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.

The underlying assets or instruments which are traded in the cash market.

Abbreviation for African Development Bank and the Asian Development Bank.

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.

Official action normally by either change in the internal economic policies to correct a payment imbalance or in the official currency rate or.

(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.

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 and firms in other countries for good and services.

Size of exposure of a bank to a single customer for both spot and forward contracts.

Total supply of goods and services in the economy from domestic sources (including imports) available to meet aggregate demand.

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.

Amsterdam Inter-bank Offered Rate.

An option which may be exercised at any time prior to expiration. Compared with a European option that can only be exercised on a specific date.

Code name of a telex subscriber, printed automatically by the telex machine.

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 differentials. The exchange rate differential or Swap points. May be derived from Deposit Rate differentials.

The range of prices within which there will be no possibility to arbitrage between the cash and futures market.

A unit of account based on the movement of 12 Arab currencies against the US dollar.

Used in quoting forward "premium / discount". "Five-five around" would mean five point on either side of the present spot value.

Dividing instrument funds among markets to achieve diversification or maximum return.

A senior currency in IMF terminology, which should be freely convertible.

Enables the holder to convert from one style of option to a different style of option over a preset period of time. Sometimes referred to as either a "call-or-put option" or "chooser option".

An accounting unit for the Asian Clearing Union with the same value as an SDR.

The price at which the currency or instrument is offered.

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 Forward or spot deal.

Notice to an option holder usually by the clearing house of an exchange traded option that the option has been exercised.

The international society of foreign exchange dealers consisting of national "Forex clubs" affiliated on a world wide basis.

An instruction given to a dealer to buy or sell at the best rate that can be obtained.

An order to deal at a specific rate or better.

An option whose strike/exercise price is equal to or near the current market price of the underlying instrument.

Athens Inter-bank Offered Rate.

The rate for money lent from day to day on the French money market.

Sale of an item to the highest bidder. (1) A method commonly used in exchange control regimes for the allocation of foreign exchange. (2) A method for allocating government paper, such as US Treasury Bills. Small investors are given preferential access to the bills. The average issuing price is then computed on the basis of the competitive bids accepted. In some circumstances for government auctions it is the yield rather than the price which is bid.

A financial institution or bank authorized to deal in foreign exchange.

A US term for an organisation set up by financial institutions agreeing to initiate and receive among themselves electronic transfers of funds authorized by their customers.

A procedure for exchange traded options under which the in the money options are exercised on a given date.

A contract where the exercise price is based on the difference between the strike price and the average spot rate over the contract period. Sometimes called an "Asian option".

Settlement and related processes.

(1) Transaction where all the obligations and liabilities in one transaction are mirrored in a second transaction. (2) Transaction where a loan is made in one currency in one country against a loan in another country in another currency.

backwardation.

Term referring to the amount that the spot price exceeds the forward price.

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.

The value of exports less imports. Invisibles are normally excluded, and is otherwise referred to as mercantile or physical trade. Figures can be quoted on FoB/ FaS , customs cleared, or Fob export, FoB export.

The range in which a currency is permitted to move. A system used in the ERM.

Line of credit granted by a bank to a customer, also known as a " line".

Bank notes are paper issued by the central or issuing bank and are legal tender, but are not usually considered to be part of the FX market. However bank notes can be converted, in some counties, into FX. Bank notes are normally priced at a premium to the current spot rate for a currency.

The rate at which a central bank is prepared to lend money to its domestic banking system.

see trading day and value date.

An option model for valuing American options, an extension of Black Scholes.

A family of path dependent options whose pay-off pattern and survival to the expiration date depend not only on the final price of the underlying currency but also on whether or not the underlying currency breaks a predetermined price level at any time during the life of the option. See Down and Out call/put, Down and in call/put, Up and out call/put, Up and in call/put.

The currency in which the operating results of the bank or institution are reported.

A term used in the UK for the rate used by banks to calculate the interest rate to borrowers. Top quality borrowers will pay a small amount over base.

One per cent of one per cent.

The price expressed in terns of yield maturity or annual rate of return.

The process whereby the basis tends towards zero as the contract expiry approaches.

Taking opposite positions in the cash and futures market with the intention of profiting from favorable movements in the basis.

The difference between the cash price and futures price.

A group of currencies normally used to manage the exchange rate of a currency. Sometimes referred to as a unit of account.

British Banking AssociationBear call spread: A spread designed to exploit falling exchange rates by purchasing a call option with a high exercise price and selling one with a low exercise price.

A spread designed to exploit falling exchange rates by purchasing a put option with a high exercise price and selling one with a low exercise price.

A prolonged period of generally falling prices.

Any official action in the market or through regulations which makes it costly or difficult for bears to stay short of a suspect currency.

An investor who believes that prices are going to fall.

Refers to instruments in which ownership can transfer by mere physical delivery, requires no registration as does not have the name of the holder on its face. Certain stamp duty advantages arise from this type of instrument.

Gives the option holder a payoff based on the independent performance of two different instruments.

Firm order with no rate limit stipulated.BetaA measure of relative volatility of the price of the instrument to the overall performance of the market.

The price at which a buyer has offered to purchase the currency or instrument.

Refers normally to the first three digits of an exchange rate that dealers treat as understood in quoting. For example a quote of "30/40" on dollar mark could indicates a price of 1.5530/40BIS: Bank of International Settlement.

A system used where foreign currency is limited. Payments are usually routed through the central banks, and sometimes require that the trade balance is equaled every year.

A binary "call" (or "step up") is like a standard European call option except that the pay off at expiry is fixed at one unit of the counter currency, if the call expires in the money.

An option pricing formula initially derived by Fisher Black and Myron Scholes for securities options and later refined by Black for options on futures. It is widely used in the currency markets.

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 refers normally to transferring the trading of the Banks positions to another office at the close of the day, e.g. from London to New York.

The recording of a transaction outside the country where the transaction is itself negotiated.

Slang for Russian trading.

Options are purchased the gains/losses on which offset positions in the underlying currency.

A combination of a horizontal, or calendar, call spread and a horizontal put spread. Both spreads have the same expiration dates on their long and short positions. A bear call spread with a bull put spread is a credit box. A bull call spread with a bear put spread is a debit box.

A plan conceived by Nicholas Brady US Treasury Secretary to reschedule and restructure third world debt.BreakA sudden or rapid fall in instrument pricing.

The price of a financial instrument at which the option buyer recovers the premium, meaning that he makes neither a loss or gain. In the case of a call option, the break even point is the exercise price plus the premium.

In the options market, undoing a conversion or a reversal to restore the option buyer's original position.

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.

A broad definition of money supply including long term deposits and corporate lending.

Deals that are undertaken for value dates that are not standard periods e.g. 1 month. The standard periods are 1 week, 2 weeks, 1, 2, 3, 6 and 12 months. Terms also used are odd dates, or cock dates, broken period or broken period.

See Dealer.

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.

Commission charged by a broker.

Bundesbank, the reserve bank of Germany.

A prolonged period of generally falling prices.

An option position composed of both long and short options of the same type, either calls or puts, designed to be profitable in a declining market. An option with a lower strike price is bought and one with a higher strike price is sold.

An investor who believes that prices are going to rise.

Sterling bonds issued in the UK by foreign institutions.

A term for gold bars, not coin.

Central Bank of Germany.

(1) A futures butterfly spread is a spread trade in which multiple futures months are traded simultaneously at a differential. The trade basically consists of two futures spread transactions with either three or four different futures months at one differential. (2) An options butterfly spread is a combination of a bear and bull spread trade in which multiple options months and strike prices are traded simultaneously at a differential. The trade basically consists of two options spread transactions with either three or four different options months and strikes at one differential.

Market activity by an option writer when the writer holds insufficient assets to meet delivery upon expiration.

The valuation of a forward exchange transaction by applying the current exchange rate that would apply to the remaining period of the transaction.

see repurchase agreements.

The purchaser of an option, whether a call or put option. The buyer may also be referred to as the option holder. Option buyers receive the right, but not the obligation, to enter a futures/securities market position.

Rate at which the market and a market maker in particular is willing to buy the currency. Sometimes called bid rate.

To buy the nearby contract and simultaneously sell the deferred contract. Also referred to as a bull spread.

Telegraphic transfer of funds from one centre to another. Now synonymous with inter bank electronic fund transfer.

A term used in the foreign exchange market for the US Dollar/British Pound rate.

An option position comprised of purchase and sale of two option contracts of the same type with different expiration dates at the same exercise price.

Money lent that is repayable on demand.

A call option confers the right but not the obligation to buy stock, shares or futures at a specified price.

(1) An option that gives the holder the right to buy the underlying instrument at a specified price during a fixed period. (2) A period of trading. (3) The right of an bond issuer to pre pay debt and demand the surrender of its bonds.

Overnight (GBP) or Federal funds (USD) currency lent by banks on a very short term basis which can be called the same day, at one days notice or at two days notice.

Overnight (GBP) or Federal funds (USD) currency lent by banks on a very short term basis which can be called the same day, at one days notice or at two days notice.

An agreement with a counterparty that sets an upper limit to interest rates for the cap buyer for a stated time.

Juxtaposition of the long and short term capital imports and exports of a country.

Standards set by BIS for banks.

The market for medium and long term securities.

Short and long term claims and liabilities, which are entered into vis a vis foreign countries, e.g. repayment of foreign debt, direct investments, portfolio investments, purchase of private real estate.

The risk arising from a bank having to pay to the counter party with out knowing whether the other party will or is able to meet its side of the bargain. see Herstatt.

The interest cost of financing securities or other financial instruments held.

Same day settlement.

The market in the actual financial instrument on which a futures or options contract is based.

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.

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.

An option written on an underlying cash instrument rather than a futures contract.

A procedure for settling futures contract where the cash difference between the future and the market price is paid instead of physical delivery.

Chicago Board Options Exchange.

Chicago Board of Trade.

Certificate of Deposit.

computerized system for safe custody, delivery and settlement for Eurobonds and related securities. Also the name of an instrument coding system.

A bank which is responsible for controlling a countries monetary policy. It is normally the issuing bank and controls bank licensing, and any foreign exchange control regime.

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.

A negotiable certificate in bearer form issued by a commercial bank as evidence of a deposit with that bank which states the maturity value, maturity rate and interest rate payable.CDs vary in size with maturities ranging from a few weeks to several years. CDs may normally be redeemed before maturity only by sale on the secondary market but may also be redeemed back to issuing bank through payment of a penalty.

The Commodity Futures Trading Commission, the US Federal regulatory agency for futures traded on commodity markets, including financial futures.

Clearing House Automated Payment System.

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.

The New York clearing house clearing system. (Clearing House Interbank Payment System). Most Euro transactions are cleared and settled through this system.

Copenhagen Interbank Rate, the rate at which the banks lend the Danish Krone on an unsecured basis. The rate is calculated daily by the Danmarks Nationalbank (the Danish Central Bank), based on rules set out by the Danish Banker's Association.

Price change limits and trading halts intended to reduce excessive price fluctuations.

An exchange rate that is not materially effected by official intervention.

The price of a bond not including the accrued interest element.

In the UK capital market refers to a price quoted excluding accrued interest.

see trading day.

An exchange-associated, usually independent organisation through which all contracts are made, offset and delivered e.g. ICCH.

A member firm of a clearing house.

The process of setting a number of items against one another and making fund transfers on the net balance only as part of the settlement process.

The process of matching, registering and guaranteeing transactions.

The end of the business day e.g. London 4.30 p.m.

A transaction which leaves the trade with a zero net commitment to the market with respect to a particular currency.

The purchase of an option identical to one already sold to liquidate a position.

Chicago Mercantile ExchangeCock Dates (see broken dates).

An economic indicator that generally moves in line with the general business cycle such as industrial production.

A combination of a cap and a floor. A collar sets a band within which interest rates will apply (e.g. 10%-13.75%), for a given period.

Commodity Exchange of New York.

Promissory notes usually with up to 270 day maturity, sold by companies or institutions for working capital. Widely used in the US.

The fee that a broker may charge clients for dealing on their behalf.

An option on an option, the dates and price of such option being fixed.

French term for spot settlement in foreign exchange.

US Treasury Department official with the primary role in bank supervision.

A memorandum to the other party describing all the relevant details of the transaction.

Monthly measure of the change in the prices of a defined basket of consumer goods including food, clothing, and transport. Countries vary in their approach to rents and mortgages.

A condition in a futures market where the more distant delivery months trade at a premium to the term delivery months.

A futures contract which is settled by a cash payment reflecting the monetary difference between the initial transaction price and the price of the underlying asset on expiry.

The date on which a currency must be delivered to fulfill the terms of the contract. For options, the last day on which the option holder can exercise his right to buy or sell the underlying instrument or currency.

The month in which a futures contract matures or becomes deliverable if not liquidated or traded out before the date specified.

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 the futures price moves towards and ultimately equals the price of the underlying instrument at expiration.

Forwards or futures taken to limit or eliminate exposure to currency fluctuations.

Calls are sold on the underlying currency with strikes which are higher than the market price. The strike price limits the profit that can be realized from the position.

A general ledger account representing the uncovered position in a particular currency. Such accounts are referred to as Position Accounts.

The amount by which the price of a convertible bond exceeds the market price of the underlying stock.

The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency.

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.

A currency that can be freely exchanged for another currency (and or gold) without special authorization from the central bank.

Slang for the Danish krone.

The foreign banks representative who regularly performs services for a bank which has no branch in the relevant centre, e.g. to facilitate the transfer of funds. In the US this often occurs domestically due to inter state banking restrictions.

Broadly equivalent to Retail Price Index or Consumer price.

The other organisation 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.

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 organisations generate country risk tables.

The annual rate of interest of a bond.

(1) On bearer stocks, the detachable part of the hide behind nominee status. Certificate exchangeable for dividends. (2) Denotes the rate of interest on a fixed interest security.

Exchange rate.

Free exchange rate.

Official exchange rate.

French for "short" as in une position courte.

French term for broker.

(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 between financial instruments denominated in different currencies, using forward cover to eliminate exchange risk.

A strategy of writing call options against a long position in the underlying asset. A covered put write being based on a short position in the asset.

The interest rate margin between two instruments denominated in different currencies after taking account of the cost of forward cover.

Committee on Payment and Settlement Systems.

A method of exchange rate adjustment; the rate is fixed/ pegged, but adjusted at certain intervals in line with certain economic or market indicators.

see Lombard rate.

The risk that a debtor will not repay; more specifically the risk that the counterparty does not have the currency promised to be delivered.

A foreign exchange deal entered into involving two currencies, neither of which is the base currency.

A technique using financial futures to hedge different but related cash instruments based on the view that the price movements between the instruments move in concert.

Rates between two currencies, neither of which is the US Dollar.

A cross-trade transaction is a transaction where either the buy broker and the sell broker are the same, or the buy broker and the sell broker belong to the same firm.

The situation which exists when a broker's bid is higher than the lowest offer of another broker.

see band.

Various weightings of other currencies grouped together in relation to a basket currency(e.g. ECU or SDR). Sometimes used by currencies to fix their rate often on a trade weighted basket.

Colloquial term for a unit of account or basket of currencies.

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.

The value of all exports (goods plus services) less all imports of a country over a specific period of time, equal to the sum of trade and invisible balances plus net receipt of interest, profits and dividends from abroad.

See swaps.

The most current calendar month in which a futures contract comes to maturity and becomes deliverable. Also known as the spot month.

The CUSIP numbering system is the standard method for identifying securities throughout the US financial industry. The CUSIP number is permanently allocated to each issue.

The set of expiration dates applicable to different classes of option.

An order that if not executed on the specific day is automatically canceled.

Speculators who take positions in commodities which are then liquidated prior to the close of the same trading day.

see intra day position.

The date on which a transaction is agreed upon.

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.

The panel of communications equipment forming part of a dealer's desk.

A non-secured loan raised by a company, paying a fixed rate of interest.

The ratio of interest and capital repayments as a percentage of the country's export earnings. The treatment of public debt varies.

The latest day or time by which the buyer of an option must indicate to the seller his intention to the option.

Generally a breach of contract. Failure to make timely payment of principal or interest.

Shortfall in the balance of trade, balance of payments, or government budgets.

French term for default.

Distant actively trading contract months, also referred to as back months.

Difference between real and nominal Gross National Product, which is equivalent to the overall inflation rate.

Risk that the counterparty is either unable or unwilling to fulfill his payment obligations.

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.

The calendar month in which a futures contract comes to maturity and becomes deliverable.

Those locations designated by futures exchanges at which the currency represented by a futures contract may be delivered in fulfillment of the contract.

A term to describe when a counterparty will not be able to complete his side of the deal, although willing to do so.

The settlement of a futures contract by receipt or tender of a financial instrument or currency.

The change in the value of the option premium made fully paid by the capitalisation of reserves and given relative to the instantaneous change in the value of the; underlying instrument, expressed as a coefficient.

A method used by option writers to hedge risk exposure of written options by purchase or sale of the underlying instrument in proportion to the delta.

A ratio spread of options established as a neutral position by using the deltas of the options concerned to determine the hedge ratio.

Demand led inflation, commonly referred to as too much money chasing too few goods.

Deposit.

French term for discount.

Money Market operations.

Bank and other giro credit balances which can be converted at any time into cash although normally used for cashless payment.

A series of transactions whereby a deposit for a particular currency 1, and the proceeds converted via spot currency into currency 2. Currency 2 is then lent. To cover potential exchange movement a forward sale of currency 2 against currency 1 is entered into which will return the converted amount plus interest into the original currency.

The net position arising from all deposit and loan transactions in a given currency.

A fall in the value of a currency due to market forces rather than due to official action.

A measure of how much a price has to move in order to execute larger than normal transactions. The smaller the price movement and the larger the transaction, the deeper the market.

A broad term relating to risk management instruments such as futures, options, swaps, etc.. The contract value moves in relation to the underlying instrument or currency. The issue of derivatives and their control following large losses by banks and corporates has been subject of much debate.

Term referring to a group dealing with a specific currency or currencies.

All the information required to finalize a foreign exchange transaction, i.e. name, rate, dates, and point of delivery.

German options and futures exchange, a fully computerized system with integrated trading and clearing.

Deliberate downward adjustment of a currency against its fixed parities or bands, normally by formal announcement.

Foreign exchange in German and French respectively.

German for spot exchange market.

German for forward exchange market.

The purchase of a longer maturity option and the sale of a shorter maturity, lower exercise price option. The choice of calls or puts will determine its bear or bull character.

Dublin Inter-bank Offered Rate.

Quoting in fixed units of foreign currency against variable amounts of the domestic currency.

Floating a currency when the rate is controlled by intervention by the monetary authorities.

(1) See forward Rate. Forward rate is lower than spot rate (2) an option that is trading for less than its intrinsic value.

The rate at which a bill is discounted. Specifically it refers to the rate at which a central bank is prepared to discount certain bills for financial institutions as a means of easing their liquidity, and is more accurately referred to as the official discount rate.

Earnings after tax.

Net of tax and fixed personal spending commitments.

A concept in the EMS to measure divergence from the central parity of the currency against the ECU. The thresh-hold for intervention for each currency excludes the currencies weight in the ECU.

Deutsche Mark.

The interest rates applicable to deposits domiciled in the country of origin. Value and values may vary from Eurodeposits due to taxation and varying market practices.

An option either to buy or sell an instrument or currency at a specified price. The exercise of the right to sell causes the right to buy to expire and vice versa.

A call option that expires if the asset price falls below a predetermined level.

The sale of a security at a price lower than the previous one.

abbreviation of Deutsche Terminboerse.

US term for " nostro account".

US term for " vostro account".

A competitive bidding technique where the lowest price to sell the entire amount of the offered instrument is the price at which all instruments are sold. A technique used for some controlled foreign exchange and sovereign debt.

Modest decline in price.

A statistics which indicates current economic growth rates and trends such as retail sales and employment.

European Currency Unit.

Electronic Data Interchange.

An attempt to summarize the effects on a country's trade balance of its currency's changes against other currencies.

Electronic Fund Transfer.

In the Euro Interbank deposit market where both bid and offer rates for a particular period are the same.

Name of currency that is to be the vehicle for European monetary union under the Maastricht Treaty.

European Monetary System.

Indicates that both the spot and forward maturity, or two forward maturities in a swap transaction, fall due on the last business day of appropriate calendar months.

A term used for international trade where goods are shipped to a centre for re-export. Hong Kong engages in significant amounts of this form of trade.

European Options Exchange.

The change in the price of an option associated with a 1% change in implied volatility (technically the first derivative of the option price with respect to volatility). Also referred to as eta, vega, omega and kappa.

Exchange Rate Mechanism.

A computerized settlement and depository system for safe custody, delivery of, and payment for Eurobonds.

The rates quoted for Euro-currencies.

A long-term loan issued in a currency other than that of the country or market in which it is issued. Interest is paid without the deduction of tax.

A currency domiciled outside its country of origin normally held by non residents.

US dollars deposited in a bank (US or non US) located outside the USA.

Swiss French or Belgian francs traded on the Eurocurrency market. Normally Swiss Francs are the more common currency.

Deutschmarks traded on the Eurocurrency market.

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.

An option that can be exercised only on its expiration date rather than before that date.

The group formerly known as the European Community.

The maintenance by banks of a higher level of funds than is normally desirable, usually arising due to a drop in demand for funds because of economic conditions or interest rates.

A system of controlling inflows and out flows of foreign exchange, devices include licensing multiple currencies, quotas, auctions, limits, levies and surcharges.

An account controlled by the UK Treasury and managed by the Bank of England. Its assets include the country's gold and foreign exchange reserves. Its objective is to manage the exchange rate in accordance with government policy.

A transaction in which the buyer of a cash commodity transfers to the seller a corresponding amount of long futures contracts, or receives from the seller a corresponding amount of short futures, at a price difference mutually agreed upon. In this way, the opposite hedges in futures of both parties are closed out simultaneously.

The formal notification that the holder of a call (or put) option wishes to buy (or sell) the underlying security at the exercise price.

A limit on the number of options contracts a holder may exercise within a specific period.

See Strike price.

For a call option, this is the amount by which the strike price is below the underlying investment; for a put option, it is the amount by which the strike price is above the underlying investment.

A less broadly traded currency.

(1) Options - the last date after which the option can no longer be exercised. (2) Bonds-the date on which a bond matures.

The month in which an option expires.

The last date on which an option can be bought or sold.

see position and mismatch. Various methods of calculating an exposure exist (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.

See Time value.

An option value derived from a mathematical option valuation model.

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.

A graph that predicts a greater probability of a very large price movement than that predicted by normal distribution.

The interest rate on Fed funds. This is a closely watched short term interest rate as it signals the Feds view as to the state of the money supply.

Cash balances held by banks with their local Federal Reserve Bank. The normal transaction with these fund is an inter bank sale of a Fed fund deposit for one business day. Straight deals are where the funds are traded overnight on a unsecured basis.

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.

A privately owned but US government sponsored corporation that trades in residential mortgages. Its activities are funded by the sale of instruments commonly known as Fannie Maes.

See FOMC.

The board of the Federal Reserve System, appointed by the US President for 14 year terms, one of whom is appointed for four years as chairman.

The central banking system of the US comprising 12 Federal Reserve Banks controlling 12 districts under the Federal Reserve Board. Membership of the Fed is compulsory for banks chartered by the Comptroller of Currency and optional for state chartered banks.

A long term debt consolidated in the form of bonds, mortgages etc.

Money on fixed term deposit at banks.

Frankfurt Inter-bank Offered Rate.

An order which must be entered for trading, normally in a pit three times, if not filled is immediately canceled.

A futures contract based on a financial instrument.

Introduced in 1979 it is part of the dual currency exchange rate system operated in South Africa. It is the proceeds of disposal of South African securities and includes the purchase of plant and equipment by foreign investors.

(1) A quote with a narrow spread. (2) The most favorable rate charged to a high quality borrower.

The price given in response to a request for a rate at which the quoting party is willing to execute a deal for a reasonable amount for spot settlement. Screen quotes are indicative. Quotes on matching systems are normally firm depending on systems requirement to reconfirm rate prior to completing matching.

The first day on which notices of intention to deliver actual currencies against futures market positions can be received.

Use of taxation as a tool in implementing monetary policy.

The relationship that exists between interest rates and exchange rate movements, so that in an ideal situation interest rate differentials would be exactly off set by exchange rate movements. See interest rate parity.

The monthly calendar dates similar to the spot. There are two exceptions. For detailed description see value dates.

Official rate set by monetary authorities. Often the fixed exchange rate permits fluctuation within a band.

A method of determining rates by normally finding a rate that balances buyers to sellers. Such a process occurs either once or twice daily at defined times. Used by some currencies particularly for establishing tourist rates . The system is also used in the London Bullion market.

Exchange rates with a fixed parity against one or more currencies with frequent revaluation's. A form of managed float.

(1) see Floating exchange rate. (2) Cash in hand or in the course of being transferred between banks (3) Federal Reserve Float arises from the system where cheques sent to the Federal Reserve Banks are credited sometimes in advance of the depositing bank loosing the reserve.

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.

(1) An agreement with a counterparty that sets a lower limit to interest rates for the floor buyer for a stated time. (2) A term for an exchanges trading area (cf. screen based trading), normally the trading area is referred to as a pit in the commodities and futures markets.

Federal Open Market Committee, the committee that sets money supply targets in the US which tend to be implemented through Fed Fund interest rates etc.

The purchase or sale of a currency against sale or purchase of another.

The global cash inter-bank market used to exchange currencies between different countries. Forex or FX trading is not conducted on a regulated exchange. It is also known as off-exchange trading.

Groups formed in the major financial centers to encourage educational and social contacts between foreign exchange dealers, under the umbrella of Association Cambiste International.

Various net exposures for forward contracts which the bank has incurred as a result of dealing activities.

Sometimes used as synonym for "forward deal" or "future". More specifically for arrangements with the same effect as a forward deal between a bank and a customer.

forward contracts to protect against movements in the exchange rate.

A deal with a value date greater than the spot value date.

A forward / forward deal is one where both legs of the deal have value dates greater than the current spot value date.

Discounts or premiums between spot rate and the forward rate for a currency. Normally quoted in points.

Trading days on which days contracts can be transacted later than the spot date.

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.

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.

The FRA is an agreement between two parties that determine the interest rate that will apply to a notional future loan or deposit of an agreement.

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. Therefor 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.

Forward Rate AgreementFranc zoneA grouping of currencies which are pegged to the French Franc and are supported by the activities and resources of the Bank of France. The main currency is the CFA which is administered by the communal central banks in West and Central Africa BEAC and BCEAO. The zone also includes the Pacific Franc used in the Pacific over seas departments like New Caledonia.

Floating rate note

Floating rate CD

Total reserves held by a bank less the reserves required by the authority.

Legislation or agreement to keep prices or wages at current levels.

The activities carried out by the dealer , normal trading activities.

Normally funds that are temporarily blocked normally either due to court order or government regulation often arising from war or major international dispute, e.g. Iran, Iraq, and Yugoslavia.

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.

A term for USD/CAD/FungiblesInstruments that are equivalent, substitutable and interchangeable in law. May apply to certain exchange traded currency contracts offered on a number of exchanges.

The month that is furthest away from settlement of a futures or options contract.

A contract traded on a futures exchange which requires the delivery of a specified quality and quantity of a commodity, currency or financial instruments a specified future month, if not liquidated before the contract matures.

The global cash inter-bank market used to exchange currencies between different countries. Forex or FX trading is not conducted on a regulated exchange. It is also known as off-exchange trading.

The Group of Five. The five leading industrial countries, being US, Germany, Japan, France, UK.

The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy.

G7 plus Belgium, Netherlands and Sweden, a group associated with IMF discussions. Switzerland is sometimes peripherally involved.

The rate at which a delta changes over time or for one unit change in the price of the underlying asset.

A mismatch between maturities and cash flows in a bank or individual dealers position book. Gap exposure is effectively interest rate exposure.

An option model.

A company's debts expressed as a percentage of its equity capital.

In the UK, loans issued on behalf of the government to fund its spending. Longs are gilts with a redemption date greater than 15 years. Mediums are those with a redemption date between 5 and 15 years. Shorts are those with a redemption date within 5 years.

Securities issued by the Government National Mortgage Association (GNMA) of the USA.

A system for global after hours electronic trading in futures and options developed by Reuters for CME and CBOT for use in conjunction with various exchanges around the world.

Government National Mortgage Association . The government owned entity that was established to take over some of the FNMA functions. Unlike the FNMA its paper bears a government guarantee.

The purchase of a stock or commodity for investment or speculation.

The selling of a currency or instrument not owned by the seller.

A clause in a financial agreement linking a monetary payment to the value of gold.

Several gold francs are minted. The Swiss gold franc is used in BIS's balance sheet The value of these Francs is now expressed in terms of SDRs.

The original system for supporting the value of currency issued. The was that 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.

Part of the country quota for IMF members that had to be paid in gold. This was normally 25% of the quota, the remainder being in domestic currency. The Gold Tranche was automatically available to members without condition.

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.

A notional currency used in the EU's Common Agricultural Policy to keep agricultural prices at the same level throughout the EU to ensure a unified market.

Fixed margin within which exchange rates are allowed to fluctuate.

A process where full payment of each transaction is made rather than clearing a group of transactions as currently occurs in the FX market. A method designed to eliminate capital risk.

Before deduction of tax.

Total value of a country's output, income or expenditure produced within the country's physical borders.

Gross domestic product plus " factor income from abroad" - income earned from investment or work abroad.

Removes inflation from the GNP figure. Usually expressed as a percentage and based on an index figure.

The difference between the actual real GNP and the potential real GNP. If the gap is negative an economy is overheated.

The Gramm Rudman Hollings Act is the US law imposing a gradual reduction in the Federal budget deficit.

Calculating a gross or pre-tax rate of interest or dividend by adding a notional amount of tax to the net, or post-tax amount received.

See G5, G7, G10.

See Good until canceled.

A currency whose value is expected to remain stable or increase in terms of other currencies.

A pattern in price trends which chartist consider indicates 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 a 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 or futures or options market.

The number of futures or options required to hedge a given exposure in the cash market.

Helsinki Inter-bank Offered Rate.

Relates to the exposure to the counterparty to a foreign exchange transaction defaulting which could trigger widespread default in the market due to the netting system of settlement. The name derives from a German bank involved in a bank failure that resulted in default in settling a FX transaction in the 70s.

Hong Kong Inter-bank Offered Rate.

The annualized standard deviation of percentage changes in futures prices over a specific period. It is an indication of past volatility in the marketplace.

Acceptance of purchasing at the offer or selling at the bid.

Same as buyer.

Current Accounts in the UK in a currency other than sterling.

A calendar or time spread.

Short term international capital movements, motivated by interest rate differentials or expectation of exchange rate movements.

In the UK treasury bills on the day of issue.

Very high and self sustaining inflation levels. One definition being the period while inflation exceeds 50% until it has drops below that level for 12 months.

International Commodities Clearing House Limited, a clearing house based in London operating world wide for many futures markets.

International Foreign Exchange Master Agreement.

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 volatilityA measurement of the market's expected price range of the underlying currency futures based on the traded option premiums.

The implied volatility varies for different strikes of an option.

The interest rate determined by calculating the difference between spot and forward rates.

A call option is in-the-money if the price of the underlying instrument is higher than the exercise/strike price. A put option is in-the-money if the price of the underlying instrument is below the exercise/strike price. See Out-of-the-money.

Currency which cannot be exchanged for other currencies, either because this is forbidden by the foreign exchange regulations.

The process of linking wages, social benefits payments, prices, interest rates or loan values to an economic index, usually of prices.

A market-maker's price which is not firm.

See reciprocal currency.

A coincident indicator measuring physical output of manufacturing, mining and utilities.

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.

Rate given for information purposes only.

The margin is a returnable deposit required to be lodged by buyers and sellers with the clearing house to secure a new futures or options position.

The specification of the banks at which funds shall be paid upon settlement.

The bid and offer rates at which international banks place deposits with each other. The basis of the Interbank market.

A specialist broker who acts as an intermediary between market-makers who wish to buy or sell securities to improve their book positions, without revealing their identities to other market-makers.

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.

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.

An agreement permitting a party to obtain a particular interest rate, issued both OTC and by exchanges.

An agreement that provides the buyer of a cap with a maximum interest rate for future borrowing requirements.

A combination of a cap and a floor to provide maximum and minimum interest rates for borrowing or lending.

An agreement which provides the buyer of the floor with a minimum interest rate for future lending requirements.

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 be they payments or receipts that are exchanged.

Referring to a currency that is widely used to denominate trade and credit transactions by non residents of the country of issue. US dollar and Swiss Franc are examples.

Action by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.

A call option is in the money when the strike price is less than the current price of the underlying instrument. A put is when the strike price is greater.

Limit set by bank management on the size of each dealer's Intra Day Position.

Open positions run by a dealer within the day. Usually squared by the close.

The amount by which an option is in-the-money. The intrinsic value is the difference between the exercise/strike price and the price of the underlying security.

Where near months are trading at premiums to longer dates.

Comprises transportation services, income and expenditure on travel services, insurance's, licensees, earnings and interest income from international capital movements.

Index and Options Market part of the Chicago Mercantile Exchange.

The International Securities Identification Number. The structure of the ISIN code is two-digit alpha country code (ISO 3166) or XS for securities numbered by CEDEL or Euroclear; nine-digit Alpha-numeric code based on the national securities code or the common CEDEL/Euroclear code; a check digit computed according to the modulus 10 'double-add double'.

Banking operations carried on in line with Islamic principles which prohibit usury. Interest is therefore often replaced by involvement in the venture by temporarily owning the out put from the business and onselling it at a predetermined profit. Referred to as Sharia Law.

(IDB)Established in 1976 to assist in financing development in countries with a substantial Islamic population.

An exchange control system under which currency needed for foreign investment must be acquired through the investment currency market. Such systems are liable to create wide disparities between this and the actual market rate.

A term for exports and imports of services as distinct from merchandise (visibles).

A term describing the expected effect of a devaluation on a country's trade balance. It is anticipated that import bills rise before export orders and receipts increase.

Announcements and statements by politicians or monetary authorities to influence decisions by business, consumer, or trade union sectors, often associated with forecasts and policy implications.

(1) the risk inherent in placing funds in the centre where they will be under the jurisdiction of a foreign legal authority. (2) the risk in making a loan subject to the laws of another country.

A measure of the sensitivity of the price of an option to a change in its implied volatility.

German financial instrument traded on the Euromarkets.

Small countries, which are highly dependent on exports, orientates their currencies to their major trading partners, the constituents of a currency basket.

Slang for the New Zealand dollar.

Long term economic cycles , named after an economist who identified 50-60 year economic cycles.

A process where a barrier option (European) becomes active as the underlying spot price is in the money.

has a corresponding meaning although the option may permanently cease to exist.

Dealers analysis of the forward book or deposit book showing every existing deal by maturity date, and the net position at each future date arising.

A measure of economic activity which tends to change after change has occurred in the overall economy e.g. CPI.

Rights for which call payments have not been made by the acceptance date.

The final day on which notices of intent to deliver on futures contracts may be issued.

The day on which trading ceases for an expiring contract.

To carry out a transaction in the market to offset a previous transaction and return to a square position.
LDC -Less developed countries, often used with respect to secondary debt market.

Less developed countries, often used with respect to secondary debt market.

Statistic that are considered to precede changes in economic growth rates and total business activity, e.g. factory orders.

The effect on foreign trade payments of an anticipated move in the exchange rate normally a devaluation. Then payment of imports is faster and export receipts is slowed down.

Taking the left hand side of a two way quote i.e. selling the quoted currency.

In options terminology, this expresses the disproportionately large change in the premium in terms of the relative price movement of the underlying instrument.

An option model.

In terms of foreign exchange , the obligation to deliver to a counterparty an amount of currency either in respect of a balance sheet holding at a specified future date or in respect of an un-matured forward or spot transaction.

The London Interbank Bid Rate. The rate charged by one bank to another for a deposit.

The London Interbank Offered Rate, the rate charged by one bank to another for lending money.

Calculated from the mean average of LIBOR and LIBID.

French term for a swap.

The period between the beginning of trading in a particular future and the expiration of trading.

London International Financial Futures Exchange.

The average of the LIBOR and LIBID rates.

The maximum price decline from the previous trading day's settlement price permitted in one trading session.

A price that has advanced or declined the permissible limit permitted during one trading session.

An order to buy or sell a specified amount of a security at a specified price or better.

The maximum price advance from the previous trading day's settlement price permitted in one trading session.

(1)The maximum price fluctuation permitted by an exchange from the previous session's settlement price for a given contract. (2) In international banking the limit a bank is willing to lend in a country. (3) the amount that one bank is prepared to trade with another. (4) the amount that a dealer is permitted to trade in a given currency.

When residents of a country are prohibited from buying other currencies even though non-residents may be completely free to buy or sell the national currency.

An arrangement by which a bank agrees to lend to the line holder during some specified period any amount up to the full amount of the line.

Any transaction that offsets or closes out a previously established position.

The ability of a market to accept large transactions.

A futures trader who normally trades on an exchange on his/her own account.

A market is locked when the bid price equals the asked price.

One of the key commercial interest rates normally referring to Germany although such rates exist in France, Belgium, and Switzerland. An interest rate for a loan against the security of pledged paper.

A forward purchase and sale with a brief uncovered position between them. This may also be referred to as long short dates.

The holding of an excess of a particular currency.

The purchase of futures contracts for price protection purposes, as a defensive position against an increase in cash prices, or falling interest rates.

An option that permits exercise at any rate that existed during the option period but only exerciseable after the option period.

The 1987 agreement between the G5 calling for a halt in the dollars decline, re-establish balanced trade and non inflationary growth.

Luxembourg Inter-bank Offered Rate.

cash in circulation . Only used by the UK.

cash in circulation plus demand deposits at commercial banks. There are variations between the precise definitions used by national financial authorities.

Includes demand deposits time deposits and money market mutual funds excluding large CDs.

In the UK it is M1 plus public and private sector time deposits and sight deposits held by the public sector.

In the US it is M2 plus negotiable CDs.

The minimum margin which an investor must keep on deposit in a margin account at all times in respect of each open contract.

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.

The day when banking figures need to be compiled for central bank reporting.

When the monetary authorities intervene regularly in the market to stabilize the rates or to aim the exchange rate in a required direction.

A demand for additional funds to be deposited in a margin account to meet margin requirements because of adverse future price movements.

(1)Difference between the buying and selling rates, also used to indicate the discount or premium between spot or forward. (2)For options the sum required as collateral from the writer of an option. (3)For futures a deposit made to the clearing house on establishing a futures position account. (4) The percentage reserve required by the US Federal Reserve to make an initial credit transaction.

The that a customer goes bankrupt after entering into a forward contract. In such an event the issuer must close the commitment running the risk of having to pay the marginal movement on the contract.

The daily adjustment of an account to reflect accrued profits and losses often required to calculate variations of margins.

Premium.

The minimum amount conventionally dealt for between banks.

A market maker is a person or firm authorized to create and maintain a market in an instrument.

An order that becomes a market order if the specified price is reached.

An order to buy or sell a financial instrument immediately at the best possible price.

A model that states that if the sum of the elasticity's of demand for a country's and that of the imports exceed one, then devaluation will have a positive effect upon the trade balance.

Where a dealer is able to match two customer deals which off set one another.

Monetary Authority of Singapore.

If the distribution of the maturities of a banks liabilities equal that of its assets , it is said to be running a matched book.

The process of ensuring that purchases and sales in each currency and deposits given and taken in each currency are in balance , by amount and maturity.

Marche a Terme International de France.

(1) The last trading day of a futures contract. (2) Date on which a bond matures, at which time the face value will be returned to the purchaser. Sometimes the maturity date is not one specified date but a range of dates during which the bond may be repaid.

Madrid Inter-bank Offered Rate.

The study of economic activity as it applies to individual firms or well defined small groups of individuals or economic sectors.

The control of the trading activity including position keeping.

The price half-way between the two prices, or the average of both buying and selling prices offered by the market makers.

European term for 1,000 million.

Expression used to indicate that the contacting party is willing to buy at the rate offered by the quoting bank.

The smallest increment of market price movement possible in a given futures contract.

Reserves required to be deposited at central banks by commercial banks and other financial institutions. Sometimes referred to as Registered Reserves.

Million.

(1) A mismatch between the interest rate maturities of a banks assets and liabilities. (2) Forward purchases differ in the value date from the forward sales in a given currency.

Japanese ministry of International Trade & Industry.

Money Markets.

A school of economics which believes that strict control of money supply is the principal tool for implementing monetary policy, especially against inflation. Policies include cuts in public spending and hopefully temporary high interest rates.

Currency in circulation plus banks' required and excess deposits at the central bank.

A modest loosening of monetary constraint by changing interest rate, money supply, deposit ratios etc.

An agreement between countries to maintain a fixed exchange rate between their currencies. A process which the EMS is intended to lead to, especially after the Maastricht Treaty.

The extent to which an option is in or out of the money, expressed as a percentage of the current spot, forward or future depending upon the nature of the underlying asset. Positive moneyness is in the money.

A market consisting of financial institutions and dealers in money or credit who wish to either borrow or lend.

Comprises the acceptance and re-lending of deposits on the money market.

A measure of German money supply, being cash and banks' minimum reserves on domestic liabilities (sight, statutory notice, and time deposits). Used by the Bundesbank until 1987 as its monetary target.

The amount of money in the economy, which can be measured in a number of ways. See definitions of M0-M4.

When monetary authorities and governments try to influence the markets by persuasion rather than regulation or the its threat.

An undertaking to give the rate of tariff concession offered to members of the GATT. More concessionaire rates can exist.

A way of smoothing a set of data, widely used in price time series.

Different exchange rates for different types of transaction. The South African Rand is an example.

An open-end investment company. Equivalent to unit trust.

Issuing contracts without any asset to back the contract or any hedging or covering of positions.

Limited definition of money to include cash or near cash, i.e.

The closest active futures contracts, i.e. those that expire the soonest.

The nearest actively traded delivery month, a.k.a. current delivery month, lead month.

A yield curve where interest rates in the shorter dates are above those in the longer dates.

US Department of Commerce term for the overall balance of payments.

The method of settling under which only the differences in the traded currencies is settled at the close.

The number of futures contracts bought or sold which have not yet been offset by opposite transactions.

Norway Inter-bank Offered Rate.

US term for five basis points.

Futures. An estimated price for a future month or date for which there is no bid, ask or trade price.

Name in which a security is registered and held in trust on behalf of the beneficial owner.

A foreign currency current account maintained with another bank. The account is used to receive and pay currency assets and liabilities denominated in the currency of the country in which the bank is resident.

A financial instrument consisting of a promise to pay rather than an order to pay or a certificate of indebtedness.

Any day on which notices of intent to deliver on futures contracts may be issued.

A non standard amount for a transaction.

see broken dates.

Organisation of Economic Co-operation and Development, membership is the more than developed countries.

The price at which a seller is willing to sell. The best offer is the lowest such price available.

Temporary situation where offers exceed bid.

The closing-out or liquidation of a futures position.

A US balance of payments measure based on movement of dollars in foreign official holdings and US reserves. Also referred to as reserve transaction account.

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.

Old lady of Threadneedle Street, a term for the Bank of England.

An account maintained by one broker with another in which all of the accounts of the former are combined and carried only in its name, rather than designated separately.

The total number of outstanding option or futures contracts that have not been closed out by offset or fulfilled by delivery.

A public auction method of trading conducted by calling out bids and offers across a trading ring or pit and having them accepted.

See Federal Open Market Committee.

Central Bank operations in the markets to influence exchange and interest rates.

The difference between assets and liabilities in a particular currency. This may be measured on a per currency basis or the position of all currencies when calculated in base currency.

All options of the same type - calls or puts -listed on the same underlying instrument.

All options of the same class having the same exercise/strike price and expiration date.

A contract conferring the right but not the obligation to buy (call) or to sell (put) a specified amount of an instrument at a specified price within a predetermined time period.

German for premium. The price a put or call buyer must pay to a put or call seller for an option contract.

see Initial Margin.

Over the Counter, the term used to describe futures and options not traded on an exchange. Trade is directly between buyers and sellers and there is no standardization of strikes or expirations.

A put option is out-of-the-money if the exercise/strike price is below the price of the underlying instrument. A call option is out-of-the money if the exercise/strike price is higher than the price of the underlying instrument. See In-the-money.

A forward deal that is not part of a swap operation.

See long and short.

A holding of foreign exchange that is temporarily unable to be converted from the reserve currency into other reserve assets.

Is an economy where high growth rates placing pressure on production capacity resulting in increased inflationary pressures and higher interest rates.

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.

A deal from today until the next business day.

See OTC

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.

The unofficial rate of exchange operating in a parallel market which may or may not be officially condoned.

A term for USDFRF Spot Rate.

Informal grouping of governments run by the Bank of France which meets on an ad hoc basis to seek agreement on measures to be taken when a country is unable to repay its foreign government to government borrowings on time.

(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.

The 1985 Plaza Hotel agreement by the G5 to lower the dollar.

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.

Paris Inter-bank Offered Rate.

See point. (0.0001 of a unit).

See Ring.

(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.

See Conversion Account.

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.

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).

See wholesale price indices.

Quoted standard periods that fall between the transaction date and the current spot value date. See value dates.

(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.

A graphical representation of the profits to a given options strategy for different underlying asset prices.

The unwinding of a position to realize 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.

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.

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.

An indicative price. The price quoted for information purposes but not to deal.

An option in which the foreign exchange risk in the underlying instrument has been removed.

(1) A limit on imports or exports. (2) A country's subscription to the IMF.

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.

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 decline in business activity. Often defined as two consecutive quarters with a real fall in GNP.

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 US 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 US dollar, Deutschemark 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 USA.

The 25% of its quota to which a member of the IMF has unconditional access, and for which there is no obligation to repay.

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.

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.

Measurement of the monthly change in the average level of prices at retail, normally of a defined group of goods.

A system for screen based trading that has been in operation since the early 1980s now has a matching optional enhancement known as Dealing 2000-2.

Process of changing a call into a put.

Selling an asset short writing a put and buying a call on the asset with the same terms.

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.

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 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.

The substituting of a far option for a near option of the same underlying stock at the same strike/exercise price.

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.

When a non financial company can borrow at lower than current short term rates and therefore can borrow and on lend at a profit.

Reuter Terminal for quote display.

Keeping open positions in the hope of a speculative gain.

A transaction that matures on the day the transaction takes place.

Same as a butterfly spread.

The percentage of disposable income that is saved or used for debt repayment.

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.

A method of dealing with statistics to adjust for regular annual fluctuations in figures normally caused by non economic factors, e.g. school leavers' impact on unemployment, or rise in food prices in winter. The months data is divided by the percentage of the average monthly figure. As a simple arithmetic adjustment it does not deal with exceptional seasonal factors such as extreme winters.

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.

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.

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.

Normally the 90 day rate.

see Short forward date/rate.

Singapore Inter-bank Offered 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.

See broken dates.

(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.

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.

A US firm engaged in assessing the financial health of borrowers. The firm also has generated certain stock indices i.e. S&&P 500.

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.

Stockholm Inter-bank Offered Rate.

Market slang for Swedish Krona.

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.

US 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 bond with unquestioned right to repayment of principal and interest at the specified dates with no additional further rights or bonuses.

See fixed dates.

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.

Unemployment levels inherent in an economic structure.

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 down ward movement. See resistance point.

Swaps expressed as an annualized percentage.

See forward margins.

A price as a differential between two dates of the swap.

The price at which the currency is currently trading in the spot market.

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.

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.

See Deposit Swap.

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.

see Treasury Bills.

German term for money lent until the following day and automatically repaid on the day.

automatically rolls over.

Statements made normally by the central bank or government minister designed to bolster market sentiment with respect to the currency.

(1) In US Treasury cash auctions, refers to the differences between the average " issue price" and the "stop out price". (2) In the repo market, a dealer establishes a tail when it deliberately makes the reverse repo for longer than the repo in the hope that the interest rates will fall, lowering the cost of the remaining part of the reverse repo.

UK term for a supply of Government stock available for sale through the Government broker at a stated price.

Expresses the price change of a option for a percentage change in the implied volatility. Technical AnalysisIs concerned with past price and volume trends - often with the help of chart analysis - in a market, in order to be able to make forecasts about future price developments of the commodity being traded.

An adjustment to price not based on market sentiment but technical factors such as volume and charting.

Method of determining accounting exposure which translates all balance sheet items at the current rate of exchange, not the one at the time the cost was incurred.

(1) a formal offer to supply or purchase goods or services. (2) In the UK the term for the weekly Treasury Bill issue.

Maturity or number of days to maturity normally on bills of exchange.

French for period.

French for outright in forward foreign exchange transaction.

German term for money market operations of over one month.

The ratio between export and import price indices.

A measure of the sensitivity of the price of an option to a change in its time to expiry.

A market in which trading volume is low and in which consequently bid and ask quotes are wide and the liquidity of the instrument traded is low.

A US foreign exchange technicality. If 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.

Tokyo Inter-bank Offered Rate.

A minimum change in price, up or down.

See Deal Slip.

A measure of a banks financial strength used by the BIS being the shareholders' equity available to cover actual or potential irredeemable and non-cumulative preference shares. It excludes, hybrid forms of capital such as fixed term stock, goodwill, and revaluation reserves. BIS has a minimum requirement of 4% on risk weighted assets.

A condition where there is a shortage of credit as a result of monetary policy restricting the supply of credit normally through raising interest rates.

Tokio International Financial Futures Exchange.

The decline in the time value of an option as the expiry approaches.

Interest bearing deposits at a savings institution that has a specific maturity.

That part of an option premium which reflects the length of time remaining in the option prior to expiration. The longer the time remaining until expiration, the higher the time value.

Simultaneous buying of a currency for delivery the following day and selling for the spot day, or vice versa. Also referred to as overnight.

Colloquial term for announcement in a publication that a loan or bond has been arranged.

Simultaneous buying of a currency for delivery the following day and selling for the spot day or vice versa.

The date on which a trade occurs.

The difference between the value of imports and exports. Often only reported in visible trade terms.

The changes in the exchange rate against a trade weighted basket including the currencies of the county's principal trading partners.

Transferable options with the right to buy and sell a standardized amount of a currency at a fixed price within a specified period.

Smallest transaction size acceptable.

See deal ticket.

The date on which a trade occurs.

A portion of, specifically used for borrowings from the IMF.

The buying or selling of securities resulting from the execution of an order.

The calculation of loss or profit resulting from the valuation of foreign assets and liabilities for balance sheet purposes, when consolidating into the base currency.

Short-term obligations of a Government issued for periods of one year or less. Treasury bills do not carry a rate of interest and are issued at a discount on the par value. Treasury bills are repaid at par on the due date. In the UK they are normally for 91 days, and are offered at weekly tenders. In the US they are auctioned.

Government obligations with maturities of ten years or more.

Government obligations with maturities more than one year but less than ten years.

Previously issued stock that has been repurchased by, or donated to, or otherwise are acquired by the issuing firm. Treasury stocks pay no dividends and have no voting privileges.

Founding treaty of the EU, most recently modified by the Maastricht Treaty.

French FX term for swap.

The total money value of currency contracts traded is calculated by multiplying size by the number of contracts traded.

A dual exchange rate system where normally only one rate is open to market pressure, e.g. South Africa.

When a dealer quotes both buying and selling rates for foreign exchange transactions.

Continental term for month or year end.

Another term for an open position.

Before finalizing a transaction all the details should be submitted for approval to the order giver, who has the right to turn down the proposal.

An exchange rate is normally considered to be undervalued when it is below its purchasing power parity.

A colloquial term for reversing a transaction. e.g. a spot sale by means of a forward purchase or if done in error a spot purchase.

See Dutch Auction.

A device designed to provide a consistent value with varying currencies. e.g. ECU and SDR.

Term for sale of assets or unwinding positions either to limit loss or to undermine other market participants positions.

If the average maturity of a banks liabilities is less than that of its assets, it said to be running an unmatched book.

Selling of assets and or instruments to square a position.

A transaction executed at a price greater than the previous transaction.

Exchange rate quotation on a reciprocal basis. See domestic quote.

Payments are said to be " valeur compensee" when payment by one party in one centre and settlement by the other party in another centre takes place on the same day.

For exchange contracts it is the day on which the two contracting parties exchange the currencies which are being bought or sold. For complete description see the chapter on trading. 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 centre coinciding with a banking holiday in the country(ies) of the foreign currency(ies). The value date then moves forward a day. The enquirer is the party who must make sure that his spot day coincides with the one applied by the respondent. The forward months maturity must fall on the corresponding date in the relevant calendar month If the one month date falls on a non-banking day in one of the centers then the operative date would be the next business day that is common. The adjustment of the maturity for a particular month does not effect the other maturities that will continue to fall on the original corresponding date if they meet the open day requirement. If the last spot date falls on the last business day of a month, the forward dates will match this date by also falling due on the last business day. Also referred to as maturity date.

Normally settlement for two working days from today. See value date.

Transaction executed for same day settlement; sometimes also referred to as "cash transaction"

A simple option whose terms and conditions do not include any provisions other than exercise style, expiry and strike. To compare with exotic options which have additional terms.

Profits or losses on open positions in futures and options contracts which are paid or collected daily.

Expresses the price change of an option for a one per cent change in the implied volatility.

The speed with which money circulates or turnover in the economy. It is calculated as the annual national income: average money stock in the period.

The sale of an option with a high exercise price and the purchase (in the case of a bull) or the sale (in the case of a bear) of an option with a lower exercise price. Both options will have the same expiration date.

Video display unit, sometimes a computer terminal or vendor screen.

Vienna Inter-bank Offered Rate.

Trade in merchandise goods as compared with capital flows and invisible trade.

A measure of the amount by which an asset price is expected to fluctuate over a given period. Normally measured by the annual standard deviation of daily price changes (historic). Can be implied from futures pricing, implied volatility.

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.

The difference between the basic wage and actual earnings including overtime and bonuses.

A matched deal which produces neither a gain nor a loss.

Term for where a trader takes a position, then has to move against it triggering stop loss limits and liquidation of positions, then having to move in the original direction. Normally occurs in volatile markets.

Money borrowed in large amounts from banks and institutions rather than from small investors.

It measures changes in prices in the manufacturing and distribution sector of the economy and tends to lead the consumer price index by 60 to 90 days. The index is often quoted separately for food and industrial products.

Where financial institutions or companies raise funds for specific reporting dates such as year ends to give the appearance of high liquidity.

Discretionary element in the monetary reserves of a central bank.

A day on which the banks in a currency's principal financial centre are open for business. For FX transactions, a working day only occurs if the bank in both (all relevant currency centers in the case of a cross are open).

A bank made up of members of the IMF whose aim is to assist in the development of member states by making loans where private capital is not available.

The seller of a call or put option in connection with an opening position who receives a premium and who is required to perform if it is exercised.

Slang for milliard, one thousand million.

The graph showing changes in yield on instruments depending on time to maturity. A system originally developed in the bond markets is now broadly applied to various financial futures. A positive sloping curve has lower interest rates at the shorter maturities and higher at the longer maturities. A negative sloping curve has higher interest rates at the shorter maturities.

Certificate issued by the Bank of England to "discount houses" in lieu of stock certificates to facilitate their dealing in the short dated gilt edge securities.

A bond that pays no interest. The bond is initially offered at a discount to its redemption value.