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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