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FOREX
A B C D E F G H I K L M N O P Q R S T U V W
Accrual - The apportionment of
premiums and discounts on forward exchange transactions that
relate directly to deposit swap (Interest Arbitrage) deals,
over the period of each deal.
Actualize - The underlying
assets or instruments which are traded in the cash
market.
Adjustable 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.
Adjuaspent - Official action,
normally either by change in the internal economic policies to
correct a payment imbalance or in the official currency rate.
Agent bank - (1) A bank acting
for a foreign bank. (2) In the euro market - the agent bank is
the one appointed by the other banks in the syndicate to
handle the administration of the loan.
Aggregate demand - Total demand
for goods and services in the economy. It includes private and
public sector demand for goods and services within the country
and the demand of consumers and firms in other countries for
good and services.
Aggregate risk - Size of
exposure of a bank to a single customer for both spot and
forward contracts.
Aggregate supply - Total supply
of goods and services in the economy from domestic sources
(including imports) available to meet aggregate demand.
Agio - Difference in the value
between currencies. Also used to describe percentage charges
for conversion from paper money into cash, or from a weak into
a strong currency.
Appreciation - Describes a
currency-strengthening in response to market demand rather
than by official action.
Arbitrage - 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. May be derived from Deposit Rate differentials.
Arbitrage channel - The range of
prices within which there will be no possibility to arbitrage
between the cash and futures market.
Around - Used in quoting forward
"premium / discount." "Five-five around" would mean five
points on either side of the present spot value.
Asset allocation - Dividing
instrument funds among markets to achieve diversification or
maximum return.
Ask - The price at which the
currency or instrument is offered.
Asset - In the context of
foreign exchange is the right to receive from a counterparty
an amount of currency either in respect of a balance sheet
asset (e.g. a loan) or at a specified future date in respect
of an unmatched forward or spot deal.
At best - An instruction given
to a dealer to buy or sell at the best rate that can be
obtained.
At or better - An order to deal
at a specific rate or better.
Authorized dealer - A financial
institution or bank authorized to deal in foreign exchange.
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Back office - Settlement and
related processes.
Backwardation - Term referring
to the amount that the spot price exceeds the forward price.
Balance of Payments - A
systematic record of the economic transactions during a given
period for a country. (1) The term is often used to mean
either: (i) balance of payments on "current account" or (ii)
the current account plus certain long term capital movements.
(2) The combination of the trade balance, current balance,
capital account and invisible balance, which together make up
the balance of payments total. Prolonged balance of payment
deficits tend to lead to restrictions in capital transfers,
and/or decline in currency values.
Band - The range in which a
currency is permitted to move. A system used in the ERM.
Bank line - Line of credit
granted by a bank to a customer, also known as a "line."
Bank rate - The rate at which a
central bank is prepared to lend money to its domestic banking
system.
Base currency - The currency in
which the operating results of the bank or institution are
reported.
Basis - The difference between
the cash price and futures price.
Basis point - One percent of one
percent.
Basis trading - Taking opposite
positions in the cash and futures market with the intention of
profiting from favorable movements in the basis.
Basket - A group of currencies
normally used to manage the exchange rate of a currency.
Sometimes referred to as a unit of account.
Bear market - A prolonged period
of generally falling prices.
Bear - An investor who believes
that prices are going to fall.
Bid - The price at which a buyer
has offered to purchase the currency or instrument.
Book - 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.
Bretton Woods - The site of the
conference which in 1944 led to the establishment of the
post-war foreign exchange system that remained intact until
the early 1970s. The conference resulted in the formation of
the IMF. The system fixed currencies in a fixed exchange rate
system with 1% fluctuations of the currency to gold or the
dollar.
Broker - 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.
Bull market - A prolonged period
of generally rising prices.
Bull - An investor who believes
that prices are going to rise.
Bundesbank - Central Bank of
Germany.
Buying Rate - Rate at which the
market and a market maker in particular is willing to buy the
currency. Sometimes called bid rate.
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Cable - A term used in the
foreign exchange market for the U.S. dollar/British pound
rate.
Capital 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 bargain. See Herstatt.
Carry - The interest cost of
financing securities or other financial instruments held.
Cash delivery - Same day
settlement.
Cash market - The market in the
actual financial instrument on which a futures or options
contract is based.
Cash - Normally refers to an
exchange transaction contracted for settlement on the day the
deal is struck. This term 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.
Cash 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 a future.
Cash settlement - A procedure
for settling futures contract where the cash difference
between the future and the market price is paid instead of
physical delivery.
Central 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 control regime.
Central 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 band.
Chartist - An
individual who studies graphs and charts of historic data to
find trends and predict trend reversals which include the
observance of certain patterns and characteristics of the
charts to derive resistance levels, head and shoulders
patterns, and double-bottom or double-top patterns which are
thought to indicate trend reversals.
Clean float - An
exchange rate that is not materially affected by official
intervention.
Closed position -
A transaction which leaves the trade with a zero net
commitment to the market with respect to a particular
currency.
Commission - The
fee that a broker may charge clients for dealing on their
behalf.
Confirmation - A
memorandum to the other party describing all the relevant
details of the transaction.
Contract - 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).
Conversion account
- A general ledger account representing the uncovered position
in a particular currency. Such accounts are referred to as
position accounts.
Conversion - The
process by which an asset or liability denominated in one
currency is exchanged for an asset or liability denominated in
another currency.
Conversion
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.
Convertible
currency - A currency that can be freely exchanged for another
currency (and/or gold) without special authorization from the
central bank.
Copey - Slang for
the Danish krone.
Correspondent bank
- The foreign bank's representative who regularly performs
services for a bank which has no branch in the relevant
center, e.g. to facilitate the transfer of funds. In the U.S.
this often occurs domestically due to interstate banking
restrictions.
Counterparty - The
other organization or party with whom the exchange deal is
being transacted.
Countervalue -
Where a person buys a currency against the dollar, it is the
dollar value of the transaction.
Country 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 tables.
Cover - (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.
Covered arbitrage
- Arbitrage between financial instruments denominated in
different currencies, using forward cover to eliminate
exchange risk.
Covered margin -
The interest rate margin between two instruments denominated
in different currencies after taking account of the cost of
forward cover.
Crawling peg - A
method of exchange rate adjuaspent; the rate is fixed/pegged,
but adjusted at certain intervals in line with certain
economic or market indicators.
Credit 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.
Cross deal - A
foreign exchange deal entered into involving two currencies,
neither of which is the base currency.
Cross rates -
Rates between two currencies, neither of which is the U.S.
dollar.
Current 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.
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Day trader -
Speculators who take positions in commodities which are then
liquidated prior to the close of the same trading day.
Deal date - The
date on which a transaction is agreed upon.
Deal ticket - The
primary method of recording the basic information relating to
a transaction.
Dealer - 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.
Deflator -
Difference between real and nominal Gross National Product,
which is equivalent to the overall inflation rate.
Delivery 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 money markets.
Delivery risk - A
term to describe when a counterparty will not be able to
complete his side of the deal, although willing to do so.
Depreciation - A
fall in the value of a currency due to market forces rather
than due to official action.
Desk - Term
referring to a group dealing with a specific currency or
currencies.
Details - All the
information required to finalize a foreign exchange
transaction, i.e. name, rate, dates and point of delivery.
Devaluation -
Deliberate downward adjuaspent of a currency against its fixed
parities or bands, normally by formal announcement.
Direct quotation -
Quoting in fixed units of foreign currency against variable
amounts of the domestic currency.
Dirty float -
Floating a currency when the rate is controlled by
intervention by the monetary authorities.
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Easing - Modest
decline in price.
Economic indicator
- A statistic that indicates current economic growth rates and
trends, such as retail sales and employment.
ECU - European
Currency Unit.
EDI - Electronic
Data Interchange.
Effective exchange
rate - An attempt to summarize the effects on a country's
trade balance of its currency's changes against other
currencies.
EFT - Electronic
Fund Transfer.
EMS - European
Monetary System.
European Monetary
System - 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.
Exchange control -
A system of controlling inflows and outflows of foreign
exchange. Devices include licensing multiple currencies,
quotas, auctions, limits, levies and surcharges.
Exotic - A less
broadly traded currency.
Exposure - (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
rates.
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Fast 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 reported.
Fed 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 supply.
Fed - 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 80s.
Federal 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 banks.
Fill or Kill - An
order which must be entered for trading, normally in a pit
three times, if not filled is immediately canceled.
Fisher effect -
The relationship that exists between interest rates and
exchange rate movements, so that in an ideal situation,
interest rate differentials would be exactly offset by
exchange rate movements. See interest rate parity.
Fixed exchange
rate - Official rate set by monetary authorities. Often the
fixed exchange rate permits fluctuation within a band.
Flexible exchange
rate - Exchange rates with a fixed parity against one or more
currencies with frequent revaluations. A form of managed
float.
Floating 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.
FOMC - 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.
Foreign exchange -
The purchase or sale of a currency against sale or purchase of
another.
Forex - Foreign
Exchange.
Forex club -
Groups formed in the major financial centers to encourage
educational and social contacts between foreign exchange
dealers, under the umbrella of Association Cambiste
International.
Forward margins -
Discounts or premiums between spot rate and the forward rate
for a currency. Normally quoted in points.
Forward 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.
Forward 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.
Forward 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 rate.
Free reserves -
Total reserves held by a bank minus the reserves required by
the authority.
Front office - The
activities carried out by the dealer, normal trading
activities.
Fundamentals - 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.
FX - Foreign
Exchange.
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G7 - The seven
leading industrial countries, specifically U.S., Germany,
Japan, France, UK, Canada and Italy.
G10 - G7 plus
Belgium, Netherlands and Sweden, a group associated with IMF
discussions. Switzerland is sometimes peripherally involved.
Gap - A mismatch
between maturities and cash flows in a bank or individual
dealer's position book. Gap exposure is effectively interest
rate exposure.
Going long - The
purchase of a stock, commodity or currency for Investment or
speculation.
Going short - The
selling of a currency or instrument not owned by the seller.
Gold standard -
The original system for supporting the value of currency
issued. Where the price of gold is fixed against the currency,
it means that the increased supply of gold does not lower the
price of gold but causes prices to increase.
Good until
canceled - An instruction to a broker that, unlike normal
practice, the order does not expire at the end of the trading
day, although normally terminates at the end of the trading
month.
Grid - Fixed
margin within which exchange rates are allowed to fluctuate.
Gross Domestic
Product - Total value of a country's output, income or
expenditure produced within the country's physical borders.
Gross National
Product - Gross domestic product plus " factor income from
abroad" - income earned from Investment or work abroad.
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Hard currency - A
currency whose value is expected to remain stable or increase
in terms of other currencies.
Head 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.
Hedge - 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.
Hit the bid -
Acceptance of purchasing at the offer or selling at the
bid.
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IMF -
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.
IMM -
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.
Implied rates -
The interest rate determined by calculating the difference
between spot and forward rates.
Indicative quote -
A market-maker's price which is not firm.
Inflation -
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.
Initial margin -
The margin required by a Foreign Exchange firm to initiate the
buying or selling of a determined amount of
currency.
Interbank rates -
The bid and offer rates at which international banks place
deposits with each other. The basis of the Interbank market.
Interest 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 a loss.
Interest parity -
One currency is in interest parity with another when the
difference in the interest rates is equalized by the forward
exchange margins. For instance, if the operative interest rate
in Japan is 3% and in the UK 6%, a forward premium of 3% for
the Japanese yen against sterling would bring about interest
parity.
Interest 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.
Internationalization - Referring to a currency
that is widely used to denominate trade and credit
transactions by non-residents of the country of issue. U.S.
dollar and Swiss franc are examples.
Intervention -
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 exchange
rates.
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Kiwi - Slang for
the New Zealand dollar.
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Leading indicators
- Statistics that are considered to precede changes in
economic growth rates and total business activity, e.g.
factory orders.
Liability - 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 transaction.
Limit order - An
order to buy or sell a specified amount of a currency at a
specified price or better.
Liquidation - Any
transaction that offsets or closes out a previously
established position.
Liquidity - The
ability of a market to accept large transactions.
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Maintenance margin
- The minimum margin which an investor must keep on deposit in
a margin account at all times with respect to each open
contract.
Make 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.
Managed float -
When the monetary authorities intervene regularly in the
market to stabilize the rates or to aim the exchange rate in a
required direction.
Margin call - A
demand for additional funds to be deposited in a margin
account to meet margin requirements because of adverse future
price movements.
Margin - For
currencies, a deposit made to the forex firm on establishing a
futures position account.
Mark to market -
The daily adjuaspent of an account to reflect accrued profits
and losses often required to calculate variations of margins.
Market maker - A
person or firm authorized to create and maintain a market in
an instrument.
Market order - An
order to buy or sell a financial instrument immediately at the
best possible price.
Micro economics -
The study of economic activity as it applies to individual
firms or well-defined small groups of individuals or economic
sectors.
Mid-price or
middle rate - The price halfway between the two prices, or the
average of both buying and selling prices offered by the
market makers.
Minimum price
fluctuation - The smallest increment of market price movement
possible in a given futures contract.
Monetary base -
Currency in circulation, plus banks' required and excess
deposits at the central bank.
Moving average - A
way of smoothing a set of data, widely used in price time
series.
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Net Position - The
amount of currency bought or sold which have not yet been
offset by opposite transactions.
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Odd lot - A
non-standard amount for a transaction.
Offer - The price
at which a seller is willing to sell. The best offer is the
lowest such price available.
Offset - The
closing-out or liquidation of a futures position.
Off-shore - The
operations of a financial institution which although
physically located in a country, has little connection with
that country's financial systems. In certain countries, a bank
is not permitted to do business in the domestic market but
only with other foreign banks. This is known as an off-shore
banking unit.
Overnight 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.
Overnight - A deal
from today until the next business day.
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Parity - (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.
Parities - The
value of one currency in terms of another.
Pegged - A system
where a currency moves in line with another currency. Some
pegs are strict while others have bands of movement.
Pip - Minimum
fluctuation or smallest increment of price movement.
Position - 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).
Profit taking -
The unwinding of a position to realize profits.
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- Q -
Quote - An indicative price. The price
quoted for information purposes but not to deal.
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- R -
Rally - A recovery in price after a
period of decline.
Range - The
difference between the highest and lowest price of a future
recorded during a given trading session.
Rate - (1) The
price of one currency in terms of another, normally against
USD. (2) Assessment of the credit worthiness of an
institution.
Reaction - A
decline in prices following an advance.
Reciprocal
currency - 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.
Resistance 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 price movement.
Revaluation -
Increase in the exchange rate of a currency as a result of
official action.
Revaluation rate -
The rate for any period or currency which is used to revalue a
position or book.
Risk 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 risk.
Risk position - An
asset or liability, which is exposed to fluctuations in value
through changes in exchange rates or interest rates.
Rollover - An
overnight swap, specifically the next business day against the
following business day (also called Tomorrow Next, abbreviated
to Tom-Next).
Round trip -
Buying and selling of a specified amount of
currency.
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- S -
Same day transaction - A transaction that
matures on the day the transaction takes place.
Selling rate -
Rate at which a bank is willing to sell foreign currency.
Settlement date -
The date by which an executed order must be settled by the
transference of instruments or currencies and funds between
buyer and seller.
Settlement risk -
Risk associated with the non-settlement of the transaction by
the counter party.
Short 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 the price.
Short-term
interest rates - Normally the 90-day rate.
Sidelined - A
major currency that is lightly traded due to major market
interest in another currency pair.
Soft Market - More
potential sellers than buyers, which creates an environment
where rapid price falls are likely.
Spot - (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.
Spot next - The
overnight swap from the spot date to the next business day.
Spot price/rate -
The price at which the currency is currently trading in the
spot market.
Spread - (1) The
difference between the bid and ask price of a currency. (2)
The difference between the price of two related futures
contracts.
Square - Purchase
and sales are in balance and thus the dealer has no open
position.
Squawk box - A
speaker connected to a phone often used in broker trading
desks.
Squeeze - Action
by a central bank to reduce supply in order to increase the
price of money.
Stable market - An
active market which can absorb large sales or purchases of
currency without major moves.
Standard - A term
referring to certain normal amounts and maturities for
dealing.
Sterilization -
Central Bank activity in the domestic money market to reduce
the impact on money supply of its intervention activities in
the FX market.
Sterling - British
pound, otherwise known as cable.
Stocky - 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 this involves taking a loss. Realize profit orders are
less common.
Support 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 point.
Swap price - A
price as a differential between two dates of the swap.
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.
Swissy - Market
slang for Swiss franc.
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- T -
Technical correction - An adjuaspent to
price not based on market sentiment but on technical factors
such as volume and charting.
Thin 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.
Thursday/Friday
dollars - A U.S. foreign exchange technicality. For example, a
foreign bank buys dollars on Tuesday for Thursday delivery. If
the bank leaves the funds overnight and transfers them on
Friday by means of a clearing house cheque, then clearance is
not until Monday, the next working day. Higher interest rates
for this period are thus available.
Tick - A minimum
change in price, up or down.
Today/Tomorrow -
Simultaneous buying of a currency for delivery the following
day and selling for the spot day, or vice versa. Also referred
to as overnight.
Tomorrow next (Tom
next) - Simultaneous buying of a currency for delivery the
following day and selling for the spot day or vice versa.
Trade date - The
date on which a trade occurs.
Tradeable amount -
Smallest transaction size acceptable.
Transaction date -
The date on which a trade occurs.
Transaction - The
buying or selling of currencies resulting from the execution
of an order.
Two-tier market -
A dual exchange rate system where normally only one rate is
open to market pressure, e.g. South Africa.
Two-Way quotation
- When a dealer quotes both buying and selling rates for
foreign exchange transactions.
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- U -
Uncovered - Another term for an open
position.
Under-valuation -
An exchange rate is normally considered to be undervalued when
it is below its purchasing power parity.
Uptick - A
transaction executed at a price greater than the previous
transaction.
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- V -
Value 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.
Value spot -
Normally settlement for two working days from today. See value
date.
Volatility - A
measure of the amount by which an asset price is expected to
fluctuate over a given period.
Vostro account - A
local currency account maintained with a bank by another bank.
The term is normally applied to the counterparty's account
from which funds may be paid into or withdrawn, as a result of
a transaction.
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- W -
Wash trade - A matched deal which
produces neither a gain nor a loss.
Whipsaw - 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.
Working day - A
day on which the banks in a currency's principal financial
center are open for business. For FX transactions, a working
day only occurs if the bank in both financial centers are open
for business (all relevant currency centers in the case of a
cross are open).
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