GLOSSARY

List of Financial Terms in alphabetical order:

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Package Policy An insurance contract that provides coverage for several perils including property and casualty perils (a.k.a., multi peril insurance). An example of a package policy would be homeowners' insurance, which combines property liability and theft coverage into one policy.

Par Value The face value of a security, which is shown on the certificate. Bonds that are trading at par are trading for the same amount as when they were issued. Bond prices are quoted as a percentage of the par or face value of the bond.

Participating Depository Financial Institution A financial institution that is authorized to send or receive ACH automatic clearinghouse entries in the United States.

Partnership Interest Describes the ownership of equity in a partnership. In general partnerships, the owners have unlimited liability for the partnership's losses. In a limited partnership, the owners' liability is limited.

Payee A party to whom a payment is made.

Payer A party that makes a payment to a payee.

Paying agent One financial institution or a syndicate of institutions responsible for distributing interest and principal payments associated with a bond issue to the bondholders on behalf of the issuer of the bond.

Paying Bank A bank to which a check is sent for payment or collection. In a Letter of Credit transaction, the paying bank is the bank that will make the payment to the exporter (seller). This is usually the bank that is appointed as the drawee bank in the Letter of Credit.

P/E See Price/Earnings Ratio.

PEP See Personal Equity Plan

Peril Classification of loss occurrences insured against, such as fire, windstorm, collision, hail, injury or loss of profits.

Periodic Level Premiums Premiums that are paid on a regular basis until the time that the annuity payment begins or the insurance policy is paid.

Permissible Non-bank Activities Types of financial activities, such as securities and insurance underwriting, trust activities and property services, closely related to banking in which a bank holding company (BHC) may engage directly or through a non-bank subsidiary as determined by the banking supervisory authority. In the U.S., the Federal Reserve Board determines which non-bank activities are permissible.

Persistency Term used to refer to the length of time that insurance policies stay in force through the continued payment of premiums.

Personal Equity Plan (PEP) A tax-free investment plan in the U.K. where individuals could invest in equities on a tax-free basis. This plan has now been closed to new investments and replaced with the Individual Savings Account (ISA).

Personal Liability Coverage Insurance that provides coverage for injuries to other people or damage to other people's property.

Personal Lines Kinds of insurance policies issued for individuals and families as opposed to businesses.

PKI See Public Key Infrastructure.

Point of Sale Terminal (POS) Electronic terminals found in business establishments allowing customers the opportunity to pay for goods and services through debits to their accounts that simultaneously issue credits to the sellers' accounts.

Policies In Force Unexpired insurance polices that a carrier has written and recorded on their books.

Policy Reserves The funds that an insurance company is required to hold to pay benefits and obligations for the future. Insurance laws or regulations typically stipulate that reserves must be calculated so that the reserve amount is sufficient to cover all future claims.

Policy Year The year in which the insurance policy is effective.

Portfolio Diversification An investment strategy to limit risk by diversifying around a variety of investment instruments. In banking, this can be accomplished by ensuring that assets in a portfolio are not limited to a specific geographic region, industry or customer.

Portfolio Theory A structured approach to decision-making regarding risk and return on an investment portfolio. The approach has four steps: security valuation, determining asset distribution, optimization of the portfolio and systematically measuring the return of each asset relative to others in its class.

POS Terminal see Point of Sale Terminal

Position An interest in the market in terms of financial instruments. For instance if a dealer has a short position it has an excess amount of sales over purchases of that security. A long position describes an excess of purchases over sales of that security. Position taking involves holding long or short positions in order to profit from price movements in the market. Short positions are settled (or closed) at the end of the day by purchasing the amount of securities you are short.

Postal Banks Banks that provide savings and payment services to certain customers through the national post office. These banks are also referred to as Giro Banks.

Predictability The probability of loss that is used to calculate the basic premium rate in insurance.

Preferred Stock A type of stock that takes priority over common stock with regards to dividends and in liquidation and typically pays fixed dividends. Normally, dividends may not be paid on common stock unless the dividend is paid on all preferred stock. Preferred stock may be issued as cumulative, in which dividends on common stock may not be paid until all past dividends on preferred stock have been paid, or as non-cumulative, where any suspension of the dividend payment on the preferred stock is not ultimately paid to the investor. Also referred to as preference shares.

Premiums The consideration (money) paid (in one payment or a series of payments) for an insurance contract to be in force.

Prepayment Risk The risk of loss of additional profits due to the early repayment of principal on a higher yielding debt instrument or loan, than could be obtained at current market prices (e.g., refinancing of mortgages when interest rates fall).

Price Appreciation A figure that indicates how much an investor's investments have appreciated in price. It is calculated using market value less cost.

Price/Earnings Ratio (P/E, P/E multiple) Ratio that is used in determining the value of a stock. It is calculated by taking the latest closing price of a stock (share) and dividing it by the earnings per share for the most recent twelve month period. A stock selling at $60 per share with earnings of 3% ($3.00) per share has a PE of 20.

Primary Market The market where new, previously unissued securities are traded. After their initial issue, the securities are then traded on the secondary market.

Primary Reserves The cash needed to operate a bank in a specific country plus the legal reserves required.

Principal Amount of debt that must be repaid. If a lender issues a loan for $100,000 at 10% interest, the principal is $100,000. Or par value or face amount of a security exclusive of principal and interest.

Principal Transaction A transaction in which the counterparty is purchasing or selling an asset on their own behalf.

Private Placement Describes the offering and selling of any security by a brokerage firm to a select group of investors and does not involve a public offering. Historically, the buyers of private placement securities have been banks, insurance companies and pension funds. The term is also referred to as direct placement.

Problem Bank A bank whose ratio of non-performing loans in proportion to its total capital is very high or whose practices in trading or other areas are considered to be in contradiction of existing regulations. Supervisory agencies in the U.S. conduct regular bank examinations and assign a 4 or 5 CAMEL rating (1-5 scale) to problem banks and place these banks under greater scrutiny and/or regulatory control.

Proprietary Trading The practices of trading in securities for an organization's own account. Also referred to as "trading for your own book".

Provision for Loan Loss See Provision For Loan Losses.

Provision for Loan Losses An item on a bank’s profit and loss statement that shows the amount of funds the bank has set aside in the current reporting period to increase its allowance for loan losses. See also Allowance for Loan Losses.

Protection and Indemnity Mutuals P& I clubs that provide collective self-insurance to their members. (A.k.a., mutual marine protection and indemnity insurers.) The clubs provide insurance for damage claims against vessel owners or operators that are not covered under basic marine insurance.

Public Key Infrastructure (PKI) A term used to describe an infrastructure (hardware, software and internal systems) that enables users of unsecured public networks such as the Internet to securely and privately exchange data. PKI involves user authentication, data integrity, nonrepudiation of transactions and encryption of information.

Put Option A contract that gives the purchaser the right, but not the obligation, to sell a specified amount of an underlying asset/security at a specified price (strike price) on or before a stated date. See also Option (American and European).

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