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When a number of exchange and /or deposit orders have to be fulfilled simultaneously.
(1) The nominal value of a security or instrument.
(2) The official value of a currency.
A term for USD FRF Spot Rate.
(1) Foreign exchange dealer's slang for your price is the correct market price.
(2) Official rates in terms of SDR or other pegging currency.
The value of one currency in terms of another.
A term used in the context of the European Monetary System which consists of the upper, central and lower intervention points between member currencies.
The date on which a dividend or bond interest payment is scheduled to be paid.
A system where a currency moves in line with another currency, some pegs are strict while others have bands of movement.
Foreign exchange reserves of oil producing nations arising from oil sales.
Philadelphia Stock Exchange (PHLX)
The oldest U.S. securities exchange which offers currency futures and options on currency futures.
See point (below).
(1) 100th part of a per cent, normally 10,000 of any spot rate. Movement of exchange rates are usually in terms of points.
(2) One percent on an interest rate e.g. from 8% -9%.
(3) Minimum fluctuation or smallest increment of price movement.
An option hedging strategy to protect long cash market positions.
The netted total commitments in a given currency. A position can be either flat or square (no exposure), long, (more currency bought than sold), or short (more currency sold than bought).
A clerk who assist the dealer in recording a dealers position and ensures that all deal tickets are completed and transferred to the back office or input into the books in a position keeping system.
The maximum position, either net long or net short, in one future or in all futures of one currency or instrument combined which may be held or controlled by one person.
Quoted standard periods that fall between the transaction date and the current spot value date.
(1) The amount by which a forward rate exceeds a spot rate.
(2) The amount by which the market price of a bond exceeds its par value.
(3) Options, the price a put or call buyer must pay to a put or call seller for an option contract.
(4) The margin paid above the normal price level.
Gold related monetary reserves, being gold, SDR, etc.
(1) The rate from which lending rates by banks are calculated in the US.
(2) The rate of discount of prime bank bills in the UK.
A dealer who buys or sells stock for his/her own account.
Producer Price Index
An economic indicator which gauges the average changes on prices received by domestic producers for their output at all stages of processing.
A graphical representation of the profits to a given options strategy for different underlying asset prices.
The unwinding of a position to realise profits.
A term to describe when it is necessary to hedge against a currency where there is no market but it follows a major currency, the hedge is entered against the major currency.
Purchasing Power Parity
Model of exchange rate determination stating that the price of a good in one country should equal the price of the same good in another country, exchanged at the current rate. Also known as the law of one price.
A put option confers the right but not the obligation to sell currencies, instruments or futures at the option exercise price within a predetermined time period.
Put Call Parity
The equilibrium relationship between premiums of call and put options of the same strike and expiry.
The use of cash generated by positive variation margins on a futures position to increase the size of the position, each reinvestment in successively smaller increments.
(1) A limit on imports or exports.
(2) A country's subscription to the IMF.
An indicative price. The price quoted for information purposes but not to deal.
Random Walk Theory
An efficient market hypothesis, stating that prices move randomly versus their intrinsic value. Therefore, no one can forecast market activity based on the available information.
A recovery in price after a period of decline.
The difference between the highest and lowest price of a future recorded during a given trading session.
(1) The price of one currency in terms of another, normally against USD
(2) Assessment of the credit worthiness of an institution.
Buying a specific quantity of options and selling a larger quantity of out of the money options.
Ratio Calendar Spread
Selling more near-term options than longer maturity options at the same strike price.
A decline in prices following an advance.
A price, interest rate or statistic that has been adjusted to eliminate the effect of inflation.
Simultaneous and mutually co-ordinated re- and devaluation of the currencies of several countries. An activity that mostly refers to EMS activity.
A currency that is normally quoted as dollars per unit of currency rather than the normal quote method of units of currency per dollar. Sterling is the most common example.
The rate at which interest earned on a loan can be reinvested. The rate may not attract the same level of interest as the principal amount.
French term for premium.
Term for U.S. Primary Dealers.
See Repurchase Agreement.
Agreements by a borrower where they sell securities with a commitment to repurchase them at the same rate with a specified interest rate.
A currency held by a central bank on a permanent basis as a store of international liquidity, these are normally Dollar, Euro, and sterling.
Funds held against future contingencies., normally a combination of convertible foreign currency, gold, and SDRs. Official reserves are to ensure that a government can meet near term obligations. They are an asset in the balance of payments.
The ratio of reserves to deposits, expressed as a fraction prescribed by national banking authorities, including the United States.
The 25% of its quota to which a member of the IMF has unconditional access, and for which there is no obligation to repay.
Resistance Point or Level
A price recognised by technical analysts as a price which is likely to result in a rebound but if broken through is likely to result in a significant price movement.
The renegotiation of the terms of existing debts. The term is usually used with reference to LDC debt. The term rescheduling is considered to be refinancing to avoid any implication of default. Major sovereign debt rescheduling for Brazil, and Mexico have been undertaken in recent years.
Retail Price Index
Measurement of the monthly change in the average level of prices at retail, normally of a defined group of goods.
Process of changing a call into a put.
Reversal patterns that occur at the end of the trend, signalling the trend change.
Increase in the exchange rate of a currency as a result of official action.
The rate for any period or currency which is used to revalue a position or book.
Revolving credit Upon repayment by the borrower the credit becomes automatically available.
To do a deal on the right hand side of a two way quote, normally to buy the currency and sell dollars. See Left-hand Side.
An area on a trading floor where futures or equities are traded.
The degree of uncertainty associated with an investment. The main elements that contribute to the riskiness of an investment are volatility, liquidity and leverage. All things being equal, a high degree of volatility and leverage makes an investment more risky. An illiquid market, where buyers are not always matched by sellers, also increases risk & investors can be left holding an asset that is falling in price.
The relationship between the risk and return on an investment. Usually, the more risk you are prepared to take, the higher the return you can expect. Depositing your money in a bank is safe and therefore a low return is regarded as sufficient. Investing in stock market exposes you to more risk (from capital losses) and so investors will expect a higher return.
The risk factor (delta) indicates the risk of an option position relative to that of the related futures contract.
The identification and acceptance or offsetting of the risks threatening the profitability or existence of an organisation. With respect to foreign exchange involves among others consideration of market, sovereign, country, transfer, delivery, credit, and counterparty risk.
An asset or liability, which is exposed to fluctuations in value through changes in exchange rates or interest rates.
Additional sum payable or return to compensate a party for adopting a particular risk.
A combination of purchasing put options with the sale of call options.
The put limits downside, while the call limits the upside.
An overnight swap, specifically the next business day against the following business day (also called Tomorrow Next, abbreviated to Tom-Next).
Medium term credit with a variable interest rate, which is governed by the currently prevailing rates on the Euromarket.
Buying and selling of a futures or options contract.
Running a Position
Keeping open positions in the hope of a speculative gain.
Same Day Transaction
A transaction that matures on the day the transaction takes place.
Same as a butterfly spread.
A strategy of buying at the bid and selling at the offer as soon as possible.
Special Drawing Right. A standard basket of five major currencies in fixed amounts as defined by the IMF.
Rate at which a bank is willing to sell foreign currency.
Also known as the option writer.
Options on the same underlying futures being contract which expire in more than one month.
All options of the same class which share a common strike price and expiration date.
The date by which an executed order must be settled by the transference of instruments or currencies and funds between buyer and seller.
The official closing price for a future set by the clearing house at the end of each trading day.
Risk associated with the non settlement of the transaction by the counter party.
Short / Short Position
A shortage of assets in a particular currency. See Short Sale.
Contracts with up to six months to delivery.
Buying to unwind a shortage of a particular currency or asset.
Short Forward Date/Rate
The term short forward refers to period up to two months, although it is more commonly used with respect to maturities of less than one month.
The sale of a currency futures not owned by the seller at the time of the trade. Short sales are usually made in expectation of a decline in the price.
Short-Term Interest Rates
Normally the 90 day rate.
A major currency that is lightly traded due to major market interest being in another currency pair.
Singapore International Monetary Exchange
Standard International Trade Classification. A system for reporting trade statistics in a common manner.
Swiss Options and Financial Futures Exchange, a fully automated and integrated trading and clearing system.
More potential sellers than buyers, which creates an environment where rapid price falls are likely.
Legal doctrine which means that the state cannot be sued or have its assets seized.
(1) Risk of default on a sovereign loan
(2) Risk of appropriation of assets held in a foreign country. Split Date See Broken Date.
(1) The most common foreign exchange transaction
(2) Spot or Spot date refers to the spot transaction value date that requires settlement within two business days, subject to value date calculation.
The overnight swap from the spot date to the next business day.
The contract month closest to delivery or settlement.
The price at which the currency is currently trading in the spot market.
A standard period of one week swap measured from the current value date of the currency spot rate.
(1)The difference between the bid and ask price of a currency.
(2) The difference between the price of two related futures contracts.
(3) For options, transactions involving two or more option series on the same underlying currency.
Purchase and sales are in balance and thus the dealer has no open position.
A speaker connected to a phone often used in broker trading desks.
Action by a central bank to reduce supply in order to increase the price of money.
An active market which can absorb large sale or purchases of currency without major moves.
A term referring to certain normal amounts and maturities for dealing.
Stand by Credit
An arrangement with the IMF for draw downs on a "need" basis. The term is sometimes more generally used.
Central Bank activity in the domestic money market to reduce the impact on money supply of its intervention activities in the FX market.
A index based on the movement of sterling against the major currency.
British pound, otherwise known as cable.
Market slang for Swedish Krona.
Stop Loss Order
Order given to ensure that, should a currency weaken by a certain percentage, a short position will be covered even though his involves taking a loss. Realise profit orders are less common.
Stop Out Price
U.S. term for the lowest accepted price for Treasury Bills at auction.
The simultaneous purchase/sale of both call and put options for the same share, exercise/strike price and expiry date.
Recession or low growth in conjunction with high inflation rates.
A combination of two calls and one put.
Also called exercise price. The price at which an options holder can buy or sell the underlying instrument.
A combination of two puts and one call.
Supply Side Economics
The concept is that tax cuts will boost investment leading to an increase in the supply of goods in the economy. To be compared with demand led Keynesian economics.
When an exchange rate depreciates or appreciates to a level where (1) Technical analysis techniques suggest that the currency will rebound, or not go below; (2) the monetary authorities intervene to stop any further downward movement. See Resistance Point.
The simultaneous purchase and sale of the same amount of a given currency for two different dates, against the sale and purchase of another. A swap can be a swap against a forward. In essence, swapping is somewhat similar to borrowing one currency and lending another for the same period. However, any rate of return or cost of funds is expressed in the price differential between the two sides of the transaction.
Swap as a Percentage
Swaps expressed as an annualized percentage.
A price as a differential between two dates of the swap.
An option to enter into a swap contract.
Society for World-wide Interbank Telecommunications is Belgian based company that provides the global electronic network for settlement of most foreign exchange transactions.
Market slang for Swiss Franc.
Options or futures that create a position that able to be achieved directly but is generated by a combination of options and futures in the relevant market. In foreign exchange a SAFE combines two forward contracts into a single transaction where settlement only involves the difference in values.
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Send money overseas at better rates than the banks.