Glossary of Economic Terms: P

par value

The full face value of a security.

payments system

Collective term for mechanisms (both paper-backed and electronic) for moving funds, payments, and money among financial institutions throughout the nation. The Federal Reserve plays a major role in the nation’s payments system through distribution of currency and coin, processing of checks, electronic transfer of funds, and the operation of automated clearinghouses that transfer funds electronically among depository institutions; various private organizations also perform payments system functions.

permissible nonbank activities

Financial activities closely related to banking that may be engaged in by bank holding companies (BHC’s), either directly or through nonbank subsidiaries. For example, a BHC might own finance companies or engage in mortgage banking. The Federal Reserve Board determines which activities are closely related to banking. Before making such activities permissible, the Board must determine that performance of the activities by bank holding companies is in the public interest.


In reference to a loan, points consist of a lump sum payment made by the borrower at the outset of the loan period. Generally, each point equals one percent of the loan amount. See also seller’s points.

potential output

The level of real GDP(gross domestic product) that can be sustained in the long run and that is consistent with constant inflation.


The amount by which the auction price of a bill, note, or bond is higher than its face value.

principal payments

The face amount or par value of a debt instrument where interest is paid. The interest payment is not part of the principal.


The amount of physical output for each unit of productive input.

pro rata

1. ‘According to the rate’ (Latin); 2. In proportion to a total amount. For example, if a contract is terminated prior to the end of the period for which payment has been given, a pro rata return of the payment is made, in proportion to the unused period of time remaining.

purchasing power parity theory

A theory by which the exchange rate between any two currencies adjusts to reflect changes in the price levels within the two countries.

purpose credit

Credit used for the purpose of buying, carrying, or trading in securities.