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Terms Beginning With P - Z
P
The anticipated level of price changes in the economy from the quantity theory of money, which postulates that changes in the stock of money (i.e., the money supply), however defined, multiplied through the velocity of money, is equal to the change in the price level times the real growth in Gross Domestic Product (GDP). Under monetary economics, the quantity theory of money has important implications on the concepts of economic growth, inflation, and the role of monetary policy to both stabilize prices and produce maximum non-inflationary economic growth. In equation form:
M x V = P x T
where:
* M = the money supply, normally defined as M2;
* V = the velocity of the money supply, or the number of times this quantity of money "turns over" in a given year to support economic output;
* P = the rate of price level changes (inflation); and
* T = equals the level of long-term, historical average rate of growth in real GDP given resource restrictions and other limiting factors.
* As an alternative conceptualization, the quantities "P" and "T" can also be thought of as an average price level for all the goods and services comprising economic output (GDP) and the number of transactions making up GDP, respectively.
P/E Price/Earnings Ratio
Referred to as "the multiple." It's the price of a stock divided by either its latest 12-month earnings per share (trailing P/E) or its anticipated earnings (forward P/E). For example, if last year's earnings were $2 per share and the stock is trading for $20, the trailing P/E would be 10x. The ratio reflects overall investor sentiment about the stock. In evaluating a stock's P/E, investors should look at its P/E history (ratio history) as well as the P/E's of other similar companies. If investors should take a shine to what had been an unfamiliar stock, its multiple could expand, meaning each penny of EPS would translate into that much more market value than before.
Package Mortgage
(1) Mortgage covering both real and personal property. (2) A mortgage arrangement whereby the principal amount loaned is increased because personalty (e.g., appliances) as well as realty serve as collateral.
Pad Site
An individual freestanding site for a retailer, often adjacent to a larger shopping center.
Paid-In Capital
(1) The capital stock of a financial institution subscribed to and paid by is stockholders; the amount of money contributed by stockholders to obtain a bank charter and commence business operations. (2) Often called "additional paid-in capital," this consists of funds a corporation receives in excess of the par value of its stock when it sells stock. Paid-in capital can also be increased when a company declares a stock dividend.
Panic
A sudden loss of public confidence in the financial markets leading to rapidly falling security prices and business failures.
Paper
(1) Credit given, evidenced by a written obligation that b backed by property. (2) A mortgage, deed of trust or land contract which is given instead of cash. (3) A generic term used for short-term debt instruments such as commercial paper and bankers' acceptances.
Paper Gain (or Loss)
A popular term used to describe the unrealized capital gains or losses in an investment portfolio or an open position in options or futures trading. Paper gains or losses are not realized until securities are sold, a futures position is liquidated, or an option to sell is exercised. Paper gains are also referred to as paper profits.
Paper Profit
An unrealized profit on a security that is still held. Paper profits become realized (cash) profits only when the security is sold.
Paper Title
The title of a person evidenced only by deeds or matter appearing of record under the recording statutes.
Par
(1) The face value of a stock or bond. Also called par value. (2) In the case of a common share, par is the dollar amount assigned to the share by the company's charter. Par value may also be used to compute the dollar amount of the common shares on the balance sheet. Par value has little significance so far as market value of common stock is concerned.
Par Value
(1) The face value of a security or financial instrument which is the value paid to the holder upon maturity or redemption. In terms of common stock, the par value is the nominal value assigned by the corporate charter and has no financial relevancy after the initial issue date. Also referred to as face value. (2) Under the 1944 Bretton Woods system, the value of a currency measured in terms of gold or the U.S. dollar, which was maintained at a fixed rate relative to gold.
Paradox of Thrift
The idea that if everyone tries to be thrifty and save more, the economy will slow down and soon people will lose their jobs (their sources of income) and wind up saving less than before.
Parcel
A part of portion of a piece of land.
Parent Company
A company holding all or a majority of the stock of another company, which is called a subsidiary.
Pareto Optimum
A situation in which all marginal conditions of economic efficiency are fulfilled simultaneously.
Parity Prices (for Agricultural Products)
(1) The idea that the prices farmers get for the farm products they sell should go up as much as the prices of the things that farmers buy. (2) The 1910-14 relationship between the prices received by U.S. farmers for agricultural goods and the prices paid by them for nonagricultural goods.
Parol
Verbal, not in writing.
Parol Contract
An oral contract as compared to one that is in writing.
Parol Evidence
The legal rule which prevents previous oral or written negotiations to a signed contract from changing the contract.
Parol Evidence Rule An evidence rule of law which says that oral agreements which modify the subject matter of a written contract will be inadmissible in a court of law for the purpose of contradicting what is written in the contract.
Partial Equilibrium
A situation in one part of the economy that contains no innate tendency to change because, for example, an individual household has maximized utility, an individual firm maximized profit, or an individual market equated supply and demand, given, in each case, assumed data concerning the rest of the economy.
Partial Interest
A less than fee simple interest in real property.
Partial Release
A release of a portion of property covered by a mortgage.
Partial Taking
Acquisition by condemnation of only part of the property or some property rights.
Partially Amortized Mortgage
A method of loan repayment in which the balance of the outstanding loan is not zero at maturity and thus a balloon payment is required.
Participation
See loan participation.
Participation (or Participating) Mortgage A mortgage that allows the lender to share in part of the income or resale proceeds.
Participation Certificate (PC)
A certificate representing an undivided interest in a pool of conventional mortgage loans which entitles the certificate holder rights to the principal and interest payments.
Partition
(1) The division of real property between those who own it with undivided interest. (2) The forced division of land among parties who were formerly co-owners. A partition suit may ask to divide the land or if that is not practical, sell the land and divide the proceeds.
Partnership
(1) A voluntary association of two or more persons for the purpose of conducting a business for a profit. (2) An agreement between two or more entities to go into business or invest. Either partner may bind the other, within the scope of the partnership. Each partner is liable for all the partnership's debts. A partnership normally pays no taxes, but merely files an information return. The individual partners pay personal income tax on their share of income.
Party Wall
A wall built along the line separating two properties, partly on each parcel. Either owner has the right to use the wall and has an easement over that part of the adjoining owner's land covered by the wall.
Passbook
An account at a financial institution whose ownership is evidenced by entries in a nonnegotiable book that must be presented with each deposit or withdrawal and for entries requiring interest payments.
Passed Dividend
A regular or scheduled dividend that has been omitted.
Passive Activity
Income Under the 1986 tax act, is generated by: (1) Any trade or business conducted for profit in which the taxpayer does not materially participate; (2) Any rental activity, whether or not the taxpayer materially participates.
Passive Income
(1) Generally, income from rents, dividends, interest, and gains from the sale of securities. (2) A new meaning created by the Tax Reform Act of 1986, distinguishes passive income or loss from active income and portfolio income.
Passive Income Generator
A business or investment that produces passive income which can be used to offset passive losses.
Passive Investor
(1) One who invests money but does not manage the business or property.
Passive Investor
An investor who lends money for a project but takes no active interest in the management. The difference between being an active investor and a passive investor has implications on gains and losses as well as income tax treatment.
Passive Trust
A trust that is created without imposing any duty to be performed by the trustee and is therefore treated as an absolute transfer of the title to the trust beneficiary.
Pass-Through Certificates (or Securities)
Interests in a pool of mortgages sold by mortgage bankers to investors. Money collected as monthly mortgage payments is distributed to those who own certificates.
Pass-Through Security
A security, normally based on a pool of underlying loans, that "passes through" principal and interest payments from borrowers to investors. Servicing the underlying loans is normally done by the seller who retains a servicing fee. The effective maturity of such securities is typically shorter than the underlying loans due to refinancing that may take place during periods of falling interest rates, which is out of the control of the security holders.
Past Due
A loan payment which is not made on its specified date and therefore subject to late charges after an allowable grace period.
Patent
(1) An exclusive right to the use of an invention. (2) Conveyance of title to government land.
Payback Method
A criterion for selecting investment projects that rejects all projects the returns of which require more than a predetermined length of time to repay the initial investment outlay.
Payback Period
(1) A measure of the time period in which a project will pay back its initial capital investment. Typically the cash flows from a project will be discounted (discounted payback); however, unlike analysis under net present value determination, no credit is given to cash flows after the payback or cutoff date. (2) The number of years it takes for initial investment outlays to be paid back by (undiscounted) future receipts. (3) The amount of time required for cumulative estimated future income from an investment to equal the amount initially invested. It is used to compare alternative investment opportunities.
Paydown
The partial reduction of debt as when a consumer makes payments on an outstanding credit card account.
Payee
The party named as the beneficiary of a check or negotiable instrument; the person to who a check is written.
Payer
The party responsible for making payment of the amount written on a check, draft, or other payment instrument; the writer of a check.
Payer Bank
The bank responsible for paying a check written on its own bank.
Paying Agent
An agent, normally a commercial bank, authorized by a securities issuer to make periodic principal and interest payments to the bondholders.
Paying Bank
The bank on which a draft is drawn. Also called drawee bank.
Payment Cap
(1) A limiting restriction as part of an adjustable rate mortgage (ARM), which limits the adjustment of monthly payments by a certain amount, normally a percentage of the previous monthly payment. Payment caps may be set for specific periodic adjustments such as an annual cap or a life of loan cap. (2) A contractual limit on the percentage amount of adjustment allowed in the monthly payment for an adjustable rate mortgage at any one adjustment period. Generally it does not affect the interest rate charged. If the allowable payment does not cover interest due on the principal at the adjusted rate of interest, negative amortization will occur.
Payment Date
The date on which a declared stock dividend is scheduled to be paid.
Payment Float
Checks written by a company that have not yet cleared.
Payment Shock
A term used to describe the occurrence when the monthly payment of an adjustable rate mortgage (ARM) rises significantly at the first rate adjustment date. Typical of an end to a special introductory period when rates were established as a "teaser" well below market interest rates.
Payment System
The foundation of the financial system supporting the transfer of funds from savers to borrowers and from payers to payees. Without such a system of rapid, secure, and cost- effective funds transfers, economic transactions would be severely restricted and economic growth and development significantly impaired. As a cornerstone of an economy's viability, the importance of a strong financial system and effective and efficient payment system cannot be overstated.
Payment-in-Kind Program
A government program in which farmers who comply with a voluntary acreage-control program and set aside an additional percentage of acreage specified by the government receive certificates that can be redeemed for government-owned stocks of grain.
Payoff (Pay-Off) Amount
A total balance, amount of a full payment on existing loan or lien.
Payoff Statement
A document prepared by a lender for a borrower considering paying off a loan, showing the principal balance outstanding (payoff amount), payments due, and other terms and conditions of the original loan amount.
Payoff Table (Decision Theory)
A summary of a decision-making situation in the context of uncertainty, consisting of a tabular listing of the payoffs associated with all possible combinations of actions and events.
Payoffs
In decision theory, the positive or negative net benefits that are associated with each possible action/event combination and that are thus the joint outcome of choice and chance.
Payor Bank
A bank by which an item is payable as drawn or accepted. (Article 4 of the U.C.C.: Bank Deposits and Collections)
Payout Ratio
(1) The percentage of earnings paid out in the form of dividends. (2) The percentage of earnings paid out in dividends, calculated by dividing dividends per share by earnings per share. The payout ratio provides an idea of how well earnings support the dividend payments - the lower the ratio, the more secure the dividend.
Pecuniary Externality
A situation in which the input prices paid by one firm are affected, favorably or unfavorably, by the operation of other firms.
Pecuniary Legacy
A general legacy of a specified amount of money without indicating the source from which payment is to be made.
Peg (Pegging)
(1) Manipulation of the price of a security or the value of a currency to a certain level or within a certain range. (2) A market stabilization action taken by the manager of an underwriting group during the offering of new securities. Pegging is done by continually placing orders to buy at a specified price in the market.
Penalty
Money one will pay for breaking a law or violating part or all of the terms of a contract.
Penny Stocks
(1) Low-priced issues, often highly speculative, selling at less than $1 a share. Frequently used as a term of disparagement, although a few penny stocks have developed into investment-caliber issues. (2) Generally thought of as a recently issued stock selling for less than $5 a share and traded over the counter. Penny stocks are usually issued by small, relatively unknown companies and lightly traded, making them more prone to price manipulation than larger, better-established issues. They are, in short, a gamble.
Pension Contribution
The amount paid into a pension plan by an employer (or employee), pursuant to the terms of the plan, state law, actuarial calculations or some other basis for determinations.
Pension Fund
(1) Contributions out of current income by employers and employees for the purpose of accumulating retirement income. (2) A fund set up consisting of tax-free payments made by corporations, governmental agencies, or other organizations to provide post-retirement income for eligible workers. These funds, termed institutional investments, are among the largest investments in the stock market and also play an important role in the purchase of mortgage-backed securities. In addition to their tax-exempt status of regular payments, pension funds are also exempt from taxation on capital gains.
Pension Obligation
A generic term for that portion of the actuarial present value of total projected benefits estimated to be payable in the future as a result of employee service to date, with the portion attributable to credited service to date calculated with or without projected salary increases. Stated differently, it is benefits attributable to (a) retirees, beneficiaries and terminated employees entitled to benefits and (b) current covered employees, as a result of their credited service to date.
Pension Trust Fund
A trust fund used to account for a public employees' retirement system (PERS). Pension trust funds, like nonexpendable trust funds, use the accrual basis of accounting and have a capital maintenance measurement focus.
Per Capita Debt
The amount of a government's debt divided by its population. Per capita debt is used to indicate the government's credit position by reference to the proportionate debt home per resident.
Per Stirpes
(1) A legal method of distributing an estate to include the descendants of a deceased legatee, whose share is apportioned among linear descendants. (2) According to the proof or by way of representation. Distribution among heirs related to the decedent in different degrees, the property being divided into lines of descent from the decedent and the share of each line then divided within the line by way of representation.
Percentage Lease
A lease of property in which the rental is based on a percentage of the volume of sales made upon the leased premises. It usually stipulates a minimum rental and is regularly used for retailers who are tenants.
Percentage of Completion
A method of revenue recognition that allocates the estimated gross profit on a long-term project among the several accounting periods involved, in proportion to the estimated percentage of the contract completed each period.
Percentage of Sales Method
Method of forecasting financial requirements by expressing various balance sheet items as a percentage of sales, then using these percentages with expected future sales to construct pro forma balance sheets.
Percentage Rent
Rent payable under a percentage lease. Typically the percentage applies to sales in excess of a pre-established base amount of the dollar sales volume.
Percolation Test
A procedure to measure the drainage characteristics of the soil on a lot. Such tests are required in the proper design of septic tank drainfields.
Perfect Competition
A market structure which extends the requirements of pure competition, i.e., large number of firms, homogeneous (i.e., non-differentiated) products, and freedom of entry and exit from the industry. In addition, perfect competition also requires that: (1) there exists perfect knowledge (information) among all buyers and sellers about the conditions in the market such that slight variations in market prices can be quickly returned to "normal" based on supply and demand conditions; (2) there must be complete mobility of factors of production between industries; and (3) all producers work in such proximity to one another so there are no transportation costs which would affect market prices among the output of different producers.
Perfect Foresight
The situation that exists when all economic units accurately forecast future values of relevant economic variables.
Perfect Knowledge
A fundamental assumption of the existance of perfect competition whereby all consumers and suppliers of a market have complete knowledege of market conditions with respect to supply, demand and prices and use that information in an arbitrage manner so as to remove slight price differences to yield an equilibrium price across all markets.
Perfect Liquidity
The ability of an asset to be transformed without loss of value and at a moment's notice into any other asset.
Perfect Price Discrimination
See first-degree price discrimination.
Perfect Title
A title to real estate that is free from liens, encumbrances, or other defects.
Perfected Lien
A security interest in the collateral securing a debt obligation protected from claims made by third parties. This security interest is normally formalized in the loan contract giving the lender priority status ahead of other creditors filing subsequent liens on the same property.
Perfectively Competitive Market
A market in which there is a large number of independent buyers and also of sellers, all units of the traded item are viewed as identical, all buyers and sellers possess full knowledge relevant to trading, and nothing impedes entry into and exit from the market.
Performance
In contract law, the completion of duties and obligations specified in a contract.
Performance Auditing
A systematic process of objectively obtaining and evaluating evidence regarding the performance of an organization, program, function or activity. Evaluation is made in terms of its economy and efficiency of operations, effectiveness in achieving desired regulations, for the purpose of ascertaining the degree of correspondence between performance and established criteria and communicating the results to interested users. The performance audit function provides an independent, third-party review of management's performance and the degree to which the performance of the audited entity meets prestated expectations.
Performance Bond
(1) A bond that calls for certain monetary payments to a beneficiary if the maker fails to perform some specified acts in violation of a contract. Also referred to as a standby letter of credit. (2) One issued by an insurance company; posted by a party who is to perform certain work. If the work is not performed, the insurer promises to complete the work or pay damages up to the amount of the bond.
Performance Bond Margin
The amount of money deposited by both buyer and seller of a futures contract or an options seller to ensure performance of the term of the contract. Margin in commodities is not a payment of equity or down payment on the commodity itself, but rather it is a security deposit. See customer margin and clearing margin.
Period Costs
Those costs identified with and recognized as expenses of the operating period in which they are incurred.
Periodic Inventory Method
A method of accounting for inventories in which no record is made in the inventory account for the purchase or sale of merchandise at the time of such transactions.
Periodic Rate
The finance charge, applied at specified periods (i.e., daily, monthly, etc.) on consumer credit loan balances expressed as a percentage. The periodic rate must be disclosed in consumer credit applications or loan agreements.
Permanent Financing
The long-term mortgage loan obtained by a borrower upon completion of construction.
Permanent Income Hypothesis (PIH)
A theory of consumption spending developed by monetary economist Milton Friedman. It postulates that economic units determine their present consumption based on their permanent income—the income which the unit expects to receive over the balance of its lifetime. More formally, permanent income is the current asset value of the lifetime income stream consisting of both labor and property income.
Permanent Mortgage
(1) A mortgage on completed construction on the same property under one mortgage or trust deed. (2) A mortgage for a long period of time (over 10 years).
Permit
A document, issued by a government regulatory authority, that allows the bearer to take some specific action.
Perpetual Inventory
A system whereby the inventory of units of property at any date may be obtained directly from the records without resorting to an actual physical count. A record is provided for each item or group of items to be inventoried and is so divided as to provide a running record of goods ordered, received, and withdrawn, and the balance on hand, in units and frequently also in value.
Perpetual Inventory Method
A method of accounting for inventories where both purchases and sales of merchandise are reflected in the inventory account at the time such transactions occur.
Perpetual Succession
A phrase describing the continuing life of the corporation unaffected by the death of any stockholder or the transfer by stockholders of their stock.
Perpetuity
(1) A stream of equal future payments expected to continue forever. (2) The condition of being never ending. Most states attempt to outlaw perpetuities because of potential problems. A perpetual income stream may cause bankruptcy. A deed that keeps property in a family in perpetuity can cause financial hardship.
Person
(1) In law, an entity having legal responsibility. Legally, a natural person is a human being who has reached majority. (Compare with minor.) An artificial person may be a corporation; in some instances partnerships, governments, and certain other bodies are considered persons. (2) A term that includes both natural persons, or living people, and artificial persons, as corporations which are created by act of government.
Personal Distribution of Income
The apportionment of national income among persons, each of whom is likely to receive several types of income.
Personal Exemptions
A prescribed amount that a taxpayer may deduct for himself or herself and each qualified dependent in computing taxable income. Additional exemptions are allowed for taxpayers who are 65 years of age or older and/or blind.
Personal Identification Number (PIN)
The unique identification numeric code, usually consisting of four to six digits, used by bank customers to access their account balances when using self-service electronic banking terminal devices such as and automated teller machine (ATM). Also referred to as a access code or security number.
Personal Loan
A loan made for personal, family, or household use as distinguished from a business-type loan or a long-term loan made to finance real estate.
Personal Property
Tangible and intangible assets such as furniture, equipment, and other property not legally considered as real property. Personal property is owned by the borrower and is not fixed or immovable.
Personal Residence
The dwelling unit that one claims as one's primary home. This dwelling establishes one's legal residence for voting, tax, and legal purposes.
Personal Saving
Current disposable personal income minus personal consumption expenditures.
Personalty
(1) Property which is movable. (2) Personal property, i.e., all property that is not realty. Property that is movable, not fixed to land. All property is either personalty, realty or mixed.
Persuasive Advertising
Advertising that is designed to divert people's attention from facts to images and make them buy more as a result of imagined advantages.
Peter's Principal
An insightful and perhaps all too often applicable concept that in corporate structures individuals are promoted to certain hierarchial positions and then, having failed to demonstrate sufficient knowledge, abilities talent and management skills to be promoted further, remain, essentially, at their level of incompetency.
Petty Cash Fund
A special, relatively small cash fund established for making minor cash disbursements in the operation of a business.
Phillips Curve
(1) A curve showing an inverse relationship between the unemployment rate and the rate of inflation. (2) An economic and policy concept postulating that there exists a trade-off between low rates of unemployment and price stability, i.e., inflation. That is, fiscal and monetary policies used to promote employment will tend to increase the rate of inflation in the economy. (3) A curve illustrating the tradeoff between inflation and unemployment; the more unemployment, the less inflation, and vice versa. First developed in the 1950's by Professor A. W. Phillips, the original analysis dealt with the inverse relationship between the rate of unemployment and the percent change in wage rates, i.e., the higher the rate of unemployment the lower the (positive) change in wages, and vice versa. The change in wage rates was then extended to changes in inflation in the economy in general.
Phoenix Industrial Development Authority or Phoenix IDA
The Industrial Development Authority of the City of Phoenix, Arizona, which issues tax exempt industrial revenue bonds as an accommodation to manufacturers and processors located in the City of Phoenix, Arizona to help them qualify for inexpensive expansion financing.
Physical Depreciation
A term that is frequently used when physical deterioration is intended. In a broad concept it may relate to those elements contributing to depreciation that are existent or inherent in the physical property itself, as distinguished from other and external circumstances that may influence its utilization. Not a clear or proper term without qualification and explanation.
Physical Depreciation or Deterioration
The loss in value of fixed assets resulting from wear and tear in operation and exposure to the elements.
Piggyback Loan
A combination of the construction loan with the permanent loan commitment.
Pipestem Lot
A lot connected to a public street by a narrow strip of land. Usually several adjacent pipestems are combined to form one driveway with each owner having a mutual-reciprocal easement to use and maintain the driveway to the street.
Pit
The area on the trading floor where futures and options on futures contracts are bought and sold. Pits are usually raised octagonal platforms with steps descending on the inside that permit buyers and sellers of contracts to see each other.
PITI
Abbreviation for principal, interest, taxes and insurance payment, often combined in a single monthly mortgage payment. Also called monthly housing expense.
Plaintiff
The person who brings a lawsuit. Contrast with defendant.
Planned Investment
Spending by businesses to buy fixed capital and inventories. This is the active demand for capital goods. Compare unplanned investment, which is keeping money invested in things which the business had planned to sell but has been unable to sell because of slack demand.
Planned Unit Development (PUD)
(1) A housing development where there is a homeowners association and common areas owned by the homeowners. (2) A zoning classification that allows flexibility in the design of a subdivision. Planned unit development zones generally set an overall density limit for the entire subdivision, allowing the dwelling units to be clustered to provide for common open space.
Planning Commission
A group of citizens appointed by local government officials to conduct hearings and recommend amendments to the zoning ordinance. The planning commission generally oversees the work of a professional planning department, which prepares a comprehensive plan. May also be called a planning board, zoning commission, or zoning board, depending on locality.
Planning Curve
The curve of long-run average total cost, which is tangent to all the curves of short-run average total cost and which is the geometric locus of the minimum achievable average total costs for all conceivable output levels a firm might produce.
Plant
A physical production facility, as defined by a set of fixed inputs, available to a firm.
Plant (or Equipment) Ledger
A subsidiary ledger for long-lived assets containing detailed data for each material asset, including description, acquisition date, location, cost, depreciation, and disposition.
Plat
(1) A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements. (2) A map showing the division of piece of land with lots, streets and, if applicable, common area.
Plat Book
A public record containing maps of land, showing the division of the land into streets, blocks, and lots and indicating the measurements of the individual parcels.
Pledge (Pledging)
(1) The transfer or assignment of assets as collateral to secure payment of a debt obligation as when securities are pledged to a lender for a loan secured by the owner of the securities. When securities a pledged, the lender frequently requires the physical transfer of the collateral to preclude possibility of using the same asset for additional pledging. (2) The deposit or placing of personal property as security for a debt or other obligation with a person called a pledgee. The pledgee has the implied power to sell the property if the debt is not paid. If the debt is paid, the right to possession returns to the pledgor.
Pledged Revenues
Funds generated from revenues and obligated to debt service or to meet other obligations specified by the bond contract.
Pledging of Accounts Receivable
Short-term borrowing from financial institutions where the loan is secured by accounts receivable. The lender may physically take the accounts receivable but typically has recourse to the borrower; also called discounting of accounts receivable.
Plot Plan
A diagram showing the proposed or existing use of a specific parcel of land.
Plottage
Creating plottage value of land by assembling small, adjacent parcels of land into a larger, more useful parcel.
PMI
Abbreviation for private mortgage insurance: insurance issued by a company, which insures the lender against loss in the event that the borrower defaults on the mortgage.
Pocket Card
Required for salespersons and brokers in most states. Issued by the state licensing agency, it identifies its holder as a licensee and must be carried at all times.
Point (Points)
(1) In the case of shares of stock, a point means $1. If, for example, a given company's shares rise by three points, then each share has risen $3. (2) In the case of bonds, a point means $10, since a bond is quoted as a percentage of $1,000. A bond that rises three points gains 3 percent of $1,000, or $30 in value. An advance from 87 to 90 would mean an advance in dollar value from $870 to 900 for each $1,000 bond. (3) Sometimes called discount points. A point is one percent of the amount of the mortgage loan. For example, if a loan is for $25,000, one point is $250. Points are charged by a lender to raise the yield on his loan at a time when money is tight, interest rates are high, and there is a legal limit to the interest rate that can be charged on a mortgage. Buyers are prohibited from paying points on HUD or Veterans' Administration (VA) guaranteed loans (sellers can pay, however). On a conventional mortgage, points may be paid by either buyer or seller or split between them. (4) In the case of market averages, the word point means exactly that. For example, if the Dow Jones Industrial Average rises from 1535.21 to 1536.21, it has risen a point, which, as an index, is not equivalent to $1. (4) In foreign exchange markets, the amount of premium or discount in the forward price from the spot price. A point is a unit of a decimal, usually the fourth place to the right of the decimal point. Which decimal place is implied varies from currency to currency.
Point Elasticity
An elasticity measure that refers to a point (rather than arc) on a demand or supply curve.
Point of Diminishing Returns
The input quantity at which marginal product is maximized and beyond which it falls.
Point-of-Sale (POS)
An electronic retail payment system that substitutes an electronic transfer of funds for the use of cash, checks, or drafts for the payment of retail goods and services. Most of the POS activity is currently done with credit card sales; however, the use of debit cards which directly access funds in a customer's checking accounts is receiving growing interest and use.
Points (Loan Discount Points)
Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).
Police Power
(1) The power to govern; the power to adopt laws for the protection of the public health, welfare, safety, and morals. (2) The right of any governmental body to enact and enforce regulations for the order, safety, health, morals, and general welfare of the public.
Policy
The paper evidencing the contract of insurance.
Political Business Cycle
The theory that politicians manipulate the economy to gain reelection. The economy is artificially stimulated prior to election day while adverse reactions set in after the election is over. Hence, business cycle fluctuations are worsened.
Pollution Control Bond
Pollution control bonds are similar to development bonds, but the proceeds are used by a company to purchase pollution abatement equipment. Also see development bond.
Pollution Rights
Transferable certificates each of which allows the holder to dump one unit of specified wastes into a specified environment.
Pool
A group of mortgages, consumer loans, commercial loans, credit card receivables, or other such receivables which act as the collateral for the issue of a security, termed a mortgage- backed security or asset-backed security. Pools of such loans are normally structured to include loans of similar characteristics with respect to loan type, term to maturity, interest rate, etc. The use of asset-backed securities promotes a strong secondary market in these instruments, providing additional investment alternatives, and also frees up funds for the lender such that added loan business may be undertaken.
Pooling of Interests
(1) Uniting of ownership interests of two or more companies through the exchange of 90 percent or more of the firms' voting stocks. (2) An accounting method for combining the financial statements of two firms that merge. Under the pooling-of-interest procedure, the assets of the merged firms are simply added to form the balance sheet of the surviving corporation. This method is different from the "purchase" method, where goodwill is put on the balance sheet to reflect a premium (or discount) paid in excess of book value.
Population
The total number of potential observations in a specific category, for example, the human population of a particular city, or the number of animals of a particular species within a defined area. Typically, measurements of the behavior and characteristics of the population are not possible and therefore a sample is selected which, if an unbiased sample, will, even in its limited numbers, be representative of the characteristics of the total population.
Portfolio
(1) A group of loans, securities, or other assets under management control, such as the loan portfolio or the securities portfolio. (2) Holdings of securities by an individual or institution. A portfolio may contain bonds, preferred stocks, and common stocks of various types of enterprises. (3) Combined holdings of securities by an individual or institution. A portfolio may contain bonds, preferred stocks, common stocks and other securities. The purpose of a portfolio is to reduced risk by diversification.
Portfolio Diversification
See diversification [portfolio].
Portfolio Effect
The extent to which the variation in returns on a combination of assets (a "portfolio") is less than the sum of the variations of the individual assets.
Portfolio Income
Interest, dividends, royalties (unless earned in the ordinary course of business) and gains from the sale of property that generates this type of income. Under the Tax Reform Act of 1986 this type of income cannot be used to offset passive activity losses.
Portfolio Investment
Purchase of a foreign financial asset with the sole purpose of deriving the returns that the security provides without intervening in the management of the foreign operation.
Portfolio Loan
Loans held as an investment by a bank, savings and loan or credit union.
Portfolio Manager
(1) The professional in charge of the securities portfolio of a mutual fund. The portfolio manager has the responsibility to manage the assets and to choose which stocks, bonds or other investments present the best opportunities for profit at any particular time, consistent with the fund's stated investment objective. (2) A professional responsible for overseeing the securities portfolio of an individual or institutional investor. Portfolio managers often are called "money managers."
Portfolio Theory
Deals with the selection of optimal portfolios, i.e., portfolios that provide the highest possible return for any specified degree of risk.
Position
(1) An investor's ownership of a security, either long or short. (2) A market commitment. A buyer of a futures contract is said to have a long position and, conversely, a seller of futures contracts is said to have a short position.
Position Day
According to the Chicago Board of Trade (CBOT) rules, the first day in the process of making or taking delivery of the actual commodity on a futures contract. The clearing firm representing the seller notifies the Board of Trade Clearing Corporation that its short customers want to deliver on a futures contract.
Position Limit
The maximum number of speculative futures contracts one can hold as determined by the Commodity Futures Trading Commission (CFTC) and/or the exchange upon which the contract is traded. Also referred to as trading limit.
Position Trader
An approach to trading in which the trader either buys or sells contracts and holds them for an extended period of time.
Positive Cash Flow
Same as cash flow.
Positive Economics
That part of economics which is concerned with cause and effect relationships among economic variables. Economic models, theories, and laws are all a part of positive economics. Positive economics is concerned with "what is" and "what will happen if some action is taken or not taken." It is not concerned with questions about "what should be." Also see normative economics.
Positive Externalities
Real externalities that provide benefits in the form of increased utility or output for bystanders who are not charged for this favor, to their delight.
Positive Gap
In interest rate sensitivity analysis, a condition when interest-sensitive assets exceed interest-sensitive liabilities. A positive gap favors a rising interest rate environment as increasing rates will tend to re-price, at higher rates, a greater volume of assets than liabilities, thereby improving net interest income.
Positive Leverage
The use of borrowed funds that increases the return on an investment.
Positive Marginal Time Preference
A high preference for current over future consumption that leads lenders to exact more than one unit of future consumption for the sacrifice of one unit of present consumption.
Positive Theory
A theory that makes purely descriptive statements and predictions; it explains what is and what causes what.
Positive Yield Curve
The normal, positive-sloped shape of the yield curve which shows long-term rates higher than short-term rates, incorporating the fact that creditors demand more from their investments the longer the term in order to cover credit (reinvestment) risk and that borrowers are willing to pay more for debt obligations by securing longer-termed financing at stable interest rates.
Positive-Sum Game
A game in which no one wins at someone else's expense and the sum of (positive) winnings and (nonexisting negative) losses is positive. Contrast with zero-sum game.
Possession
(1) Exclusive domain and control of property. (2) The holding, control, or custody of property for one's use, either as owner or person with another right.
Possessory Lien
A right to retain possession of property of another as security for some debt or obligation owed the lienor which right continues only as long as possession is retained.
Possibility of Reverter
The nature of the interest held by the grantor after conveying land outright but subject to a condition or provision that may cause the grantee's interest to become forfeited and the interest to revert to the grantor of his heirs.
Post-Audit (Postaudit)
A comparison of the actual and expected results for a given capital project.
Postdate
To insert or place a later date on an instrument than the actual date on which it was executed.
Posting
The formal transcribing of amounts from the journals to the ledger(s) used in an accounting system.
Potential Gross Income
The amount of income that could be produced by a real property assuming no vacancies or collection losses. Does not include miscellaneous income. Contrast with cash flow, net operating income.
Potential Output
The amount of output (i.e., real Gross Domestic Product, GDP) that could be produced by the economy if all resources were fully employed.
Power of Appointment
A power given to another, commonly a beneficiary of a trust to designate or appoint who shall be beneficiary or receive the fund upon his death.
Power of Attorney
(1) A written authorization to an agent by the principal. (2) A written instrument authorizing a person to act as the agent of the person granting it, and a general power authorizing the agent to act generally in behalf of the principle. A special power limits the agent to a particular or specific act as: a landowner may grant an agent special power of attorney to convey a single and specific parcel of property. Under the provisions of a general power of attorney, the agent having the power may convey any or all property of the principal granting the general power of attorney. (3) A written document authorizing another to act on his behalf as an attorney in fact. One does not need to be a licensed attorney to act as an attorney in fact but, power of attorney forms are powerful legal documents that should be used only under advice of a licensed attorney at law.
Power of Sale
A clause sometimes inserted in mortgages or deeds of trust; grants the lender (or trustee) the right to sell the property upon certain default. The property is to be sold at auction but court authority is unnecessary.
Precatory Words
Words indicating merely a desire or a wish that another use property for a particular purpose but which in law will not be enforced in the absence of an express declaration that the property shall be used for the specified purpose.
Precautionary Balance
Cash balance held in reserve for random, unforeseen fluctuations in inflows and outflows.
Preclosing
A rehearsal of the closing whereby instruments are prepared and signed by some or all parties to the contract. Used when closings are expected to be complicated.
Preemptive Offer of Shares
The right, subject to many exceptions, that each shareholder has that whenever the capital stock of the corporation is increased he will be allowed to subscribe to such a percentage of the new shares as his old shares bore to the former total capital stock.
Preemptive Right
(1) The right of shareholders to subscribe to a new issue of common stock before it is offered to the public. (2) The right of a stockholder to maintain his or her proportionate ownership in a corporation by having the right to purchase an appropriate share of any new stock issues. This is normally done on a pro-rated share basis such that each shareholder is given the option to insure their is no dilution in their individual relative ownership shares. (3) A provision contained in the corporate charter and bylaws that gives holders of common stock the right to purchase on a pro rata basis new issues of common stock (or securities convertible into common stock).
Prefabricated
(1) Constructed, as building components, in a factory prior to being erected or installed on the construction site. (2) Constructed, as a house, of prefabricated components.
Preferred Creditor
A creditor who by some statute is given the right to be paid first or before other creditors.
Preferred Stock
(1) Stock that entitles the holder to dividends from earnings before the owners of common stock can receive dividends. (2) Stock issued by a company of a senior nature to common stock in terms of the payment of dividends and for which certain benefits and restrictions apply. Typically, preferred stock holders have no voting powers as do common stock holders; however, preferred stock dividends are paid before common stock dividends. Preferred stock dividends may also be cumulative in which case all preferred stock dividends in arrears must be paid before any common stock dividends are paid. (3) A class of stock that pays a specified dividend set when it is issued. Preferred stock generally pay less income than bonds of the same company and don't have the price appreciation potential of common stock. They appeal mainly to corporations, which get a tax break on their dividend income.
Prejudice
Preconceived irrational opinion that leads to unfair partiality toward some people and bias against others or, for some, an attitude that facilitates rational behavior in the face of imperfect and costly information.
Prelease
To obtain lease commitments in a building or complex prior to its being available for occupancy.
Premises
Land and tenements; an estate; the subject matter of a conveyance.
Premium
(1) The excess of the price of a security over its face value, excluding any amount of accrued interest bought or sold. (2) The amount by which a preferred stock or bond may sell above its par value. In the case of a new issue of bonds or stocks, premium is the amount the market price rises over the original selling price. (3) The additional payment allowed by exchange regulation for delivery of higher-than-required standards or grades of a commodity against a futures contract. (4) In speaking of price relationships between different delivery months of a given commodity, one is said to be "trading at a premium" over another when its price is greater than that of the other. See option premium. (5) The cost of an insurance policy.
Premium Bond
A bond sold at above is par or face value.
Prepaid Expenses
(1) Amounts that are paid prior to the period they cover. (2) Expenses entered in the accounts for benefits not yet received. Prepaid expenses differ from deferred charges in that they are spread over a shorter period of time than deferred charges and are regularly recurring costs of operations. Examples of prepaid expenses are prepaid rent, prepaid interest, and premiums on unexpired insurance. An example of a deferred charge is unamortized discounts on bonds sold.
Prepaid Interest
(1) Interest due but not yet paid. Interest paid in advance of the time it is earned. (2) Prepaid interest is the interest charged to borrowers at loan closing to pay for the cost of borrowing for a partial month. For example, if a loan closes on the 15th of the month and the first payment is due 45 days later, the lender will charge 15 days of prepaid interest.
Prepaid Items
Payment in advance of the receipt of goods and services in an exchange transaction. Prepaid items (e.g., prepaid rent and unexpired insurance premiums) differ from deferred charges (e.g., unamortized issuance costs) in that they are spread over a shorter period of time than deferred charges and are regularly recurring costs of operations.
Prepaid Items of Expense
Prorations of prepaid items of expense which are credited to the seller in the closing statement.
Prepaid Taxes
The deposit of money with a governmental unit on condition that the amount deposited is to be applied against the tax liability of a designated taxpayer after the taxes have been levied and such liability has been established. Also referred to as prepayment of taxes. Also see taxes collected in advance.
Prepayment
(1) Full payment of the principal before the due date; occurs when a property is sold or the borrower refinances the existing loan. (2) Payment of mortgage loan, or part of it, before due date. Mortgage agreements often restrict the right of prepayment either by limiting the amount that can be prepaid in any one year or charging a penalty for prepayment. The Federal Housing Administration (FHA) does not permit such restrictions in FHA insured mortgages.
Prepayment Clause
A clause in a mortgage that gives a mortgagor (borrower) the privilege of paying the mortgage indebtedness before it becomes due. Sometimes there is a penalty for prepayment, with waiver of the interest that is not yet due.
Prepayment Penalty
(1) An additional charge imposed by the lender for paying off a loan before the due date. Fees paid by borrowers for the privilege of retiring a loan early. (2) A fee paid to a lender by the borrower for the right to pay off a loan before its maturity date, intended to compensate the lender from the possibility of having to re- investment monies at a lower rate of interest. The fee may also be structured to decline as the maturity date is approached.
Prepayment Privilege
The right of a borrower to retire a loan before maturity.
Prepayments
Advance payments of expenses such as insurance and taxes, often into an escrow account.
Presale
Sale of proposed properties, such as condominiums, before construction begins.
Prescription
Acquiring rights through adverse possession.
Prescriptive Easement
Arises when a neighbor begins use of a portion of your property and continues such use for a required number of years, after which time he can legally acquire a perpetual right to continued use of the property without any payment and without any obligation to pay property taxes. A prescriptive easement involves a permanent use of another's land that is open, notorious, hostile and continuous for a required period of time, which various by state and may be as little as five years (California). A prescriptive easement need not be exclusive; the use can be shared by others. Most commonly, a prescriptive easement arises when a fence is built in the wrong location. Another form of prescriptive easement arises in a rural setting when a neighbor uses part of the property of an absentee owner without their knowledge. In each case, after the required number of years, a permanent use can be acquired in a quiet title lawsuit. Permissive use precludes a prescriptive easement from arising, therefore tenants to your property cannot obtain prescriptive easement. Also, if permission is granted to a neighbor for some particular use of your property, then this will generally prevent a prescriptive easement from arising as the hostile requirement is missing. Also see easement, easement in gross, and easement appurtenant.
Present Value
(1) The estimated present worth of amounts to be received (or paid) in the future from which appropriate amounts of discount (or interest) have been deducted. (2) A fundamental concept in finance which states that a dollar today is worth more than a dollar (received) tomorrow. The present value is determined by "discounting" a delayed or future payment by the discount factor.
Present Value Factors
Sometimes called discount factors. Multipliers found in present value tables formulated to show the present value of one dollar (or a one dollar annuity) discounted at various interest rates and for various time periods.
Present Value of Annuity
The value now of a level stream of income to be received each period for a finite number of periods.
Present Value of One
The value today of an amount to be received in the future, based on a compound interest rate.
Presenting Bank
Any bank presenting an item except a payor bank. (Article 4 of the U.C.C.: Bank Deposits and Collections)
Pressure
When a company sells a substantial block of new stock, this sale puts "pressure" on the price of the stock, i.e., the sale tends to depress somewhat the price of outstanding shares.
Presumptive Heir
A person who would be the heir if the ancestor should die at that moment.
Pretax Income
The amount earned from a business or investment before deducting income taxes.
Price
(1) The market value of a good or service. (2) A measure of valuation; what a seller is willing to accept for a sale and the buyer is willing to pay for a purchase. The equilibrium price is that market price which "clears" the market resulting in neither shortages nor surpluses.
Price Discovery
The generation of information about "future" cash market prices through the futures markets.
Price Discrimination
(1) A situation in which a seller charges a given buyer or different buyers different prices for different units of an identical good, even though such price differences cannot be justified by differences in the cost of serving these buyers. (2) Selling the same good or service to different buyers for different prices. For example, trying to maximize profits by "charging what the traffic will bear."
Price Elasticity
See elasticity, price elasticity of demand and price elasticity of supply.
Price Elasticity of Demand
Responsiveness of quantity bought to small changes in the price. See elasticity of demand, own-price elasticity of demand, and cross-price elasticity of demand.
Price Elasticity Of Supply
The percentage change in quantity supplied of an item divided by the percentage change in its price, all else being equal.
Price Index
(1) A percentage number showing the extent of change in a price or in an average group of prices as compared with a "base year." See index number. (2) A series of measurements, stated as percentages, indicating the relationship between the weighted average price of a sample of goods and services at various points in time and the weighted average price of a similar sample of goods and services at a common, or base, date.
Price Leadership
(1) The practice in oligopoly markets of one firm announcing price increases (or decreases) and the other firms all follow. (2) A set of oligopolistic industry practices according to which one firm, the price leader, announces and occasionally changes list prices that the other firms immediately adopt as well.
Price Level Conversions
Restatement of amounts stated in dollars of a particular price level to an amount appropriate for the price levels at another time.
Price Limit
The maximum advance or decline–from the previous day's settlement–permitted for a contract in one trading session by the rules of the exchange. Also see variable limit.
Price Limit Order
A customer order that specifies the price at which a trade can be executed.
Price Mechanism
The rationing and production motivating functions of price, directing the production and distribution activities in the economy. See market process.
Price Supports
Government guarantees to prevent prices from failing, usually for agricultural products, and usually involving the buying of surpluses by the government.
Price System
The set of interdependent prices in all the markets for goods and resources, which changes as long as the independent actions of households and firms are not perfectly coordinated, making households and firms, in turn, change their behavior until coordination is achieved.
Price War
A situation in which rival oligopolists successfully cut their prices below those of competitors (and perhaps even below their own cost).
Price/Book Ratio
Compares a stock's market value to its book value, calculated by dividing the current price by common stockholders' equity per share (book value). An attempt to determine a value for a stock compared to the value of its assets. A lower price-to-book ratio might imply a stock is undervalued. Sometimes known as "market-to-book." Also referred to as price-to-book ratio.
Price-Compensating Variation
One of four Hicksian measures of the consumer's surplus, equal to the maximum amount of income the consumer would pay for the privilege of buying any desired quantity of a good at a lower price.
Price-Consumption Line
A line indicating how the optimum quantities of two consumption goods change in response to a change in the price of one of these goods, all else being equal.
Price-Earnings Ratio (also Price/Earnings Ratio)
(1) The relationship between the current price of a stock to the earnings per share over the most recent earnings period. (2) The ratio of price to earnings, which shows the dollar amount investors will pay for $1 of current earnings. Faster growing or less risky firms typically have higher P/E ratios than either slower growing or riskier firms. Also referred to as the P/E ratio and the P/E multiple. Based on other factors known about a company, a high P/E ratio may indicate greater earnings potential of a company as indicated by the market's higher stock value. On the other hand, a high P/E ratio may also indicate an over-valued stock if current earnings are more or less reflective of the company's long-term potential earnings. (3) Sometimes referred to as the "multiple." Calculated by dividing the stock's current price by the company's current annual earnings per share, usually from the last four quarters (known as the trailing P/E Ratio), but sometimes from the estimates of the earnings expected in the next four quarters (the projected P/E ratio), or from the sum of the last two actual quarters and the estimates of the next two quarters. In and of itself, the P/E ratio tells very little, but can be usefully compared to the P/E ratios of other companies in the same industry, or to the market in general, or to the company's own historical P/E ratios, in order to determine how much the market is currently willing to pay for a share of the company's earnings. (4) Price/earnings ratio can be computed on last year's earnings, or an expected earnings for the current year, next year or further into the future. For example, a company that earned $4 a share last year and whose stock is trading at $40 has a "trailing" P/E of 10. Assuming that analysts expect the company to earn $5 a share next year, its 1998 P/E would be 8 based on the current market price of $40. Analysts place the most emphasis on future P/E's because they help measure the potential value of a stock based on expected future earnings.
Price-Earnings Ratio to EPS Growth
Calculated by dividing a stock's P/E ratio divided by its earnings per share growth rate, to provide some indication of the value the market has put on a company's earnings expectations compared to what the company has actually earned in the past.
Price-Equivalent Variation
One of four Hicksian measures of the consumer's surplus, equal to the minimum amount of income the consumer would accept for relinquishing the opportunity of buying any desired quantity of a good at a lower price.
Price-Level-Adjusted Mortgage
A loan whose payment is adjusted according to the rate of inflation. The payments are generally quite low, typically 3 to 5 percent annually of the debt. This type of mortgage is not commonly used in the U.S.
Price-Sales Ratio (PSR)
The PSR is the stock's price divided by its company's latest annual sales per share. It is favored by some investors as a measure of a stock's relative value. The lower the PSR, according to this school of thought, the better the value.
Price-to-Book Ratio
See price/book ratio.
Price-to-Cash-Flow Ratio
Calculated by dividing a stock's price per share by its cash flow per share, to determine the market's expectation of a company's financial liquidity.
Price-to-Sales Ratio
Calculated by dividing a stock's current price by its revenues per share. Another technique for finding a stock's valuation relative to its own past performance, other companies or the market itself.
Primary Account Number (PAN)
The 14-digit or 16-digit numeric code embossed on a bank card and also encoded in the card's magnetic strip consisting of a major industry identifier of the card issuer, an individual account identifier incorporating part of the customer's account number, and a check digit or code that verifies the authenticity of the embossed account number.
Primary Beneficiary
The person designated as the first one to receive the proceeds of a life insurance policy, as distinguished from a contingent beneficiary who will receive the proceeds only if the primary beneficiary dies before the insured.
Primary Capital
The equity capital supporting the lending and deposit activities of a commercial bank or financial institution. Currently referred to as Tier 1 capital, primary capital includes common stock, retained earnings, and perpetual preferred stock (also includes goodwill acquired before March 1988). This is the first part of a two-tier risk-based capital standard used by bank regulatory authorities to assess capital adequacy.
Primary Dealer
(1) Also referred to as a reporting dealer, a government securities dealer responsible for reporting its daily trading volume and portfolio positions to the Federal Reserve Bank of New York. The Federal Reserve System, through its New York Federal Reserve Bank, only sells U.S. government issues through primary dealers who are willing to act as market makers in all Treasury auctions of U.S. Treasury bills, notes, and bonds. Primary dealers then resell these securities to other investors in the secondary market. (2) Government securities dealers included in the "List of Government Securities Dealers Reporting to the Market Reports Division of the Federal Reserve Bank of New York (New York Fed)" that submit daily reports of market activity and positions and monthly financial statements to the NY Fed and are subject to its informal oversight. Primary dealers include SEC-registered securities broker-dealers, banks and a few unregulated firms.
Primary Distribution
The original sale of a company's securities. Also referred to as the primary offering.
Primary Lease
A lease between the owner and a tenant whose interest, all or in part, has been sublet.
Primary Market
(1) The financial market in which newly issued securities are offered for sale. Market of new issues of securities. The first opportunity investors have to buy a newly-issued security. After the first purchases, subsequent trading is said to occur in the secondary market. (2) The market in which government securities are sold to primary dealers, who then remarket them to investors in the secondary market. (3) The market in which a loan is originally made to the borrower, as opposed to the secondary market in which this loan, or a pool of such loans, is re-sold to investors.
Primary Metropolitan Statistical Area (PMSA)
A classification of the U.S. Census Bureau applied to cities with the following classifications. Within a metropolitan area with a population of one million or more, there may be areas that would qualify as metropolitan areas on their own, yet are linked to other cities in close proximity. These individual areas are called Primary Metropolitan Statistical Areas, while the metropolitan area containing these PMSAs is called a Consolidated Metropolitan Statistical Area (CMSA).
Primary Mortgage Market
(1) That portion of the credit market that originates mortgage loans, including institutional lenders, such as savings and loan associations and banks, and mortgage bankers and brokers. (2) The process of obtaining a real estate loan, including the consumer's completion of a loan application form, validation of the credit and property information, loan underwriting by the lender and closing of the mortgage loan.
Primary Regulator
The state or federal agency which is the financial institution's principal supervisory and regulatory agency; normally the same agency that issued the institution its operating charter. For commercial banks, the Comptroller of the Currency regulates nationally- chartered banks, the Federal Reserve System Board of Governors regulates bank holding companies and state chartered banks which are members of the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC) regulates state chartered banks that are not members of the Federal Reserve System by carry FDIC deposit insurance.
Primary Reserves
The reserves needed to operate a bank, plus the legal reserves required to be kept in a Federal Reserve Bank or correspondent bank, plus uncollected checks. Primary reserves may not be used to cover sudden deposit withdrawals or a temporary liquidity crisis. Contrast with secondary reserves.
Primary Residence
Considered the permanent location of residency.
Prime Rate
(1) The interest rate charged by commercial banks on loans to their best customers. The most favorable interest rate charged by lenders on a short term loans to qualified customers. (2) The lowest commercial interest rate charged by banks on short-term loans to their most credit-worthy customers. The prime rate is not the same as the long-term mortgage rate, though it may influence long-term rates. Also, it is not the same as the consumer loan rate that is charged on personal property loans and credit cards. Mortgage rates and consumer loan rates are generally higher than the prime rate, but exceptions occur at times. (3) Also referred to as the prime interest rate and the prime lending rate, the base rate that banks use in pricing short-term commercial loans to their most credit worthy customers. Loans are typically written either at prime or a percent over prime based on the quality of the credit. As an alternative, some banks price loans based on an index rate determined from their own cost of funds or at a rate based on the London Interbank Offered Rate (LIBOR).
Prime Rate Loan
A loan agreement whereby the interest rate varies with or is tied directly to the prime interest rate, which is the rate changed by the bank to its most credit worthy customers.
Prime Tenant
In a shopping center or office building, the tenant who occupies the most space. Prime tenants are considered credit worthy and attract customers or traffic to the center.
Principal
(1) One who employs an agent to act on his behalf; the person who as between himself and the surety is primarily liable to the third person or creditor. (2) The one who owns or will use property. (3) The person for whom a broker executes an order, or a dealer buying or selling for his own account. (4) The basic element of the loan as distinguished from interest and mortgage insurance premium. In other words, principal is the amount upon which interest is paid. (5) The amount of money invested, exclusive of earnings; a person's capital or to the face amount of a bond. In the context of bonds other than deep-discount debt, the face value or par value of a bond or issue of bonds payable on stated dates of maturity. See face value and par value.
Principal and Interest Payment (P&I)
A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to amortization of the principal balance. Commonly used with amortizing loans.
Principal Broker
The licensed broker responsible for the operations conducted by the brokerage firm.
Principal Meridian
One of the prime meridians used in the government rectangular survey method of land description to locate range lines.
Principal Only (PO) Strip
A mortgage security consisting only of the principal portion of a stripped mortgage-backed security, i.e., a security in which the interest payments have been removed, i.e., stripped from the original security, and resold as a separate investment. Holders of principal only strips received 100 percent of the principal cash flows.
Principal Residence
The place one lives in most of the time. May be a single-family house, condominium, trailer, or houseboat. To defer capital gain taxes on the profit from a home, the home must be used as the taxpayer's principal residence.
Principal, Interest, Taxes and Insurance Payment (PITI)
The periodic (typically monthly) payment required by an amortizing loan that includes escrow deposits. Each periodic payment includes a principal and interest payment plus a contribution to the escrow account set up by the lender to pay insurance premiums and property taxes on the mortgaged property.
Principle of Balance
In real estate appraisal, there is an optimal mix of inputs that, when combined with land, will result in the greatest land value. Inputs, or factors of production, include labor, capital, and entrepreneurship.
Principle of Declining Marginal Benefit
All other relevant factors being equal, the greater the overall level of any activity during a given period, the smaller will its marginal benefit usually be.
Principle of Diminishing Marginal Utility
Given the quantities of all other goods being consumed, and given a person's tastes, successive additions of equal units of a good to the process of consumption eventually yield ever smaller additions to total utility.
Prior Years' Tax Levies
Taxes levied for fiscal periods preceding the current one.
Priority
Legal precedence; having preferred status. Generally, upon foreclosure, lenders are repaid according to priority.
Prisoners' Dilemma
A game situation in which the best common choice of strategies is unstable, offers great incentives to cheat, and leads to the worst choice possible.
Private Mortgage Insurance (PMI)
(1) Private insurance to protect mortgage lenders from default by borrowers. Lending institutions frequently require borrowers to obtain private mortgage insurance for high-ratio loans, i.e., whenever the loan to market value or loan to purchase prices exceeds 80 percent. (2) In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 3 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on you loan's structure.
Private Offering
An investment or business offered for sale to a small group of investors, generally under exemptions to registration allowed by the Securities and Exchange Commission (SEC) and state securities registration laws.
Private Placement
Also referred to as direct placement, the sale of an entire issue of securities to a small group of investors which, when made to 35 or fewer investors are exempt from Securities and Exchange Commission (SEC) registration requirements. In a private placement, buyers must guarantee that the securities will not be resold within a specified period of time. Contrast with public offering.
Private Trust Fund
A trust fund which will ordinarily revert to private individuals or will be used for private purposes; for example, a fund which consists of guarantee deposits.
Privatization (Privatize)
Actions taken by governmental entities to sell off either government-owned or government managed businesses to the private sector through a direct sale to private investors or through a general stock offering to the public.
Pro Forma
(1) For form's sake; an indication of form; an example. The term is used in conjunction with a noun to denote merely a sample form, document, statement, certificate, or presentation, the contents of which may be either wholly or partially hypothetical, actual facts, estimates, or proposals. (2) A set of financial accounts and reports (i.e., balance sheet, income statement, cash flows, etc.) established for illustrative purposes to show the effects of a proposed action. (3) A pro forma financial statement is one that shows how the actual statement will look if certain specified assumptions are realized. Pro forma statements may be either future or past projections. An example of a backward pro forma statement occurs when two firms are planning to merge and show what their consolidated financial statements would have looked like if they had been merged in preceding years.
Pro Forma Statement
(1) (From Latin pro forma, "according to form"). Financial statements showing what is expected to occur. (2) A hypothetical set of financial statements showing assets, liabilities, income, and expenses that may be generated under certain assumptions of future events and/or growth. Pro forma financial statements are used extensively in "what if" financial scenarios to estimate such future conditions as divestiture of a business unit, the effects of a major credit extension, mergers and acquisitions, and the effects of various marketing and loan programs.
Pro Rata
Proportionately, or divided according to a rate or standard.
Probate
(1) Court process to prove a valid will. The procedure for formally establishing or proving that a given writing is the last will and testament of the person purporting to have signed it. (2) A court process by which a deceased person's will is proved valid and its instructions carried out. It is accomplished by the will's administrator, typically an executor (male) or executrix (female), who might be paid a fee based on the size of the estate covered by the will. (3) A state court procedure to distribute a deceased person's assets either according to his or her will or, if no will was found, then according to the state's law of intestate succession. This process is intended to make sure that the deceased's debts are paid, heirs are identified and found, and the estate executor or administrator manages and distributes the assets. The process also insures that the court, attorney and executor or administrator are paid from the estate's assets. There are two principal ways to avoid probate. One method is to hold title to all or major assets in joint tenancy with the person intended to receive. The other method is to put principal assets into a living trust by which means the assets will be promptly distributed upon the death of the trust creator.
Probate or Prove
To establish the validity of the will of a deceased person.
Problem Bank
A bank with a relatively high ratio of nonperforming loans to total capital; also a bank with a CAMEL rating of 4 or 5 on the 1 – 5 rating scale of bank performance. Being classified as a problem bank by regulatory authorities subjects a bank to more frequent examinations until the condition is rectified.
Proceeds from Resale
Same as resale proceeds.
Process of Production
The set of activities deliberately designed to make goods available to people where and when they are wanted.
Processing, Underwriting and Document Fees
Charges for the lender's services associated with making the loan.
Procuring Cause
A legal term that means the cause resulting in accomplishing a goal. Used in real estate to determine whether a broker is entitled to a commission.
Producer Price Index (PPI)
An index that measures changes in the price of a fixed basket of raw materials and semifinished goods over time. The PPI is sometimes used as a leading indicator of the consumer price index (CPI), the feeling being that if input prices are rising these increases will eventually have to be passed on, to some degree, to the ultimate consumers. (The PPI was originally called the wholesale price index.) The following information pertains to the PPI series:
* Data - The Producer Price Index (PPI) is a family of indexes that measures the average change over time in selling prices received by domestic producers of goods and services. PPI's measure price change from the perspective of the seller. This contrasts with other measures, such as the Consumer Price Index (CPI), that measure price change from the purchaser's perspective. Sellers' and purchasers' prices may differ due to government subsidies, sales and excise taxes, and distribution costs. There are three main PPI publication structures: (a) Industry-based. The PPI publishes over 500 industry price indexes in combination with over 10,000 specific product line and product category sub-indexes. (b) Commodity-based. The PPI publishes over 3,200 commodity price indexes organized by type of product and end use. (c) Stage-of-processing based. The PPI publishes aggregate price indexes organized by commodity-based processing stage. The three stages of processing include Finished Goods; Intermediate Materials, Supplies, and Components; and Crude Materials for Further Processing. Other publication structures include: (a) Producer price indexes by durability of product. (b) Special commodity groupings (e.g., Fabricated metal products, Construction materials, and Selected textile mill products). (c) Industry-based stage-of-processing indexes.
* Coverage - The PPI tracks price change for practically the entire output of domestic goods-producing sectors: agriculture, forestry, fisheries, mining, scrap, and manufacturing. The PPI tracks price change for an ever-growing portion of the non-goods producing sectors of the economy. New PPI's are gradually being introduced for the products of industries in the transportation, utilities, finance, business services, health, legal, and professional services sectors of the economy.
* Data Source - The PPI sample includes approximately 24,000 establishments providing close to 100,000 price quotations per month. Participating establishments report price data primarily through the mail. Goods and services included in the PPI are weighted by value-of-shipments data contained in the 1992 economic censuses. Industries and products are systematically resampled as needed.
* Reference Date - For most items, establishments report product selling prices for the Tuesday of the week containing the 13th of each month.
Producers' Surplus
The difference between the sum of money producers actually receive for a given quantity and the minimum sum they would have accepted.
Product Differentiation
(1) Making your product a little different from those of your competitors as a means of non-price competition. (2) The differentiation of products, on the basis of physical aspects, legal matters, or conditions of sale, among all the sellers in an industry. A characteristic of monopolistic competition which is characterized by many producers, each of which is attempting to create real and perceived differences in their product vis-a-vis the rest of the market. Product differentiation does not, in fact, have to be real, only perceived to exist by potential buyers. The concept of undertaking product differentiation is to produce a product or service which is viewed by consumers to be different and therefore more valued such that a higher price may be charged. The most widely used method of attaining product differentiation is through marketing whereby producers attempt to convince consumers of differences for which higher prices (above a perfectly competitive price) may be warranted. Brand-name loyalty is one obvious successful result of such marketing efforts.
Product Groups
Groups of closely related but differentiated products that serve the same wants.
Product-Extension Mergers
A type of conglomerate merger in which the merging firms do not directly compete but use related production processes or marketing channels.
Production Function
A technical relationship, stated in physical terms, between all conceivable combinations of inputs used during a period and the associated maximum quantities of some type of output, given the state of technology.
Production Possibility Curve (Transformation Curve)
A curve showing the maximum output combinations of two goods which can be produced with the limited inputs available. The curve shows the opportunity cost of each good in terms of the other.
Production-Indifference Curve
See isoquant.
Production-Possibilities Frontier
All the alternative combinations of two goods or groups of goods that the people in a society are capable of producing in a given period by using their flow of resources fully and in the best possible way, given their present state of technology. Also referred to as the production possibility curve.
Productivity
The average output produced, per period, by a unit of a factor of production. All other things being equal, increases in worker productivity have significant implications on price level changes and the ability of workers to receive higher wage gains without leading to inflation.
Profit
(1) (Finance) Synonymous with net income and earnings, the difference between a company's total revenues and total expenses, reported either before income taxes or after income taxes; monies retained by a corporation after all expenses but before dividend payments to shareholders. (2) Total revenue minus total cost. In economic theory, total cost includes a cost to cover the "normal profit" required for the business. Anything above normal profit is called "profit."
Profit and Loss (P&L) Statement (Income Statement)
The accounting statement for a business which shows the sources of revenue (receipts from sales), the various costs which have been incurred, all taxes and other payments which have been made, and what's left over (profit).
Profit Center
(1) A unit of a large, decentralized firm that has its own investments and for which a rate of return on investment can be calculated. (2) A designation with a business identifying a unit of business that contributes both revenues and expenses towards the overall financial performance of the business. For accounting purposes, where effective cost accounting systems are in place, the profit center is typically considered as an independent entity responsible for generating targeted goals of revenues and controlling levels on expenses. Within financial institutions, such profit center analysis may require cross-charging certain overhead expenses and levying an internal cost of funds for monies used by one profit center but generated from within another.
Profit Margin
(1) The ratio of profits after taxes to sales. (2) Calculated by dividing annual net earnings after taxes by revenues, displayed as a percentage. Useful to compare stocks within industries; a higher profit margin indicates a more profitable company. Can also be calculated by dividing a company's pre-tax earnings by its revenues, known as the pre-tax profit margin. Since taxes can vary from year to year and from company to company, this may give a truer picture of a company's underlying profitability.
Profit Taking
Selling stock that has appreciated in value since purchase in order to realize the profit. The term is often used to explain a downturn in the market following a period of rising prices, as extensive profit taking (selling shares) will tend to depress stock prices.
Profitability
Arguably the most commonly used gauge of the financial health and viability of a financial institution; usually measured by continued earnings (net income) growth and ratios such as return on average assets and return on average shareholders' equity.
Profitability Index (PI)
(1) A ratio of the present value of an investment project to its initial required costs. (2) The present value of future returns divided by the present value of the investment outlay. The profitability-index rule states that investors should accept all projects with an index greater than 1.
Profits
The net return on capital after all deductions for expenses and taxes; the reward to the entrepreneur capital investment. Profits are crucial to a company as from profits come retained earnings (after payouts as dividends), which are used to re-invest in the company.
Program Trading
(1) Computerized trading used primarily by institutional investors, typically for large volume trades, where orders from the trader's computer are entered directly into the market's computer system and executed automatically. (2) A complex computerized system designed to take advantage of temporary differences between the actual value of the stocks composing a popular index and the value represented by futures contracts on those stocks. To simplify, if the stocks' prices are higher than the futures contracts reflect, computer programs issue orders to sell stocks and buy futures contracts. If the stocks are lower than the futures contracts reflect, program traders buy stocks and sell the futures. The result is virtually risk-free profits for the program traders and more volatility for the market because of the vast numbers of shares needed to make the system work.
Progress Payments
In construction, loan payments issued to the builder as building is completed.
Progressive Tax
A tax that takes a larger percentage of a larger income and a smaller percentage of a smaller income.
Projected Benefit Obligation
As used in SFAS No. 87, the actuarial present value as of a date of all benefits attributed by the pension benefit formula to employee service rendered before that date. The projected benefit obligation is measured using assumptions as to future compensation levels if the pension benefit formula is based on those future compensation levels (pay-related, final-pay, final-average-pay or career-average-pay plans).
Projected Total-Life Cost
The total anticipated costs related to a fixed asset during its estimated useful life. Projected total-life cost normally includes a detailed schedule of maintenance requirements for each year of the asset's life, including preventive maintenance, normal repair and replacement, and replacement of major parts or components needed to achieve the normal (intended) life of the asset. The total-life cost is calculated at the time an asset is acquired or, constructed, often as an integral part of capital acquisition or budgeting procedures.
Projection Period
The time duration for estimating future cash flows and the resale proceeds from a proposed real estate investment.
Promissory Note
(1) A written promise to pay a certain sum of money under certain terms and conditions. A written unsecured note promising to pay a specified amount of money on demand, transferable to a third party. (2) An unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a definite time, a sum certain in money to order or to bearer. (Parties: maker, payee.)
Promoters
The persons who plan the formation of the corporation and sell or promote the idea to others.
Propensity to Consume
See consumption function.
Property
(1) The rights and interests one has in anything subject to ownership. The rights that one individual has in lands or goods to the exclusion of all others; rights gained from the ownership of wealth. (2) The rights of ownership. The right to use, possess, enjoy, and dispose of a thing in every legal way and to exclude everyone else from interfering with these rights. Property is generally classified into two groups, personal property and real property.
Property Management
The operation of property as a business, including rental, rent collection, maintenance, etc.
Property Report
Required by the Interstate Land Sales Act for the sale of subdivisions of 50 lots or more, if the subdivisions are not otherwise exempt. Filed with HUD's Office of Interstate Land Sales Registration (OILSR).
Property Residual Technique
In appraisal, a method for estimating the value of property based on estimated future income and the reversionary value of the building and land.
Property Rights
Rights to the exclusive, but perhaps socially circumscribed, use of scarce things.
Property Tax
(1) A tax levied by the local municipality or county on real and personal property. (2) A government levy based on the market value of privately owned property. Sometimes referred to as ad valorem tax or real estate tax.
Proportional Tax
A tax that takes the same percentage of all incomes, large and small.
Proprietary Lease
In a cooperative apartment building, the lease a corporation provides to the stockholders which allows them to use a certain apartment unit under the conditions specified.
Proprietorship
A form of business organization where one person owns the business; sometimes termed single proprietorship.
Prorate
(1) To divide in proportionate shares, such as taxes, insurance, rent, or other items. (2) To allocate between seller and buyer their proportionate share of an obligation paid or due; for example, to prorate real property taxes or insurance.
Prorations
The allocation of expenses, such as taxes between buyer and seller at closing based on the number of days the property is owned during the month of closing.
Prospect
A person considered likely to buy. A prospective purchaser.
Prospectus
(1) A printed descriptive statement about a business or investment that is for sale, to invite the interest of prospective investors. (2) A document offered by a mutual fund describing the fund's history and its investment objective, policies and practices. (3) The document that describes a securities offering or the operations of a mutual fund, a limited partnership or other investment. The prospectus divulges financial data about the company, background of its officers and other information needed by investors to make an informed decision. (4) A summary of the registration statement providing information on an issue of securities. Also referred to as an offering circular, an informational document required by the Securities and Exchange Commission (SEC) stating a firm's intent to issue securities. The SEC examines prospectuses to insure that statements contained therein are not "false and misleading." The prospectus is the legal document stating the purpose of the security issue, how the securities or shares will be offered to the public and how interest or dividends will be repaid, the primary business of the issuing entity and its current financial condition, and principal officers of the corporation. A prospectus is preceded by a preliminary disclosure known as a red herring.
Protectionism
The policy of "protecting" domestic producer-sellers from the competition of foreign sellers. Protectionism includes the use of protective tariffs, quotas, and other non-tariff barriers designed to stop foreigners from selling in domestic markets.
Protestant Ethic
The idea that people are duty-bound to work hard. "The idle mind is the devil's workshop." "Hard work is good for the soul."
Proxy
(1) A written authorization by a stockholder to another person to vote the stock owned by the stockholder; the person who is the holder of such a written authorization. A person who represents another, particularly in some meeting. Also, the document giving to another the authority to represent. (2) The formal authorization by a stockholder that permits someone else (usually company management) to vote in his or her place at shareholder meetings or on matters put to the shareholders for a vote at other times. (3) A document giving one person the authority or power to act for another. Typically, the authority in question is the power to vote shares of common stock.
Proxy Statement
Information required by the Securities Exchange Commission (SEC) to be given to stockholders as a prerequisite to solicitation of proxies for a security subject to the requirements of the Securities Exchange Act.
Prudent Man's Rule
An investment standard. In some states, the law requires that a fiduciary, such as a trustee, may invest the fund's money only in a list of securities designated by the state, i.e., the so-called legal list. In other states, the trustee may invest in a security if it is one that a prudent man of discretion and intelligence, who is seeking a reasonable income and preservation of capital, would buy.
Public Accounting
The practice of holding oneself out to be a CPA or public accountant and at the same time performing for a client one or more types of services rendered by public accountants (e.g., auditing). This term should not be confused with governmental accounting.
Public Corporation
See municipal corporation and quasi-municipal corporation.
Public Domain
Public or government owned lands.
Public Easement
A right of way for use by members of the public at large.
Public Finance
The governmental collection of taxes from all those believed to benefit from the provision of pure public goods and the subsequent channeling of these funds toward the production of these goods, either by government agencies or private firms.
Public Goods
Goods and services which, once available, are available to everyone.
Public Housing
Government-owned housing units made available to low-income individuals and families at no cost or for nominal rental rates.
Public Offering
The offering and sale of securities by an issuer to the general public after meeting all registration requirements of the Securities and Exchange Commission (SEC). Public offerings are normally undertaken by an underwriter or a syndicate of underwriters which guarantee the placement of the securities. Contrast with private placement.
Public Policy
Certain objectives relating to health, morals, and integrity of government that the law seeks to advance by declaring invalid any contract which conflicts with those objectives even though there is no statute expressly declaring such contract illegal.
Public Sale
Sale, auction open to the public.
Public Trust Fund
A trust fund whose principal, earnings, or both, must be used for a public purpose; for example, a pension or retirement fund.
Public Utility Bond
A debt instrument issued by a public utility firm as an electric or gas utility.
Public Works Programs
Construction projects undertaken by the government for the purpose of employing unemployed people and trying to overcome depression.
Pulpit
A raised structure adjacent to, or in the center of, the pit or ring at a futures exchange where market reporters, employed by the exchange, record price changes as they occur in the trading pit.
Purchase
In mergers, a purchase occurs when a large firm acquires a smaller one.
Purchase Acquisition
A method of accounting used in acquisitions when more than 10 percent of the purchase price is paid with cash, preferred stock, or debt, which adds the revalued assets and liabilities of an acquired business to those of the acquiring firm at fair market value. The difference between the purchase price and the fair market value of the net assets of the acquired firm is then carried on the consolidated balance sheet as goodwill. Financial Accounting Standard Board (FASB) regulations require that goodwill to be amortized over a period not to exceed 40 years. For federal income tax purposes, the amortization of goodwill is not a tax-deductible expense. By contrast, if the purchase is done primarily by an exchange of stock, then no revaluation of assets and liabilities is required.
Purchase Agreement
See agreement of sale.
Purchase Order
A document completed by the purchasing firm setting forth the quantities, descriptions, prices, and vendor for merchandise to be purchased.
Purchase-Money Mortgage (PMM)
(1) Seller financing as a part of the purchase price. (2) A mortgage given by the purchaser of land to the seller to secure the seller for the payment of the unpaid balance of the purchase price, which the seller purports to lend the purchaser.
Purchaser in Good Faith
A person who purchases without any notice or knowledge of any defect of title, misconduct, or defense.
Purchasing Hedge or Long Hedge
Buyer futures contracts to protect against a possible price increase of cash commodities that will e purchased in the future. At the time the cash commodities are bought, the open futures position is closed by selling an equal number and type of futures contracts as those that were initially purchased. Also referred to as a buying hedge. See hedging.
Purchasing Power
The ability to purchase goods or services. The purchasing power of money decreases price levels increase in that it more money to purchase a given amount of goods or services.
Purchasing Power Parity
An economic theory attempting to provide relative values of currencies based on the purchasing power in their domestic markets for a fixed basket of goods and services. For example, if a specified basket of goods and services costs $100 in the United States and 15,000¥ in Japan, then the parity of the U.S. dollar to the Japanese yen is 1:150. When exchange rates are out of alignment with this theoretical parity valuation, then it might be more profitable for buyers to convert one currency for another in anticipation of a realignment based on parity values. In practice, however, relative domestic purchasing power has less influence on exchange rates than relative interest rates and trade position.
Pure Competition
A market structure which is characterized by so many buyers and sellers that no one acting alone can influence the price of a standardized product. The three basic conditions for pure competition to exist in an industry include: (1) large number of firms in the industry such that any one can increase or decrease its own output substantially without a significant change in the price of the product; (2) each firm must be producing a homogeneous (i.e., non-differentiated) product with those made by all the other producers in the industry such that uniform prices exist throughout the market; and (3) there must exist freedom of entry and exit of first within the industry such that costs of start-up are not so excessive as to give existing players an unfair advantage from the possibility of competition. Compare to perfect competition. Also see perfectly competitive market.
Pure Economic Rent
See economic rent.
Pure Private Good
A good that generates no externalities and the producer or consumer of which alone bears all of the cost and enjoys all of the benefit associated with it.
Pure Public Good
A good that provides nonexcludable and nonrival benefits to all people in a given society.
Pure Rate Of Interest
The interest rate that emerges in a perfectly competitive market for loanable funds when there is certainty (and, therefore, no risk.
Pure Rent
The rent received for the use of a resource the supply of which is totally unresponsive to resource price in the long run because the resource in question can neither be destroyed nor produced by people.
Put
An option to sell a specified number of shares at a definite price within a specified period of time. The opposite of a call.
Put Option
(1) An option that gives the option buyer the right but not the obligation to sell (go "short") the underlying futures contract at the strike price on or before the expiration date. (2) A contract giving the holder the right, but not the obligation, to sell (put) a security or other financial instrument for a specified price, called the exercise or strike price, at a specified date in the future. Put options are bought by investors believing that the price of the underlying asset will go down, thereby allowing them to purchase (for re-sell) the asset at a lower price than the strike price. Opposite of call option.
Pyramiding
(1) In banking, the use of credit extended by one lending institution to rollover outstanding debt of other creditors without ever paying down the principal due. (2) In real estate development, the acquisition of additional properties by refinancing already owned properties and then reinvesting the proceeds.
Quadrangle
A square area of land which measures 24 miles on each side.
Qualified
A term used to indicate that an action or financial instrument meets the pertinent provisions applicable to regulations for tax preference.
Qualified Acceptance
(1) Any counter-offer (i.e., not meeting the terms of the original offer and therefore subject to rejection). (2) An acceptance of an offer subject to a condition or conditions which must be met. Since new conditions are included, a qualified acceptance is a rejection of the original offer and thus is a counteroffer.
Qualified Buyer
A buyer who has satisfied a lender that he or she is financially able to qualify for a loan. Qualifying the buyer is one of the primary steps taken by the lender as part of the loan process.
Qualified Endorsement
An endorsement that includes words such as "without recourse" evidencing the intent of the indorser that he shall not be held liable for the failure of the primary party to pay the instrument.
Qualified Fee Estate
A legal interest in land which is subject to a limitation(s) placed on the estate by the owner. For example, a qualified fee could be created "to First Church so long as the land is used exclusively for religious purposes." The two most important kinds of qualified fees are: (1) fee simple determinable and (2) fee simple subject to a condition subsequent.
Qualified Opinion
(1) The opinion of a certified auditor or public accounting firm stating that the auditor is unable to provide complete verification of the accuracy of the financial records of a company due to certain omissions in the records or the limited scope of the audit. (2) An opinion stating that "except for" the effect of the matter to which the qualification relates, the financial statements present fairly the financial position, results of operations and (when applicable) changes in financial position in conformity with Generally Accepted Accounting Principles (GAAP). Such an opinion is expressed when a lack of sufficient, competent evidential matter or restrictions on the scope of the auditor's examination have led the auditor to conclude that an unqualified opinion cannot be expressed, or when the auditor believes, on the basis of his examination, that (a) the financial statements contain a departure from GAAP, the effect of which is material, (b) there has been a material change between periods in accounting principles or in the method of their application or (c) there are significant uncertainties affecting the financial statements, and the auditor has decided not to express an adverse opinion or to disclaim an opinion. See adverse opinion and disclaimer of opinion.
Qualifying Ratio
In lending and credit decisions, a ratio designed to show the borrower's ability to meet current and financial obligations should a loan be approved; typically consists of the ratio of a borrower's total monthly housing expenses including all loan repayments as a percent of gross monthly income.
Qualitative Analysis
Analysis based on subjective judgments and not quantitative data or information.
Quality Rating
A rating given to a security based upon the history and viability of the firm, its repayment history, management, its market trends, and other pertinent factors.
Quantitative Analysis
Analysis based on objective judgment, research, and empirical data.
Quantity Survey
Method A method of estimating reproduction cost for appraisal purposes by totaling the cost of each individual part to be used in construction and the cost of labor per part, plus additions for indirect costs.
Quantity Theory of Money
(1) A theory of price determination. Using the equation of exchange and assuming full employment and a stable demand for money, the theory asserts that there is a direct and proportional relationship between the stock and the price level. (2) Economic theory which postulates that the money supply has important implications on the level of economic activity and the rate of inflation. According to this theory, the effects of changes in the money supply, however defined, multiplied through the velocity of money, is equal to the change in the price level times the real growth in Gross Domestic Product (GDP). (Alternatively, the quantities "P" and "T" may be thought of |