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Friday, August 29, 2008
FOREX GLOSSARY
Cable
Trader jargon for the British Pound Sterling referring to the Sterling/US Dollar exchange rate. Term began due to the fact that the rate was originally transmitted via a transatlantic cable starting in the mid 1800`s
Calender Spread
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.
Calender Combination
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.
Carry
The interest cost of financing securities or other financial instruments held.
Cash
normally refers to an exchange transaction contracted for settlement on the day the deal is struck.
Cash and Carry
The buying of an asset today and selling a future contract on the asset. A reverse cash and carry is possible by selling an asset and buying a future.
Cash Delivery
Same day settlement.
Cash on Deposit
Cash on Deposit equals the amount of funds deposited in the account, plus or minus the realized closed position P/L and other debits or credits such as rollovers;and commission
Cash Market
The market in the actual financial instrument on which a futures or options contract is based.
Cash Settlement
A procedure for settling futures contract where the cash difference between the future and the market price is paid instead of physical delivery.
Candlestick Chart
A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.
Capital Account
position of the long and short term capital imports and exports of a country.
Capital Markets
Markets for medium to long term investment (usually over 1 year). These tradable instruments are more international than the �money market� (i.e. Government Bonds and Eurobonds).
Central Bank
A government or quasi-governmental organization that manages a country`s monetary policy a prints a nations currency. For example, the US central bank is the Federal Reserve, others include the ECB, BOE, BOJ.
Central Bank Intervention
The act by which a central bank or central banks enter the spot foreign exchange market and attempt to influence unbalanced supply and demand forces through the direct purchase (or sale) of foreign exchange.
Central Rate
Exchange rates against the ECU adopted for each currency within the EMS. Currencies have limited movement from the central rate according to the relevant band.
CHIPS
(Clearinghouse House Interbank Payment System) A computerised system used for foreign exchange dollar settlements.
CHAPS
Clearing House Automated Payment System.
CFTC
The Commodity Futures Trading Commission, the US Federal regulatory agency for futures traded on commodity markets, including financial futures.
Chartist
An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader
Choice Market
A market with no spread.All trades buys and sells occur at that one price
Clean Float
An exchange rate that is not materially affected by official intervention.
Cleared Funds
Funds that are freely available, sent in to settle a trade.
Clearing
The process of settling a trade.
Closed Position
Exposures in Foreign Currencies that no longer exist. The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will 'square' the position
Closing Market Rate
The rate at which a position can be closed based on the market price at end of the day.
CME
Chicago Mercantile Exchange
Collateral
Something given to secure a loan or as a guarantee of performance
Commission
A transaction fee charged by a broker
Confirmation
A document exchanged by counterparts to a transaction that confirms the terms of said transaction
Contagion
The tendency of economic crisis to spread from one market to another. In 1997,political instability in Indonesia caused high volatility in their domestic currency,the Rupiah. From there,the contagion spread to other Asian emerging currencies,and then to Latin America,and is now referred to as the ‘Asian Contagion
Contract
The standard unit of trading.
Consumer Price Index
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.
Conversion arbitrage
A transaction where the asset is purchased and buys a put option and sells a call option on the asset purchased, each option having the same exercise price and expiry.
Conversion Rate
The rate for a specific currency pair that is used to convert (or sweep) non-US dollar profits/losses into dollars at the end of a trading day.
Correlation
A statistical measure referring to the relationship between two or more variables (events, occurrences etc.). A correlation between two variables suggests some causal relationship between these variables. Typically the Swiss Franc is closely correlated with the German Mark.
Correspondent Bank
The foreign banks representative who regularly performs services for a bank which has no branch in the relevant center, e.g. to facilitate the transfer of funds.
Cost of Carry/Interest/Premium
The interest rate parity, where the forward price is determined by the cost of borrowing money in order to hold the position.
Counter Currency
The second currency in a currency pair. In the Currency Pair EUR/USD, the Counter Currency is the USD.
Counter Party
The participant, either a bank or customer, with whom the financial transaction is made.
Country Risk
The risk attached to a transaction by virtue of its association to a particular country. This involves examination of economic, political and geographical factors of a particular country.
Counter Value
Where a person buys a currency against the dollar, it is the dollar value of the transaction.
Cover
The act of performing a transaction that closes out a position.
Covered Arbitrage
Arbitrage between financial instruments denominated in different currencies, using forward cover to eliminate exchange risk.
Covered Margin
The interest rate margin between two instruments denominated in different currencies after taking account of the cost of forward cover.
Credit Risk
The risk that a debtor will not repay; more specifically the risk that the counterparty does not have the currency promised to be delivered.
Cross Currency Contract
A spot contract to purchase or sell one foreign currency in exchange for another specific foreign currency. The currencies exchanged are not the US Dollar.
Cross Rate
An exchange rate between two currencies. The cross rate is said to be non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/CHF quote would be considered a cross rate, whereas in the UK or Switzerland it would be one of the primary
currency pairs traded.
Currency
Any form of money issued by a government or central bank and used as legal tender and a basis for trade.
Currency Pair
The two currencies that make up a foreign exchange rate. For Example, EUR/USD
Currency Risk
The risk of incurring losses resulting from an adverse change in exchange rates
Currency Swap
Contract which commits two counter-parties to exchange streams of interest payments in different currencies for an agreed period of time and to exchange principal amounts in different currencies at a pre-agreed exchange rate at maturity
Currency Swaption
OTC Option to enter into a currency swap contract
Currency Symbols
AUD - Australian Dollar
CAD - Canadian Dollar
EUR – Euro
JPY - Japanese Yen
GBP - British Pound
CHF - Swiss Franc
Currency Warrant
OTC Option; long-dated (more than one year) currency option.
Current Account
The net balance of a country's international payment arising from exports and imports, together with unilateral transfers such as aid and migrant remittances. It excludes capital flows.
Labels: Forex Glossary
