Definition of Customs union

Customs union

An agreement by two or more countries to erect a common external tariff and to abolish
restrictions on trade among members.

Economic union

An agreement between two or more countries that allows the free movement of capital,
labor, all goods and services, and involves the harmonization and unification of social, fiscal, and monetary
policies.

European Union (EU)

An economic association of European countries founded by the Treaty of Rome in
1957 as a common market for six nations. It was known as the European Community before 1993 and is
comprised of 15 European countries. Its goals are a single market for goods and services without any
economic barriers and a common currency with one monetary authority. The EU was known as the European
Community until January 1, 1994.

European Union (EU)

an economic alliance originally created
in 1957 as the European Economic Community by
France, Germany, Italy, Belgium, the Netherlands, and Luxembourg
and later joined by the United Kingdom, Ireland,
Denmark, Spain, Portugal, and Greece; prior to the Maastricht
Treaty of 1993 was called the European Community;
has eliminated virtually all barriers to the flow of capital,
labor, goods, and services among member nations

Credit Union

Credit unions are community based financial co-operatives and most offer a full range of services. All are owned and controlled by members who are also shareholders. Credit unions are regulated provincially and insured by a stabilization fund, deposit insurance or guarantee corporation.
Credit unions are supported by a system of provincial credit union Centrals, a national credit union Central and affiliated national financial co-operatives.

economic components model

Abrams’ model for calculating DLOM based on the interaction of discounts from four economic components.
This model consists of four components: the measure of the economic impact of the delay-to-sale, monopsony power to buyers, and incremental transactions costs to both buyers and sellers.

Arbitrageurs

People who search for and exploit arbitrage opportunities.

Convertible eurobond

A eurobond that can be converted into another asset, often through exercise of
attached warrants.

Delta neutral

The value of the portfolio is not affected by changes in the value of the asset on which the
options are written.

Economic assumptions

economic environment in which the firm expects to reside over the life of the
financial plan.

Economic defeasance

See: in-substance defeasance.

Economic dependence

Exists when the costs and/or revenues of one project depend on those of another.

Economic earnings

The real flow of cash that a firm could pay out forever in the absence of any change in
the firm's productive capacity.

Economic exposure

The extent to which the value of the firm will change because of an exchange rate change.

Economic income

Cash flow plus change in present value.

Economic order quantity (EOQ)

The order quantity that minimizes total inventory costs.

Economic rents

Profits in excess of the competitive level.

Economic risk

In project financing, the risk that the project's output will not be salable at a price that will
cover the project's operating and maintenance costs and its debt service requirements.

Economic surplus

For any entity, the difference between the market value of all its assets and the market
value of its liabilities.

Euro CDs

CDs issued by a U.S. bank branch or foreign bank located outside the U.S. Almost all euro CDs
are issued in London.

Euro lines

Lines of credit granted by banks (foreign or foreign branches of U.S. banks) for eurocurrencies.

Euro straight

A fixed-rate coupon eurobond.

Eurobank

A bank that regularly accepts foreign currency denominated deposits and makes foreign currency loans.

Eurobond

A bond that is (1) underwritten by an international syndicate, (2) offered at issuance
simultaneously to investors in a number of countries, and (3) issued outside the jurisdiction of any single
country.

Euroclear

One of two principal clearing systems in the eurobond market. It began operations in 1968, is
located in Brussels, and is managed by Morgan Guaranty Bank.

Eurocredits

Intermediate-term loans of eurocurrencies made by banking syndicates to corporate and
government borrowers.

Eurocurrency deposit

A short-term fixed rate time deposit denominated in a currency other than the local
currency (i.e. US$ deposited in a London bank).

Eurocurrency market

The money market for borrowing and lending currencies that are held in the form of
deposits in banks located outside the countries of the currencies issued as legal tender.

Eurodollar

This is an American dollar that has been deposited in a european bank or an U.S. bank branch
located in europe. It got there as a result of payments made to overseas companies for merchandise.

Eurodollar bonds

eurobonds denominated in U.S.dollars.

Euroequity issues

Securities sold in the euromarket. That is, securities initially sold to investors
simultaneously in several national markets by an international syndicate. euromarket.
Related: external market

European Currency Unit (ECU)

An index of foreign exchange consisting of about 10 european currencies,
originally devised in 1979.

European Monetary System (EMS)

An exchange arrangement formed in 1979 that involves the currencies
of european Union member countries.

European option

Option that may be exercised only at the expiration date. Related: american option.

European-style option

An option contract that can only be exercised on the expiration date.

Euroyen bonds

eurobonds denominated in Japanese yen.

Euro-commercial paper

Short-term notes with maturities up to 360 days that are issued by companies in
international money markets.

Euro-medium term note (Euro-MTN)

A non-underwritten euronote issued directly to the market. euro-
MTNs are offered continuously rather than all at once as a bond issue is. Most euro-MTN maturities are
under five years.

Euro-note

Short- to medium-term debt instrument sold in the eurocurrency market.

Force majeure risk

The risk that there will be an interruption of operations for a prolonged period after a
project finance project has been completed due to fire, flood, storm, or some other factor beyond the control
of the project's sponsors.

Leading economic indicators

economic series that tend to rise or fall in advance of the rest of the economy.

Neutral period

In the euromarket, a period over which eurodollars are sold is said to be neutral if it does not
start or end on either a Friday or the day before a holiday.

OPEC (Organization of Petroleum Exporting Countries)

A cartel of oil-producing countries.

Risk neutral

Insensitive to risk.

Economic Value Added (EVA)

Operating profit, adjusted to remove distortions caused by certain accounting rules, less a charge
to cover the cost of capital invested in the business.

Eurobond

A debt security issued in a market other than the home market of
the company issuing the security

economic integration

the creation of multi-country markets
by developing transnational rules that reduce the fiscal and
physical barriers to trade as well as encourage greater economic
cooperation among countries

economic order quantity (EOQ)

an estimate of the number
of units per order that will be the least costly and provide
the optimal balance between the costs of ordering
and the costs of carrying inventory

economic production run (EPR)

an estimate of the number
of units to produce at one time that minimizes the total
costs of setting up production runs and carrying inventory

economically reworked

when the incremental revenue from the sale of reworked defective units is greater than
the incremental cost of the rework

economic value added (EVA)

a measure of the extent to which income exceeds the dollar cost of capital; calculated
as income minus (invested capital times the cost of capital percentage)

equivalent units of production (EUP)

an approximation of the number of whole units of output that could have been
produced during a period from the actual effort expended
during that period; used in process costing systems to assign
costs to production

pseudo microprofit center

a center for which a surrogate
of market value must be used to measure output revenue

European option

An option that can be exercised only on its expiration date.
Contrast with American option.

Economic life

The period over which a company expects to be able to use an asset.

economic order quantity

Order size that minimizes total inventory costs.

economic value added (EVA)

Term used by the consulting firm Stern Stewart for profit remaining after deduction of the cost
of the capital employed.

eurobond

Bond that is marketed internationally.

eurodollars

Dollars held on deposit in a bank outside the United States.

Classical Macroeconomics

The school of macroeconomic thought prior to the rise of Keynesianism.

Economics

The study of the allocation and distribution of scare resources among competing wants.

Eurodollars

Deposits denominated in U.S. dollars but held in banks located outside the United States, such as in Canada or France.

Macroeconomics

The study of the determination of economic aggregates such as total output and the price level.

Microeconomics

The study of firm and individual decisions insofar as they affect the allocation and distribution of goods and services.

Neutrality of Money

The doctrine that the money supply affects only the price level, with no long-run impact on real variables.

Supply-Side Economics

View that incentives to work, save, and invest play an important role in determining economic activity by affecting the supply side of the economy.

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