Category: Financial Terms

Private Banking Key takeaways Private banking delivers personalized financial and wealth-management services to high-net-worth individuals (HNWIs) through a dedicated relationship manager. Services commonly include investment and portfolio management, tax and estate planning, lending, and concierge banking. Benefits include privacy, preferential pricing, access to alternative investments, and consolidated services; drawbacks can include limited product choices, potential…

Prisoner’s Dilemma The prisoner’s dilemma is a foundational concept in game theory that illustrates how individually rational decisions can produce a collectively worse outcome. It appears in economics, politics, environmental problems, and everyday social interactions whenever personal incentives conflict with the common good. Classic setup and paradox Two accomplices are arrested and interrogated separately. Each…

Principal, Interest, Taxes, Insurance (PITI) Principal, interest, taxes, and insurance (PITI) are the four components that make up a typical monthly mortgage payment: PITI = Principal + Interest + Taxes + Insurance Understanding PITI helps buyers and lenders assess whether a mortgage is affordable and how it affects monthly cash flow. Explore More Resources ›…

Principal-Agent Relationship: What It Is, How It Works, and New Developments Key takeaways * A principal appoints an agent to act on their behalf and in their best interest (e.g., shareholders and executives, investors and fund managers). * The relationship is fiduciary: agents owe duties of care and loyalty and must avoid conflicts of interest….

Principal-Agent Problem Overview The principal–agent problem arises when one party (the principal) delegates decision-making or control of an asset to another party (the agent), and the agent’s interests or actions diverge from those of the principal. It stems from separation of ownership and control and is common across business, law, politics, and everyday relationships. Origins…

Principal: Definition and How It Works in Loans, Bonds, Investments, and Transactions Definition Principal is the original sum of money borrowed, invested, or otherwise at stake in a transaction. In loans, it is the amount on which interest is calculated. In investments and bonds, it is the initial amount invested or the face (par) value…

Prime Rate: Definition and How It Works Key takeaways * The prime rate is the benchmark interest rate that commercial banks use when lending to their most creditworthy customers. * Banks commonly set the prime rate by adding about 3 percentage points to the federal funds rate, though each bank can set its own prime….

Understanding Prime Cost Prime cost is the sum of a product’s direct production expenses: raw materials and direct labor. It measures the immediate input costs required to make a good or deliver a service and helps businesses set prices and monitor production efficiency. Key takeaways Prime cost = Direct raw materials + Direct labor. It…

Prime Brokerage Prime brokerage is a bundled set of services that large financial institutions offer to major trading clients—most commonly hedge funds and other institutional investors. These services let clients outsource execution, financing, custody, and administrative tasks so they can focus on investment strategy. Key services Prime brokers typically provide a mix of: * Securities…

Primary Market: Definition, How It Works, Types, and Examples What is the primary market? The primary market is where new securities are created and sold for the first time. Issuers—companies, governments, or other entities—offer newly issued stocks, bonds, or other instruments directly to investors to raise capital. Securities sold here are considered new issues; once…

Prima Facie: Definition and Legal Applications What prima facie means Prima facie is a Latin phrase meaning “at first sight.” In law, it describes a case or evidence that, on initial examination, is sufficient to support a legal claim and allow the matter to proceed to trial or judgment. Establishing a prima facie case shifts…

Price-Weighted Index A price-weighted index measures market performance by averaging the share prices of its constituent stocks. In this method, stocks with higher per-share prices have greater influence on the index’s movement than lower-priced stocks, regardless of a company’s market capitalization. How it works Basic formula: Index value = (Sum of component stock prices) /…

Price Value of a Basis Point (PVBP) What is PVBP? The Price Value of a Basis Point (PVBP) measures how much a bond’s price changes in dollars for a one basis-point (0.01%) change in yield. It is a direct way to quantify a bond’s sensitivity to small interest-rate moves. Common synonyms include Value of a…

Price to Tangible Book Value (PTBV) What PTBV measures Price to tangible book value (PTBV) is a valuation ratio that compares a company’s market price per share to the value of its tangible equity per share. Tangible equity excludes intangible assets such as goodwill, patents, trademarks, and other intellectual property. PTBV aims to show how…

Price-to-Sales (P/S) Ratio Key takeaways * The P/S ratio measures how much investors pay for each dollar of a company’s sales. * It is calculated as Market Capitalization ÷ Total Sales (or Price per Share ÷ Sales per Share). * Best used to compare companies within the same industry; a lower P/S may indicate undervaluation…

Price-to-Rent Ratio What it is The price-to-rent ratio compares home prices to annual rent to help assess whether it’s generally more economical to buy or rent in a given market. It’s a simple indicator used by analysts, real‑estate websites, and buyers as a first-pass signal of market valuation or imbalance. How to calculate it Use…

Price to Free Cash Flow (P/FCF) What P/FCF measures Price to free cash flow (P/FCF) compares a company’s market value to the cash it generates after necessary capital expenditures. It shows how much investors are paying for each dollar of free cash flow (FCF), a key indicator of a company’s ability to fund operations, pay…

Price-to-Earnings Ratio (P/E Ratio) What it is The price-to-earnings (P/E) ratio compares a company’s current share price to its earnings per share (EPS). It shows how much investors are willing to pay today for each dollar of a company’s earnings and is widely used to assess relative valuation across stocks or over time. Key takeaways…

Price-to-Cash Flow (P/CF) Ratio The Price-to-Cash Flow (P/CF) ratio compares a company’s market price to the cash it generates from operations. It helps investors assess how much they are paying for each dollar of operating cash flow, and is particularly useful for firms with large non-cash expenses that distort earnings. Definition and formula P/CF (per…

Price-to-Book Ratio (P/B Ratio) What it is The price-to-book (P/B) ratio compares a company’s market value to its book value. It shows how much investors are willing to pay for each dollar of the firm’s net assets recorded on the balance sheet. Key formulae P/B ratio = Market price per share / Book value per…

Price Targets: Definition, How Analysts Calculate Them, and Key Considerations Key takeaways A price target is an analyst’s forecast of where a security’s price should trade over a specified horizon (commonly 12–18 months). Analysts use a mix of fundamental and technical methods—P/E multiples, discounted cash flows, comparable-company analysis, and chart-based support/resistance—to set targets. Price targets…

Price Taker Definition A price taker is an individual or firm that must accept the prevailing market price because it lacks sufficient market share or market power to influence that price. In perfectly competitive markets—where products are identical, there are no barriers to entry or exit, and buyers have full information—all participants behave as price…

Price Stickiness Price stickiness (or sticky prices) describes the tendency of market prices to remain unchanged or to adjust only slowly in response to shifts in demand, costs, or broader economic conditions. When prices do not move to the level suggested by supply-and-demand forces, markets can experience inefficiency and short‑term disequilibrium. Key points Prices may…

Price Skimming What is price skimming? Price skimming is a pricing strategy in which a company launches a new or innovative product at a high initial price to capture maximum revenue from early adopters, then gradually lowers the price to attract more price‑sensitive customers as demand and competition evolve. The term evokes “skimming” successive layers…

Price Sensitivity Price sensitivity is the degree to which changes in a product’s price affect consumers’ willingness to buy it. It describes how demand responds when price rises or falls and is a central concept for businesses setting prices and for economists analyzing markets. Price sensitivity and elasticity of demand Price sensitivity is commonly measured…

Price Rate of Change (ROC) Indicator The Price Rate of Change (ROC) is a momentum oscillator that measures the percentage change in a security’s price over a chosen lookback period. It shows the speed of price movement: positive values indicate upward momentum and negative values indicate downward momentum. Traders use ROC to identify trend strength,…

Price Level Price level is the average of current prices across the goods and services produced in an economy. More generally, it describes how much money is required to buy typical items—an indicator of purchasing power. In financial markets, the term is also used to describe specific price points for traded assets, commonly referred to…

Price Leadership Price leadership is a market phenomenon in which one firm—because of size, information, or market power—effectively sets the price for an industry and other firms follow to maintain market share. Key takeaways A price leader influences market prices; rivals typically match its moves. Common in oligopolies with few firms, high barriers to entry,…

Price Fixing Price fixing is the practice of setting the price of a product or service instead of allowing it to be determined by free-market forces. When competitors agree—verbally, in writing, or by inference—to raise, lower, or stabilize prices or other competitive terms, they suppress competition and often violate antitrust laws. Key takeaways Price fixing…

Price Elasticity of Demand Price elasticity of demand (PED) measures how responsive the quantity demanded of a good is to a change in its price. It is expressed as the percentage change in quantity demanded divided by the percentage change in price. Formula: Price Elasticity of Demand = % change in quantity demanded ÷ %…

Price/Earnings-to-Growth (PEG) Ratio The PEG ratio adjusts the price-to-earnings (P/E) ratio for expected earnings growth, giving a fuller view of a stock’s valuation by factoring in its growth prospects. Definition PEG = (Price / Earnings per Share) ÷ Earnings Growth Rate Explore More Resources › Read more Government Exam Guru › Free Thousands of Mock…

What is price discrimination? Price discrimination is a pricing strategy where a seller charges different prices for the same good or service to different buyers or markets, based on what each buyer or group is willing or able to pay. The goal is to increase seller revenue by capturing more of the consumer surplus. How…

Price Discovery Explained Key takeaways * Price discovery is the process by which buyers and sellers interact to agree on the price of a security, commodity, or currency. * It is driven primarily by the law of supply and demand but influenced by market structure, liquidity, information, transaction costs, and investor behavior. * Price discovery…

Understanding Price Controls Price controls are government-imposed limits on how much goods or services can be sold for. They take the form of price ceilings (maximums) and price floors (minimums) and are typically used to keep essentials affordable, curb inflation, or stabilize markets during crises. While they can deliver immediate relief, price controls often create…

Price Ceiling A price ceiling (or price cap) is a legal maximum price that sellers may charge for a good or service. Governments typically impose them on essential items—rent, food, energy, or medicines—when prices rise rapidly or become unaffordable. While ceilings can provide short-term relief to consumers, they often produce unintended economic consequences. How price…