Financial Terms and Definitions » P

Parallel Loan

ashivapu — Tue, 05 Jan 2010 06:43:41 +0000

A loan in which two companies in different countries borrow each other’s currency for a given period of time, in order reduce foreign exchange risk for both of them. Also referred to as back-to-back loans. Related posts:Limit Order Vendor Financing Purchasing Power Parity – PPP Related posts:

Principal-Agent relationship

ashivapu — Tue, 29 Dec 2009 16:29:14 +0000

The arrangement that takes place when one person or entity (called the agent) acts on behalf of another (called the principal).

An example of this can be seen when shareholders of a company (principals) elect management (agents) to act on their behalf, and investors (principals) choose fund managers (agents) to manage their assets.

A contract is used to specify the terms of a principal-agent relationship.

Purchase Acquisition

ashivapu — Mon, 28 Dec 2009 04:24:21 +0000

Accounting method used in any merger which is not treated as a pooling of interests. The purchasing company treats the acquired as an investment, adding the acquired’s assets to its own balance sheet, and recording any premium paid above market price as goodwill, to be charged against future earnings. Related posts:P/E Ratio Earnings Book To [...] Related posts:

Purchasing Power Parity – PPP

ashivapu — Wed, 16 Dec 2009 20:57:08 +0000

An economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency’s purchasing power.

For example, consider a computer that costs 1,500 Euros in Germany and an exchange rate of 2 Euros to 1 U.S. Dollar. If the same computer cost 1,000 dollars in the United States, U.S. consumers would buy the computer in Germany. If done on a large scale, the influx of U.S. dollars would drive up the price of the Euro, until it equalized at 1.5 Euros to 1 U.S. Dollar – the same ratio of the price of the computer in Germany to the price of the computer in the U.S.

The theory only applies to tradable goods, not to immobile goods or local services. The theory also discounts several real world factors, such as transportation costs, tariffs and transaction costs. It also assumes there are competitive markets for the goods and services in both countries.

Preferred Stock

ashivapu — Sat, 03 Oct 2009 22:56:41 +0000

A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights. Related posts:Common Stock Equity Earnings Per Share (EPS) Related posts:

P/E Ratio

ashivapu — Sat, 03 Oct 2009 22:36:25 +0000

P/E ratio (price-earnings ratio) values a company’s current share price to its per-share earnings.

P/E ratio = Market Value Per Share/Earnings Per Share (EPS).

Usually a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E.

Also known as: price multiple, earnings multiple.

Portfolio

ashivapu — Sat, 03 Oct 2009 03:17:04 +0000

A portfolio consists of all the investment securities and entities that are located under an individual or institution’s name. Portfolios can include: stocks, bonds, real estate, and retirement and saving accounts. Related posts:REIT Capital Gain Overweight Related posts:

Put Option

ashivapu — Fri, 02 Oct 2009 21:12:15 +0000

An option contract that gives the holder the right to sell a certain quantity of an underlying security to the writer of the option, at a specified price (strike price) up to a specified date (expiration date).

A put becomes more valuable as the price of the underlying stock depreciates relative to the strike price.

Example: You have one Apr 09 Company 20 put, you have the right to sell 100 shares of Taser at $20 until April 2009. If shares of Taser fall to $10 and you exercise the option, you can purchase 100 shares of Company for $10 in the market and sell the shares to the option’s writer for $20 each, which means you make $1000 (100 x ($20-$10)) on the put option.

Pig

ashivapu — Fri, 02 Oct 2009 04:40:31 +0000

While not an official term, being called a pig in the stock market is not a good thing. It usually means that you have no clue what you are doing, and just blindly make and execute trades.

Speak Stocks: Bull, Bear, Pig?