- The underlying assets or instruments that are
traded in the cash market.
peg - Term for an exchange rate regime
where a country's exchange rate is "pegged"
(i.e. fixed) in relation to another currency,
often the dollar or French franc, but where the
rate may be changed from time to time. This was
the basis of the Bretton Woods system. See peg,
and crawling peg.
- Describes a currency strengthening in response
to market demand rather than by official action.
- The simultaneous purchase and sale on different markets,
of the same or equivalent financial instruments to profit
from price or currency differential, the exchange rate
differential or swap points.
- The price at which the currency or instrument is offered.
- An option contract with a strike price at (or very
close to) the underlying rate; also, the closest strike
price to the underlying rate.
dealer - A financial institution or bank authorized
to deal in foreign exchange.
- Term referring to the amount that the spot price exceeds
the forward price.
- The range in which a currency is permitted to move.
A system used in the ERM.
line - Line of credit granted by a bank to
a customer, also known as a "line."
rate - The rate at which a central bank is
prepared to lend money to its domestic banking system.
currency - The currency in which the operating
results of the bank or institution are reported.
- The difference between the cash price and futures
trading - Taking opposite positions in cash
and futures market with the intention of profiting from
favorable movements in the basis.
market - A prolonged period of generally falling
- The price at which a buyer has offered to purchase
the currency or instrument.
- The summary of currency positions held by a dealer,
desk or room. A total of the assets and liabilities.
If the average maturity of the book is less than that
of the assets, the bank is said to be running a short
and open book. Passing the Book normally refers to transferring
the trading of the bank's positions to another office
at the close of the day, e.g. from London to New York.
- An agent, who executes orders to buy and sell currencies
and related instruments either for a commission or on
a spread. Brokers are agents working on commission and
not principals or agents acting on their own account.
In the foreign exchange market brokers tend to act as
intermediaries between banks bringing buyers and sellers
together for a commission paid by the initiator or by
both parties. There are four or five major global brokers
operating through subsidiaries, affiliates and partners
in many countries.
market - A prolonged period of generally rising
- Central Bank of Germany.
Rate – The Rate at which, the market
and a market maker in particular is willing to buy the
currency. Sometimes called bid rate.
- A term used in the foreign exchange market for the
U.S. Dollar/British pound rate.
risk - The risk arising from a bank having
to pay to the counter party without knowing whether
the other party will or is able to meet its side of
- The interest cost of financing securities or other
financial instruments held.
delivery - Same day settlement.
market - The market in the actual financial
instrument on which a futures or options contract is
- Normally refers to an exchange transaction
contracted for settlement on the day the deal is struck.
Cash, is mainly used in the North American markets and
those countries, which rely for foreign exchange services
on these markets because of time zone preference i.e.
Latin America. In Europe and Asia, cash transactions
are often referred to as value same-day deals.
and carry - The buying of an asset today and
selling a future contract on the asset. A reverse cash
and carry is possible by selling an asset and buying
settlement - A procedure for settling futures
contract where the cash difference between the future
and the market price is paid instead of physical delivery.
bank - A bank, which is responsible for controlling
a country's monetary policy. It is normally the issuing
bank and controls bank licensing and any foreign exchange
rate - Exchange rates against the ECU adopted
for each currency within the EMS. Currencies have limited
movement from the central rate according to the relevant
float - An exchange rate that is not materially
affected by official intervention.
position - A transaction which leaves the trade
with a zero net commitment to the market with respect
to a particular currency.
- The fee that a broker may charge clients for dealing
on their behalf.
- A memorandum, to the other party, describing all relevant
details of the transaction.
- An agreement to buy or sell a specified amount of
a particular currency or option for a specified month
in the future (See Futures contract).
- The process by which an asset or liability denominated
in one currency is exchanged for an asset or liability
denominated in another currency.
arbitrage - A transaction where the asset is
purchased and buys a put option and sells a call option
on the asset purchased, each option having the same
exercise price and expiry.
currency - A currency that can be freely exchanged
for another currency (and/or gold) without special authorization
from the central bank.
- The other organization or party with whom the exchange
deal is being transacted.
- Where a person buys a currency against the dollar,
it is the dollar value of the transaction.
risk - The risk attached to a borrower by virtue
of its location in a particular country. This involves
examination of economic, political and geographical
factors. Various organizations generate country risk
- (1) To take out a forward foreign exchange contract.
(2) To close out a short position by buying currency
or securities which have been sold.
arbitrage - Arbitrage between financial instruments
denominated in different currencies, using forward cover
to eliminate exchange risk.
margin - The interest rate margin between two
instruments denominated in different currencies after
taking account of the cost of forward cover.
risk - The risk that a debtor will not repay;
more specifically the risk that the counterparty does
not have the currency promised to be delivered.
rates - Rates between two currencies, neither
of which is the U.S. dollar.
account - The net balance of a country's international
payment arising from exports and imports, together with
unilateral transfers such as aid and migrant remittances.
It excludes capital flows.
trader - Speculators who take positions in
commodities which are then liquidated prior to the close
of the same trading day.
date - The date on which a transaction is agreed
ticket - The primary method of recording the
basic information relating to a transaction.
- An individual or firm acting as a principal, rather
than as an agent, in the purchase and/or sale of securities.
Dealers trade for their own account and risk.
date - The date of maturity of the contract,
when the exchange of the currencies is made. This date
is more commonly known as the value date in the FX or
- The change in price of an option relative to a change
in the underlying fx spot rate.
risk - A term to describe when a counterparty
will not be able to complete his side of the deal, although
willing to do so.
- A fall in the value of a currency due to market forces
rather than due to official action.
- Term referring to a group dealing with a specific
currency or currencies.
- Deliberate downward adjustment of a currency against
its fixed parities or bands, normally by formal announcement.
float - Floating a currency when the rate is
controlled by intervention by the monetary authorities.
- Modest decline in price.
indicator - A statistic that indicates current
economic growth rates and trends, such as retail sales
- European Currency Unit.
Monetary System (EMS) - A system designed to
stabilize, if not eliminate, exchange risk between member
states of the EMS as part of the economic convergence
policy of the EU. It permits currencies to move in a
measured fashion (divergence indicator) within agreed
bands (the parity grid) with respect to the ECU and
consequently with each other.
- A less broadly traded currency.
- (i) Net working capital - The current assets in a
foreign currency minus current liabilities in the currency;
(ii) Net financial method - The current assets in a
foreign currency minus current liabilities and long
term debt in the currency; (iii) Monetary/non-monetary
method - Monetary assets and liabilities in the foreign
currency are valued at present exchange rates, while
non-monetary items are entered at the relevant historic
Value - Commonly referred to as the "time"
value and is defined as the value of an option beyond
the intrinsic value.
market - Rapid movement in a market caused
by strong interest by buyers and/or sellers. In such
circumstances, price levels may be omitted, and bid
and offer quotations may occur too rapidly to be fully
fund rate - The interest rate on Fed funds.
This is a closely watched short-term interest rate as
it signals the Fed's view as to the state of the money
- The United States Federal Reserve. Federal
Deposit Insurance Corporation Membership is compulsory
for Federal Reserve members. The corporation had deep
involvement in the Savings and Loans crisis of the late
Reserve system - The central banking system
of the U.S. comprising 12 Federal Reserve Banks controlling
12 districts under the Federal Reserve Board. Membership
in the Fed is compulsory for banks chartered by the
Comptroller of Currency and optional for state-chartered
exchange rate - Official rate set by monetary
authorities. Often the fixed exchange rate permits fluctuation
within a band.
exchange rate - Exchange rates with a fixed
parity against one or more currencies with frequent
revaluations. A form of managed float.
exchange rate - An exchange rate where the
value is determined by market forces. Even floating
currencies are subject to intervention by the monetary
authorities. When such activity is frequent, the float
is known as a dirty float.
- Federal Open Market Committee, the committee
that sets money supply targets in the U.S. which tend
to be implemented through Fed Fund interest rates etc.
exchange - The purchase or sale of a currency
against sale or purchase of another.
- Foreign Exchange.
margins - Discounts or premiums between spot
rate and the forward rate for a currency. Normally quoted
operations - Foreign exchange transactions,
on which the fulfillment of the mutual delivery obligations
is made on a date later than the second business day
after the transaction was concluded.
outright - A commitment to buy or sell a currency
for delivery on a specified future date or period. The
price is quoted as the spot rate minus or plus the forward
points for the chosen period.
rate - Forward rates are quoted in terms of
forward points, which represents the difference between
the forward and spot rates. In order to obtain the forward
rate from the actual exchange rate the forward points
are either added or subtracted from the exchange rate.
The decision to subtract or add points is determined
by the differential between the deposit rates for both
currencies concerned in the transaction. The base currency
with the higher interest rate is said to be at a discount
to the lower interest rate quoted currency in the forward
market. Therefore, the forward points are subtracted
from the spot rate. Similarly, the lower interest rate
base currency is said to be at a premium, and the forward
points are added to the spot rate to obtain the forward
- The macro economic factors that are accepted as forming
the foundation for the relative value of a currency,
these include inflation, growth, trade balance, government
deficit and interest rates.
- Currency (and other commodity) contracts traded through
a regulated exchange such as the Chicago Mercantile
- Foreign Exchange.
- The seven leading industrial countries, specifically
U.S., Germany, Japan, France, UK, Canada and Italy.
- G7 plus Belgium, Netherlands and Sweden, a group associated
with IMF discussions. Switzerland is sometimes peripherally
long - The purchase of a stock, commodity or
currency for investment or speculation.
short - The selling of a currency or instrument
not owned by the seller.
Domestic Product - Total value of a country's
output, income or expenditure produced within the country's
National Product - Gross domestic product plus
" factor income from abroad" - income earned
from investment or work abroad.
currency - A currency whose value is expected
to remain stable or increase in terms of other currencies.
and shoulders - A pattern in price trends which
chartists consider indicating a price trend reversal.
The price has risen for some time, at the peak of the
left shoulder, profit-taking has caused the price to
drop or level. The price then rises steeply again to
the head before more profit-taking causes the the price
to drop to around the same level as the shoulder. A
further modest rise or level will indicate that a further
major fall is imminent. The breach of the neckline is
the indication to sell.
- The purchase or sale of options or futures contracts
as a temporary substitute for a transaction to be made
at a later date. Usually it involves opposite positions
in the cash, futures or options market.
- International Monetary Fund, established
in 1946 to provide international liquidity on a short
and medium term and encourage liberalization of exchange
rates. The IMF supports countries with balance of payments
problems with the provision of loans.
- International Monetary Market, part of the
Chicago Mercantile Exchange that lists a number of currency
and financial futures' implied volatility. A measurement
of the market's expected price range of the underlying
currency futures based on the traded-option premiums.
rates - The interest rate determined by calculating
the difference between spot and forward rates.
- An option contract that has intrinsic value.
quote - A market-maker's price which is not
- Continued rise in the general price level in conjunction
with a related drop in purchasing power. Sometimes referred
to as an excessive movement in such price levels.
margin - The margin required by a Foreign Exchange
firm to initiate the buying or selling of a determined
amount of currency.
rates - The bid and offer rates at which international
banks place deposits with each other. The basis of the
arbitrage - Switching into another currency
by buying spot and selling forward, and investing proceeds
in order to obtain a higher interest yield. Interest
arbitrage can be inward, i.e. from foreign currency
into the local one or outward, i.e. from the local currency
to the foreign one. Sometimes better results can be
obtained by not selling the forward interest amount.
In that case, some treat it as no longer being a complete
arbitrage, as if the exchange rate moved against the
arbitrageur, the profit on the transaction may create
rate swaps - An agreement to swap interest
rate exposures from floating to fixed or vice versa.
There is no swap of the principal. It is the interest
cash flows, whether payments or receipts are exchanged.
- Action by a central bank to affect the value of its
currency by entering the market. Concerted intervention
refers to action by a number of central banks to control
Value - The difference between the strike price
and the underlying fx spot contract rate (American Style
Options) or the fx forward rate (European Style Options).
The intrinsic value represents the actual value of the
option if exercised. Please note that the intrinsic
value must be zero (0) or above - if an option has no
intrinsic value, then the option is simply referred
to as having no (or zero) intrinsic value (the intrinsic
value is never represented as a negative number).
- Slang for the New Zealand dollar.
indicators - Statistics that are considered
to precede changes in economic growth rates and total
business activity, e.g. factory orders.
- In terms of foreign exchange, the obligation to deliver
to a counterparty an amount of currency either with
respect to a balance sheet holding at a specified future
date or in respect of an un-matured forward or spot
order - An order to buy or sell a specified
amount of a currency at a specified price or better.
- Any transaction that offsets or closes out a previously
- The ability of a market to accept large transactions.
margin - The minimum margin which an investor
must keep on deposit in a margin account at all times
with respect to each open contract.
a market - A dealer is said to make a market
when he or she quotes bid and offer prices at which
he or she stands ready to buy and sell.
float - When the monetary authorities intervene
regularly in the market to stabilize the rates or to
aim the exchange rate in a required direction.
call - A demand for additional funds to be
deposited in a margin account to meet margin requirements
because of adverse future price movements.
- For currencies, a deposit made to the forex firm on
establishing a futures position account.
to market - The daily adjustment of an account
to reflect accrued profits and losses often required
to calculate variations of margins.
maker - A person or firm authorized to create
and maintain a market in an instrument.
order - An order to buy or sell a financial
instrument immediately at the best possible price.
price fluctuation - The smallest increment
of market price movement possible in a given futures
average - A way of smoothing a set of data,
widely used in price time series.
Position - The amount of currency bought or
sold which have not yet been offset by opposite transactions.
- The price at which a seller is willing to sell. The
best offer is the lowest such price available.
- The closing-out or liquidation of a futures position.
Contract - A financial contract giving the
buyer the right, but not the obligation, to purchase
or sell a specific forex contract (the underlying) at
a specific price (the strike price) on or before a specific
date (the expiration date). The amount the buyer pays
to the seller for the contract rights is called the
Premium - The amount the buyer pays to the
seller for the rights of an option contract.
- An option contract having no intrinsic value.
limit - Net long or short position in one or
more currencies that a dealer can carry over into the
next dealing day. Passing the book to other bank dealing
rooms in the next trading time zone reduces the need
for dealers to maintain these unmonitored exposures.
- The equivalent value of one currency in terms of another;
also, sometimes used as a synonym for currency pair.
- A system where a currency moves in line with another
currency. Some pegs are strict while others have bands
- Minimum fluctuation or smallest increment
of price movement.
- 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).
taking - The unwinding of a position to realize
- An indicative price. The price quoted for
information purposes but not to deal.
- 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.
point or level - A price recognized 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
- Increase in the exchange rate of a currency as a result
of official action.
rate - The rate for any period or currency
which is used to revalue a position or book.
management - The identification and acceptance
or offsetting of the risks threatening the profitability
or existence of an organization. With respect to foreign
exchange, involves consideration of market, sovereign,
country, transfer, delivery, credit and counterparty
position - An asset or liability, which is
exposed to fluctuations in value through changes in
exchange rates or interest rates.
- An overnight swap, specifically the next business
day against the following business day (also called
Tomorrow Next, abbreviated to Tom-Next).
trip - Buying and selling of a specified amount
day transaction - A transaction that matures
on the day the transaction takes place.
rate - Rate at which a bank is willing to sell
date - The date by which an executed order
must be settled by the transference of instruments or
currencies and funds between buyer and seller.
risk - Risk associated with the non-settlement
of the transaction by the counter party.
sale - The sale of a specified amount of currency
not owned by the seller at the time of the trade. Short
sales are usually made in expectation of a decline in
interest rates - Normally the 90-day rate.
Market - More potential sellers than buyers,
which creates an environment where rapid price falls
- (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.
next - The overnight swap from the spot date
to the next business day.
price/rate - The price at which the currency
is currently trading in the spot market.
- (1) The difference between the bid and ask
price of a currency. (2) The difference between the
price of two related futures contracts.
- Purchase and sales are in balance and thus the dealer
has no open position.
- Action by a central bank to reduce supply in order
to increase the price of money.
market - An active market which can absorb
large sales or purchases of currency without major moves.
- Central Bank activity in the domestic money market
to reduce the impact on money supply of its intervention
activities in the FX market.
- British pound, otherwise known as cable.
loss order - Order given to ensure that, should
a currency weaken by a certain percentage, a short position
will be covered even though this involves taking a loss.
Realize profit orders are less common.
levels - 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
price - A price as a differential between two
dates of the swap.
- 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.
- Market slang for Swiss franc.
correction - An adjustment to price not based
on market sentiment but on technical factors such as
volume and charting.
market - A market in which trading volume is
low and in which bid and ask quotes are wide and the
liquidity of the instrument traded is low.
- A minimum change in price, up or down.
Value - see "Extrinsic Value."
date - The date on which a trade occurs.
amount - Smallest transaction size acceptable.
date - The date on which a trade occurs.
- The buying or selling of currencies resulting
from the execution of an order.
quotation - When a dealer quotes both buying
and selling rates for foreign exchange transactions.
- Another term for an open position.
- An exchange rate is normally considered to be undervalued
when it is below its purchasing power parity.
- A transaction executed at a price greater than the
date - For a spot transaction, it is two business
banking days forward in the country of the bank providing
quotations which determine the spot value date. The
only exception to this general rule is the spot day
in the quoting center coinciding with a banking holiday
in the country(ies) of the foreign currency(ies). The
value date then moves forward a day.
spot - Normally settlement for two working
days from today.
- A measure of the amount by which an asset price is
expected to fluctuate over a given period.
trade - A matched deal which produces neither
a gain nor a loss.
- Term for where a trader takes a position, then experiences
a move against it, triggering stop loss limits and liquidation
of positions, followed by a reversal and move in the
original direction. Normally occurs in volatile markets.