading strategy in which a market maker holds a
significant quantity of meaningful positions for a period of time rather
than attempting to trade out of a position by the end of the day to
avoid carrying it overnight.
Positive Carry - The benefit from carrying a position when the cost of
funds is less than the yield on the securities held.
Positive Convexity - Referring to option-free bonds, a characteristic
whereby the appreciation in price for a large downward change in
interest rates is greater than the price depreciation for the same large
downward change in interest rates.
Positive Covenant - Referring to option-free bonds, a characteristic
whereby the appreciation in price for a large downward change in
interest rates is greater than the price depreciation for the same large
downward change in interest rates.
Possessions Corporation - A type of corporation whereby a branch
operation in the US may enjoy the same tax benefits as a foreign
subsidiary would.
Post - A part of the exchange trading floor.
Post Execution Reporting System (PERS) - The American Stock Exchange's
electronic order entry and reporting system.
Post-Audit - Procedures used to evaluate a capital budget decision after
it has already been executed.
Postponement Option - The option allowing for the postponement of a
project without canceling it.
Posttrade Benchmarks - Prices used as benchmarks after the decision to
trade.
Potential Presettlement Exposure - Possible credit exposure that may
exist as market prices or rate movements become favorable before a
contract matures.
Power of Attorney - Authority given to one party by another to act on
their behalf.
Power Warrant - Warrant in which the payout is determined by the square
of a rate or spread.
Praecipuum - A fraction of the management fee of an underwriting taken
by the lead manager.
Pre-Commitment Capital Requirement - A proposal to allow a financial
institution set capital requirements that are suitable for the
institution’s line of business. If losses indicate that this capital
reserve was too small, the institution would face substantial penalties.
Pre-Settlement Credit Risk - The risk that a party defaults prior to the
settlement of a transaction.
Pre-trade Benchmarks - Prices that exist prior to trade.
Preauthorized Check - A check that is authorized by the payer and then
written by the payee before being deposited into the payee’s account.
Preauthorized Electronic Debits - Payments that are made by the payer’s
bank sending funds to the payee’s bank via the Automated Clearing House
system.
Precautionary Demand - Meeting unexpected circumstances with a buffer
stock of cash.
Precautionary Motive - The desire to hold cash in order to be prepared
for unexpected events that require may cash.
Prediction Bias - The trend of forward interest rates to forecast higher
future spot interest rates than the rates that actually occur.
Preemptive Right - The right of a stockholder to anything of value that
the firm distributes.
Preference - Referring to over-the-counter trading, the act of selecting
a dealer to handle a trade even through that particular dealer’s market
may not be the best available.
Preference Stock - Junior preferred stock.
Preferred Equity Redemption Stock - Abbreviated as PERC, a preferred
stock that automatically converts into equity at a specified date.
Preferred Habitat Theory - A theory stating that the term structure
reflects the expectation of the future path of interest rates along with
risk premium.
Preferred Shares - Shares that give the holder a fixed dividend and the
right to get paid before common shareholders.
Preferred Stock - A security that gives ownership in a firm while also
giving the holder of the stock a claim that is honored before that of a
holder of common stock. Preferred stocks seldom carry voting rights.
Preferred Stock Agreement - A contract for an amount of preferred stock.
Preliminary Prospectus - A early version of a prospectus.
Premium - The amount paid above the market price or a prior price; any
amount paid above a reported value.
Premium Bond - A bond that sells for a price that is higher than its par
value.
Premium Business - In Switzerland, a call option contract which gives
the buyer the right to buy the shares on the due date or cancel the
contract.
Premium Currency - A currency in which interest rates are lower than
rates in the reference currency.
Premium Free Option - Option where the premium is 'paid' with the
premium from the sale of another option.
Premium Income - The proceeds from the sale of an option contract.
Premium Neutral Option - A multiple option position in which there is no
net premium exchanged between the two parties.
Premium Put Convertible Bond - Convertible bond which the investor can
put to the issuer it at a premium over parity during specified periods
over the life of the bond.
Premium Trigger Option - An option in which there is no premium upfront,
and the premium payment is triggered when the underlying is above the
strike price of a call option or below the strike price of a put.
Premium-Coupon Synthetic Collateralized Mortgage Obligation - Any
combination of discount coupon interest-only and principal-only strips
used to create a mortgaged-backed instrument with slow prepayment and an
premium current yield.
Prepackaged Bankruptcy - A bankruptcy in which a company and its
creditors negotiate a plan for reorganization and that is filed along
with the bankruptcy petition.
Prepaid Swap - A transaction in which the present value of future
payments on one side of a swap is paid up front and the other side
payments are paid over a period of time.
Prepayment - A payment of principal prior to the required payment date.
Prepayment Option - An embedded call option that an issuer may use to
retire or refinance a bond prior to its nominal maturity.
Prepayment Risk - The risk of opportunity cost associated with early
principal repayment of high yield debt instruments.
Prepayment Speed - The rate at which mortgagors pay off their loans
ahead of schedule.
Prepayments - Extra payments made in addition to scheduled mortgage
payments.
Prerefunded Bond - Another term for a refunded bond.
Prescribed Right to Income and Maximum Equity (PRIME) - An Americus
Trust Unit’s income component; the equivalent of a five-year
covered-call writer's position at issuance.
Present Value - The cash equivalent today for an amount of cash to be
received in the future; determined by multiplying future cash flow by a
present value factor.
Present Value Of Growth Opportunities - The net present value of
investments that a company expects to make in the future.
Presold Issue - An issue that sells out prior to the coupon
announcement.
Price Compression - The act of limiting the price appreciation potential
for a callable bond during a time of declining interest rates, with the
idea that the bond will be redeemed at its call price.
Price Discovery Process - Method of determining asset prices by taking
into account the interactions of buyers and sellers.
Price Elasticities - The extent to which a price change will affect
demand; the dividing the percentage change in quantity by the percentage
change in price.
Price Give - Referring to general equities, willingness of a trader to
negotiate on price.
Price Jump - An rapid change in an asset’s price that prevents anyone
trading the asset to buy or sell at an intermediate price.
Price Limits - A system which confines the change in price on certain
futures in a trading session.
Price Of Admission - Referring to general equities, the cost to a broker
as a result of competing aggressively in order to get a particular
customer’s business.
Price Risk - The possibility that a security’s value will decline in the
future.
Price Takers - Investors who act as if they have no influence on prices
and interest rates.
Price Value Of A Basis Point - Measure of the influence that a change in
a bond’s required yield has on the bond price (when the required yield
changes by one basis point).
Price-Volume Relationship - The connection between a security’s prices
and the volume at which that security is traded.
Price/Book Ratio - A comparison of a stock’s market value to its book
value (value of total assets less total liabilities); proportional
measure calculated by dividing the current stock price by its book value
(with adjustments for stock splits).
Price/Earnings Ratio - A tool used to analyze a stock price calculated
by dividing the current stock price by its current earnings per share
(with adjustments for stock splits); the ratio of a company’s current
market value divided by the previous twelve month’s earnings per share.
Price/Sales Ratio - Measure calculated by dividing the current stock
price by revenue per share (with adjustments for any stock splits
Priced Out - A price that already has a piece of information
incorporated into it.
Pricey - Referring to general equities, term describing either a very
high offer price or a very low bid price.
Pricing Efficiency - A market trait where prices fully reflect all
available relevant information.
Primary Dealer - A securities company that is authorized to deal in new
issues of government bonds.
Primary Distribution - Referring to general equities, the sale of a new
issue of stocks or bonds.
Primary Market - The market where a new security issue is bought. All
trading of that issue after the first buy is considered to be in the
secondary market.
Primary Offering - The first sale of newly issued shares by a company to
investors.
Prime Rate - Interest rate banks charge their most credit worthy
customers; a benchmark rate used to establish other interest rates.
Primitive Security - A debt instrument for which payments depend solely
on the financial status of the issuer.
Principal - The amount of money being borrowed or lent; also a person or
entity for which an agent works.
Principal Amount - The amount of money being borrowed or lent.
Principal Exchange Rate- Linked Securities (PERLS) - Bond which pays
both coupon and principal in the base currency, but the variable
principal payment is inversely related the exchange value of a foreign
currency compared to the base currency.
Principal Of Diversification - Theorem stating that highly diversified
portfolios can reduce or eliminate unsystematic risk, but systematic
risk can not be eliminated.
Principal Only - Mortgage backed security that only pays the holder
principal cash flows on the underlying mortgage pool.
Principal Protected Note - A note which guarantees to return- at least-
the investor's principal investment.
Principal Relationship - Relationship in which a dealer buys or sells
securities to a customer, acting as a counterparty.
Principal Risk - The risk of losing part of the nominal amount of an
investment.
Principles and Practices for Wholesale Financial Market Transaction - A
derivatives industry text intended to characterize the relationship
between derivatives dealers and it’s users.
Print - Another term for a trade; also, to execute a trade.
Priority - Referring to listed equity securities, priority, or
preference, is given to the offer that is higher when two offers come in
at the same time.
Private Export Funding Corporation - A firm that mobilizes private
capital for the finance of the export of expensive items by US
companies..
Private Market Valuation (PMV) - The valuation of a company that may be
a takeover target in terms of it’s enterprise value as opposed to it’s
value in the securities market.
Private Placement - The opposite of a public offering, the sale of
unregistered securities to a limited number of investors, often to be
used as an investment rather than for resale.
Private Unrequited Transfers - Transfers of assets that involve no
exchange such as inheritances, prices, gifts, charitable contributions,
etc.
Privately Negotiated Derivatives (PND) - Derivatives contracts traded
over-the-counter.
Privatization - The act of a government relinquishing control of a
company, returning it to the private sector.
Pro Forma Capital Structure Analysis - Analysis of the impact that a
particular capital structure would have on a company’s financial results
and credit statistics.
Pro Forma Financial Statements - Financial statements that show
projections of results brought on by a planned transaction.
Pro Rata Strip (PRS) Bond - A collateralized mortgage obligation that
pays a fixed principal towards the return of collateral.
Probability - The likeliness of an outcome among all possible outcomes.
Probability Density Function - The probability distribution for a
continuos random variable.
Probability Distribution - A breakdown of all the values that a random
variable can represent and the probability associated with each.
Probability Function - Function that assigns probabilities to each
possible outcome.
Probability Mass - Used in option analysis to determine if an option
value is equal to or greater than the exercise value.
Product Cycle - The time period needed to bring a new product to the
market.
Product Risk - The risk involved when inventory does not have a
commitment for sale at a designated price.
Production Payment Financing - A finance agreement where a percentage of
revenue from the sale of a project’s output is used to pay the debt.
Profile Buyer/Seller - Referring to general equities, a trader who tries
to get involved in a stock by coming out as a buyer/seller in an attempt
to draw a call from a customer.
Profit - Revenue less cost; the gain from the sale of a security, asset,
or commodity.
Profit Margin - The ratio of net income to revenue; a profitability
ratio.
Profit Taking - Referring to general equities, cashing-in on gains;
selling in a stock that is motivated by the perceived overvaluation of
the stock.
Profitability Index - Ratio of the present value of the future cash
flows divided by the initial investment.
Profitability Ratios - Measurements of the profitability of a company
(for example, profit margins, and rate of return ratios).
Program Trades - Another term for basket trades, a trade that requires
the execution of trades in a large number of different stocks at the
same time.
Program Trading - The process of electronically executing transactions.
Progress Review - A review conducted periodically in order to evaluate a
project’s economic viability.
Progressive Tax System - A tax program there the average tax increases
with increases in income, but never decreases.
Prohibited Transaction - Any act of business by or on behalf of an ERISA
plan with any company or person defined as a 'party at interest'.
Project Financing - Asset-based financing whereby a company finances a
set of assets on a stand-alone basis.
Project Loan Certificate - A program through which Ginnie Mae secures
FHA insured and co-insured multi-family home loans.
Project Loan Securities - Securities backed by FHA insured loans.
Project Loans - Mortgages on multi-family housing complexes that are FHA
insured and HUD guaranteed.
Project Notes - A written obligation to pay issued by a municipality in
order to finance programs in urban renewal and housing, guaranteed by
HUD.
Projected Benefit Obligation - A projection of a pension plan’s
liability.
Projected Maturity Date - Referring to collateralized mortgage
obligations, the last and final payment at the end of the estimated cash
flow window.
Promissory Note - A promise to pay in writing.
Property Rights - The rights to the ownership and utilization of real
property.
Proprietary Trading - Referring to general equities, principal trading
where a company is in pursuit of capital gains as opposed to
commissions.
Prospect Theory - Theory that people do not always behave rationally
during uncertainty.
Prospective Earnings Growth Ratio - A measurement based on earnings
growth forecasts.
Prospectus - Legal document that describes an investment, used to sell
securities; also called an Offering Memorandum.
Protect - The act of an agent looking after the interests of the
customer.
Protected Equity Participation (PEP) - Guaranteed note with upside
participation in one or more stocks.
Protected Index Participation (PIP) - Principal guaranteed equity
index-linked notes with upside index participation.
Protectionism - A political stance involving the protection of domestic
industry from competing foreign industry by the use of trade barriers.
Protective Covenant - A covenant or rule, that is part of a loan
agreement, limiting a company’s actions in order to protect the
interests of the lender.
Protective Put Buying Strategy - A approach in which one buys a put
option on an underlying security that is held in a portfolio.
Provisional Call Feature - A feature in a convertible issue that allows
the issuer to call the issue if the stock price reaches a predetermined
level during the non-call period.
Proxy - A document used to convey a shareholder’s vote.
Proxy Contest - A struggle for control of shareholder’s votes in order
to get a new slate of directors elected. Often occurs in conjunction
with a takeover attempt. Also referred to as a proxy fight.
Proxy Hedging - The use of one currency which is correlated to another
currency to hedge a particular risk when one cannot use a direct hedge.
Proxy Vote - A vote cast on behalf of a shareholder.
Prudent Expert Rule of ERISA - Rule applied to the Employee Retirement
Income Security Act (ERISA) that requires a fiduciary manage a portfolio
with a high degree of discretion and responsibility to the best
interests of the portfolio.
Prudent Man Rule - Rule that requires that a trustee conducts himself
faithfully and exercise sound discretion in the daily management of an
investment policy.
Public Offering - Referring to general equities, an offering of
registered securities to the public; the opposite of a private
placement.
Public Sector Borrowing Requirement (PSBR) - The budget deficit in the
United Kingdom.
Public Securities Administration - An association for dealers in US
government securities.
Publicly Traded Assets - Assets that are traded in the stock market.
Pull - Referring to general equities, to cancel.
Pundit - A derisive term for an alleged expert on one or more segments
of the financial markets.
Purchase - To buy.
Purchase Accounting - Accounting approach used for a merger where the
acquiring company is treated as if they have purchased the assets and
assumed the liabilities of the other company. The liabilities and assets
are then marked up or down to fair market values. The difference between
what the acquiring company paid and the market price is then attributed
to goodwill.
Purchase Agreement - An agreement to purchase a specified amount of
product at a specified time.
Purchase And Sale - A method used to distribute securities where the
securities company purchases the securities and then resells them.
Purchase Fund - A corporate bond indenture where the money is used
solely for the purchase of bonds if they are selling below their market
value.
Purchase Method - An accounting approach used in acquisitions for the
consolidation of assets.
Purchasing Power Parity - The belief that the ratio between foreign and
domestic price levels will be equal to the exchange rate between foreign
and domestic currencies.
Pure Expectations Theory - A theory involving market expectations and
future rates.
Pure Index Fund - A portfolio that mirrors the market portfolio.
Pure Yield Pickup Swap - Swap where one moves to higher yield bonds.
Pure-Discount Bond - Another name for a zero-coupon bond; a bond that
will make a single payment of principal and interest.
Purgatory and Hell Bond - A heaven and hell bond with a ceiling on the
redemption proceeds.
Put - An option that allows for the sale of the underlying futures
contract; the opposite of a call; a contract to sell a security at a
specified price by a specified date.
Put An Option - The act of exercising a put option.
Put and Call Brokers and Dealers Association (PCBDA) - A self-regulatory
organization for the over-the-counter stock option market in the United
States.
Put Away - Referring to general equities, to buy interest.
Put Bond - A bond that allows the holder to either exchange it for par
value at a certain date or extend it.
Put Guarantee Letter - An instrument to assure performance by the seller
of a put option through bank collateralization.
Put On - Referring to listed equity securities, to trade a block of
stock.
Put Option - A security that extends investors the right to sell a set
number of shares at a set price within a given time frame.
Put Price - The strike price of a put option; the price at which an
asset will be sold if a put option is exercised.
Put Provision - A stipulation that allows the holder of a floating-rate
bond the right to redeem a note at par on the payment date.
Put Spread - A spread consisting of a long position and a short position
in puts on the same underlying.
Put Warrant - A security that gives the holder the right to sell the
underlying or to receive a cash payment that increases as the value of
the underlying declines.
Put/Call Parity - Referring to derivative products, a law stating that a
put and call of the same class must have a static price relationship.
Put/Call Parity Relationship - Relationship between the price of a put
and that of a call on the same underlying security, with the same
expiration date. Such a relationship does not allow for arbitrage
opportunities.
Put/Call Ratio - The number of puts divided by the number of calls
traded in a market.
Puttable Extendible Notes - Note which the issuer may at par or attempt
to extend the maturity on terms that he believes the note holder will
accept. If the new rate is unacceptable, the holders may put the bond at
par.
Puttable Notes - A note with an embedded put which allows the bond
holder to sell the notes back to the issuer, usually at par.
Puttable Range Floater - An index-range note which allows the holder to
sell the note back to the issuer at par as a result of a large adverse
interest rate move.
Puttable Stock - A unit which gives the buyer the right to put the stock
back to the issuing corporation and usually gives the holder the right
to obtain more shares at no additional cost if the market price of the
shares falls below a predetermined level.
Puttable Swap - A swap in which the fixed rate receiver has the right to
terminate the swap on one or more dates prior to its scheduled maturity.
The put is designed to protect the receiver from large increases in
fixed rates.
Pyramid Scheme - An illegal program where investors are encouraged to
invest with the promise of a large return, but any returns that are paid
are merely the funds invested by newer investors.
Pyramiding - The practice of using excess buying power generated by a
successful speculative operation to increase the commitment to that
operation. |
