Performance Index Paper - PIP

DEFINITION of 'Performance Index Paper - PIP'

Short-term paper on which the rate of interest is denominated and paid in a base currency. Performance index paper's interest rate is determined by the exchange rate of the base currency with an alternate currency. It is a commercial-paper variation of the currency coupon swap.

BREAKING DOWN 'Performance Index Paper - PIP'

PIPs are structured products that can be tailored to meet the specific requirements of a company, although the minimum thresholds are generally quite high.

Performance index paper is one way to hedge currency risk. For example, a large U.S. exporter concerned about a plunge in the value of the euro versus the USD can ask its financial institution to structure a PIP that hedges the downside risk of the euro.

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RELATED FAQS
  1. Can a business ever be too small to issue commercial paper?

    See why market forces regulate the size of companies that issue commercial paper, even though there are no official regulations ... Read Answer >>
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  5. What is the value of one pip and why are they different between currency pairs?

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