Global Economy Glossary J to P: Plain-English Definitions

About this page

Finance is full of terms that sound simple until you have to use them. This page is a plain-English glossary for Global Economy, covering entries such as Jevons paradox, Jiaozi, KRI, KYC, Labor productivity, each with a short definition and a pointer to the part of the volume where it is explained.

Keep it open while you read, or use it to settle an argument about what a term really means. Every entry is written to stand on its own, with no jargon left undefined, and the part number beside it tells you where to read more. Use it as a quick reference whenever a term trips you up.

A sample of the entries (91 terms on the full page)

Jevons paradox — The observation that making a resource cheaper to use can raise total use of it, so efficiency gains need not cut total spending.

Labor productivity — Output per hour worked, the only lasting source of higher living standards.

Lender of last resort — A central bank’s role of lending freely against good collateral to solvent banks that are short of cash, so they do not fail for lack of liquidity.

License Raj — India’s pre-1991 system of government permits for what, how much and where to produce, dismantled by the 1991 reforms.

Liquidity Coverage Ratio (LCR) — A Basel III rule requiring banks to hold enough high-quality liquid assets to cover expected cash outflows over a 30-day stress, at a minimum of 100%.

M1 — Narrow money: currency plus demand deposits that can be spent immediately; since May 2020 the Fed also counts savings deposits in M1, and it now publishes only M1 and M2. Broader measures (M2 in the US, M3 in India) add savings and larger deposits.

Marginal standing facility — The RBI window where a bank short of cash borrows overnight against government bonds, at 0.25 point above the repo rate; the ceiling of the corridor.

Market risk — The risk of loss from moves in market prices, rates or exchange rates; one of the four types of financial risk.

Minimum support price — A price floor the Indian government announces for 22 mandated crops, on the principle of at least 1.5 times the cost of production; it helps farmers only where the state buys.

Money creation — The process by which new deposits come into existence, mainly when a bank makes a loan and credits the borrower’s account; repaying loans destroys deposits again.

NBER — The National Bureau of Economic Research, a private US research body whose Business Cycle Dating Committee sets the official start and end dates of US recessions.

Net Stable Funding Ratio (NSFR) — A Basel III rule requiring banks to fund long-term assets with stable sources of funding rather than short-term borrowing.

Nixon Shock — President Nixon’s August 15, 1971, decision to stop exchanging dollars for gold for foreign governments, ending Bretton Woods convertibility.

Non-banking financial company — A lender, called an NBFC in India, that lends and invests like a bank but cannot accept demand deposits, is outside the payment and settlement system and cannot issue checks drawn on itself, per the Reserve Bank of India.

Novation — The step in which a central counterparty becomes buyer to every seller and seller to every buyer, replacing the original counterparties.

Oil price cap — The G7 and EU rule letting Western shippers and insurers carry Russian crude only if it is sold at or below a set price.

Operational resilience — The ability of a firm to keep important services running, or restore them quickly, when failures occur.

Order book — The live list of all unfilled limit orders for a security, sorted by price.

P&L — Profit and loss: a statement, or a desk’s daily result, showing revenue less costs; reconciling a trading desk’s reported P&L with an independent rebuild is a standard control.

Payment-versus-payment — A settlement method, used by CLS for foreign exchange trades, in which both currency legs settle together or neither does, removing the risk of paying without being paid.

Policy rate — The short-term interest rate a central bank sets or targets to steer the economy, such as the Fed’s federal funds target range or the RBI’s repo rate (Appendix A.0).

Price elasticity of demand — The percentage change in quantity demanded divided by the percentage change in price; the smaller it is, the further a price must move to absorb a supply change.