The total amount of exposure a bank has with a customer for both spot and
forward contracts.
The alphabetic code allocated by the American Bankers Association to a bank.
An option that may be exercised on any valid business date through out the
life of the option.
The increase in a currency's price due to market forces.
The purchase or sale of an instrument and simultaneous taking of an equal
and opposite position in a related market, in order to take advantage of
small price differentials between markets
The price at which the market is prepared to sell a specific. The ask price
is shown on the right side of a currency quotation. For example, in the
quotation USD/CHF 1.4527/32, the ask price is 1.4532. This means you can buy
one US dollar for 1.4532 Swiss francs.
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In the context of foreign exchange, the asset is the right to receive from a
counterparty an amount of currency either in respect of a balance sheet
asset (e.g. a loan) or at a specified future date in respect of an unmatched
forward or spot deal.
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An instruction given to a dealer to buy or sell at the best rate that can be
obtained.
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An instruction given to a dealer to deal at a specific rate or better
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An option whose strike/exercise price is equal to or near the current market
price of the underlying instrument
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Where the forward price is equivalent to the spot price
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The sale of an item to the highest bidder. (1) 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.
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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".
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Settlement and related processes.
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(1) Where all the obligations and liabilities in one transaction are
mirrored in a second transaction. (2) Where a loan is made in one currency
in one country against a loan in another country in another currency.
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A systematic record of the economic transactions during a given period for a
country.
It can mean either the balance of payments on "current account" or the
current account plus certain long term capital movements.
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The value of a country's exports minus its imports.
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A line of credit granted by a bank to a customer, also known as a "line".
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The rate at which a central bank is prepared to lend money to its domestic
banking system.
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A type of chart which consists of four significant points: the high and the
low prices (which form the vertical bar), the opening price (marked with a
small horizontal line to the left of the bar) and the closing price (marked
with a small horizontal line to the right of the bar).
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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.
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In foreign exchange, the US Dollar is normally the 'base' currency for
quotes, meaning that quotes are expressed as a unit of $1 USD per the other
currency quoted in the pair. Key exceptions to this rule are the British
Pound, the Euro, the Australian Dollar and the New Zealand Dollar. In a
currency pair, the base rate is first currency (on the left side of the
pair). It shows how much the base currency is worth as measured against the
second currency (on the right side of the pair). For example, if the USD/CHF
rate equals 1.6215 then one USD is worth 1.6215 Swiss Francs.
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The rate used by banks to calculate the interest rate to borrowers.
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The difference between the cash price and the futures price.
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Where the basis tends towards zero as the contract expiry approaches
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The price expressed in terms of yield maturity or annual rate of return.
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One hundredth of one percentage point. For example, a change from 5.25% to
5.75% would be a change of 50 basis points.
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A group of currencies normally used to manage the exchange rate of a
currency. Sometimes referred to as a unit of account.
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Taking opposite positions in the cash and futures market with the intention
of profiting from favourable movements in the basis.
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A person who believes that prices will fall.
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A market where prices are declining
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The price a buyer is willing to pay to buy a given currency and sell
another.
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The price at which the market is prepared to buy a specific currency. It is
shown on the left side of the quotation. For example, in the quotation
USD/CHF 1.4527/32, the bid price is 1.4527. This means you can sell one US
dollar for 1.4527 Swiss francs.
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The first two digits of an exchange rate. For example, in the quotation
NZD/USD 0.7750-0.7755, the 0.77 is the big figure. Dealers, instead of
quoting the full rate, often omit the big figure and quote it as 50/55.
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The Bank for International Settlements.
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Similar to 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.
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An option pricing formula initially devised by Fisher Black and Myron
Scholes for securities options. It was later refined by Black for options on
futures. It is widely used in the currency markets.
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In a professional trading environment, a 'book' is the sum total of all
positions held by a trader or a desk.
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The price at which options buyers recover the premium, meaning that they
make neither a loss nor gain. In the case of a call option, however, the
break even point is the exercise price plus the premium.
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Bretton Woods Agreement of 1944
An agreement that established fixed foreign exchange rates for major
currencies, provided for central bank intervention in the currency markets,
and pegged the price of gold at US $35 per ounce. The agreement lasted until
1971, when President Nixon overturned the Bretton Woods agreement and
established a floating exchange rate for the major currencies.
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An individual or firm that acts as an intermediary, putting together buyers
and sellers for a fee or commission. By contrast, a 'dealer' commits capital
and takes one side of a position, hoping to earn a profit by closing out the position in a subsequent trade with another party.
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A person who believes that prices will rise.
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A market where prices are rising.
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Sterling bonds issued in the UK by foreign institutions.
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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.
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.
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The right (but not the obligation) to buy stock, shares, futures or
currencies at a specified price.
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The interest cost of financing securities or other financial instruments held.
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A finance charge for storing commodities (or foreign exchange contracts) from one delivery date to another.
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Carry Trade (Currency carry trade)
A
trade strategy where a trader sells a certain currency with a
relatively
low interest rate and uses the funds to purchase a different currency
yielding a higher interest rate. A trader using this strategy tries to
capture the difference between the prevailing interest rates which can
often be substantial depending on the amount of leverage an investor is
applying.
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In foreign exchange this normally means a transaction to be settled on the
day the deal is struck. This term is mainly used in the North American
markets. Europe and Asia, cash transactions are often referred to as value same day deals.
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The
buying of an asset today and selling a future contract on the asset. A
reverse cash and carry is the selling of an asset and buying a future.
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The market in the actual financial instrument on which a futures or options
contract is based.
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The Chicago Board Options Exchange.
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The Chicago Board of Trade.
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Certificate of Deposit.
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A government or quasi-governmental organization that manages a country's
monetary policy. The US central bank is the Federal Reserve or "The Fed"
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Certificate of Deposit (CD)
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.
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The
Commodity Futures Trading Commission, the US Federal regulatory agency
for futures traded on commodity markets, including financial futures.
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The Clearing House Automated Payment System.
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Someone
who uses charts and graphs and interprets historical data to find
trends and predict future movements. Also referred to as a Technical
Trader.
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The New York clearing house clearing system. (Clearing House Interbank
Payment System). Most Euro transactions are cleared and settled through this
system.
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Funds that are freely available, sent in to settle a trade
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A foreign currency exposure that no longer exists. 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.
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The process of settling a trade.
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Consumer Price Index (CPI)
A measure of the average amount (price) paid for a market basket of goods
and services by a typical consumer in comparison to the average paid for the
same basket in an earlier base year.
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A transaction fee charged by a broker.
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A document that states the terms of a transaction.
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The standard unit of trading.
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The representative of a foreign bank with no local branch in the relevant centre.
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The second listed currency in a currency pair (i.e. appearing on the right).
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One of the participants in a financial transaction.
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The possibility with a cross-border transaction of being adversely affected
by political, legal and other conditions in a foreign country.
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The annual rate of interest of a bond.
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(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.
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see Consumer Price Index.
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Crawling Peg (Adjustable Peg)
Where a country's exchange rate is fixed in relation to another currency.
The official rate may be changed from time to time.
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The risk that a debtor will not repay or in foreign exchange, the risk that
the counterparty does not have the currency promised to be delivered.
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Cross Currency Pairs or Cross Rate
A foreign exchange transaction in which one foreign currency is traded against a second foreign currency. For example; EUR/GBP
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The
exchange rate between two currencies expressed as the ratio of two
foreign exchange rates that are both expressed in terms of a third
currency.
Foreign exchange rate between two currencies other than the U.S.
dollar, the currency in which most exchanges are usually quoted.
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- AUD – Australian Dollar
- CAD – Canadian Dollar
- CHF – Swiss Franc
- EUR – Euro
- GBP – British Pound
- JPY – Japanese Yen
- NZD – New Zealand Dollar
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Any form of money issued by a government or central bank and used as legal
tender and a basis for trade.
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Various weightings of other currencies grouped together in relation to a
basket currency(e.g. ECU or SDR). Sometimes used by countries to fix their
rate often on a trade-weighted basket.
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The two currencies that make up a foreign exchange rate. For Example, EUR/USD
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The risk of an adverse change in exchange rates.
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All transactions that either contribute to national income or involve the
spending of national income.
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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.
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A speculator who takes positions in commodities and then liquidates them
prior to the close of the same trading day.
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The date on which a transaction is agreed upon.
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A record of the basic information of a transaction.
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The
Day or time by which the buyer of an option must communicate to the
seller his willingness or unwillingness to exercise the option.
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An individual or firm that acts as a principal or counterpart to a
transaction. Principals take one side of a position, hoping to earn a profit
by closing out the position in a subsequent trade with another party. In
contrast, a broker is an individual or firm that acts as an intermediary,
putting together buyers and sellers for a fee or commission.
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A negative balance of trade or payments.
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An FX trade where both sides make and take actual delivery of the currencies
traded.
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When the final settlement of a transaction occurs by exchanging the
currencies. This date is more commonly known as the value date.
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The possibility that a counterparty will not be able to complete his side of
the deal.
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The change in the price of an option for a one point move in the underlying
instrument, expressed as a coefficient.
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A method used by option writers to hedge risk exposure of written options by
buying or selling the underlying instrument in proportion to the delta.
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A ratio spread of options established as a neutral position by using the
deltas of the options concerned to determine the hedge ratio.
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The decrease in a currency's price due to market forces.
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A contract that changes in value in relation to the price movements of a
related or underlying security, future or other physical instrument
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A group dealing with a specific currency or currencies.
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Deliberate downward adjustment of a currency against its fixed parities or
bands.
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Quotation of a foreign currency in fixed units against variable amounts of
the domestic currency.
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The interest rates applicable to deposits domiciled in the country of
origin.
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A
government issued statistic that indicates current economic growth and
stability for example Gross Domestic Product (GDP), inflation, retail
sales, employment rates.
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A summary of the effects on a country's trade balance of its currency's
changes against other currencies.
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Electronic Funds Transfer
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An order to buy or sell at a specified price that remains open until the end
of the trading.
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European Options Exchange.
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The currency of the European Union
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European Central Bank (ECB)
The Central Bank for the European Monetary Union.
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A computerized settlement and depository system for safe custody, delivery
of, and payment for Eurobonds.
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The group formerly known as the European Economic Community.
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The possibility of an adverse movement in exchange rates.
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Exercise Price (Strike Price)
The price at which an option can be exercised.
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A less broadly traded currency.
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In trading operations, it is the potential to experience a profit or loss
from fluctuations in market prices.
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Rapid movement in a market caused by strong interest from buyers and/or
sellers. In a fast market, price levels may be omitted and bid and offer
quotations may occur too rapidly to be fully reported.
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The United States Federal Reserve (see Central Bank)
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Cash balances held by banks with their local Central Bank.
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The
interest rate on Fed funds. This is a closely watched short term
interest rate as it signals the Fed's view as to the state of the USA's
money supply.
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Federal National Mortgage Association
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.
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Federal Open Market Committee (FOMC)
The
body responsible for setting the interest rates and credit policies of
the US Federal Reserve System. It has 12 members, consisting of the
seven
members of the Federal Reserve Board and five of the twelve Federal
Reserve
Bank presidents. The Committee sets objectives for the growth of money
and
credit. These objectives are implemented through purchases and sales of
U.S.government securities in the open market. The FOMC also establishes
policy relating to System operations in the foreign exchange markets.
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The board of the US Federal Reserve System, appointed by the US President
for 14 year terms, one of whom is appointed for four years as chairman.
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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.
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Government policy on taxation and spending.
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The official rate set by monetary authorities for one or more currencies.
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A
method of determining rates by finding a rate that balances buyers to
sellers. Such a process occurs either once or twice daily at defined
times.
It is used by some currencies particularly for establishing tourist
rates. This method is also used in the London Bullion market.
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Dealer jargon used to describe a position that has been completely reversed,
e.g. when a trader buys EUR500,000 then sell EUR500,000, creating a neutral
position.
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Where the value of a currency is decided by the market forces rather than
being fixed by its government.
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Federal Open Market Committee. The committee that sets money supply targets
in the US
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Foreign Exchange (Forex, FX)
The simultaneous buying of one currency and selling of another.
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Foreign Exchange Orders Types
- Entry Order: An order, stop or limit, initiating an open position and
executed when a specific price level is reached and/or broken. An entry
order remains in effect until executed or cancelled by the client.
- Entry Limit Order: An order initiating an open position to sell as
the market rises, or buy as the market falls. A client would set the
limit at
the point where he believes the market will reverse direction.
- Entry Stop Order: An order initiating an open position to sell as
the market falls, or buy as the market rises. This type of order is
used by a
client who believes that, after hitting the order level, prices will
continue to move in the same direction as previously.
- Limit Order: An order tied to a specific position for the purpose of
locking in the gains from that position. A limit order placed on a buy
position is an order to sell. A limit order placed on a sell position is an
order to buy. A limit order remains in effect until the position is liquidated or cancelled by the client.
- Market Order: An order to buy or sell which is to be filled immediately at the prevailing currency price.
- OCO (One Cancels the Other): A stop-loss order and a limit order
linked to a specific position. One order "the stop" is to prevent
additional loss on the position, and the other order "the limit" is to
take profit on the position. When either order is executed, closing the
position, the other is automatically cancelled.
- Stop-Loss Orders: An order linked to a specific position to close that
position and prevent additional losses. A stop-loss order placed on a long
position will be an order to sell if the market continues to move lower. A
stop-loss order placed on a short position will be an order to buy if the
market continues to move higher. A stop-loss order remains in effect until
the position is liquidated or cancelled by the client.
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A foreign exchange contract at a rate determined now, but to be settled at
an agreed future date
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Jargon for Foreign Exchange
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Forward contracts to protect against future movements in the exchange rate.
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The
interest rate differential between two currencies expressed in exchange
rate points. The forward points are added to or subtracted from the
spot rate to give the forward or outright rate depending on whether the
currency
is at a forward premium or discount.
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The rate at which a foreign exchange contract is struck today for settlement
at a specified future date which is decided at the time of entering into the
contract.
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Total reserves held by a bank less the reserves required by the authority.
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Analysis of economic and political information to predict determining
movements in a financial market.
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A contract to buy a good or instrument at a set price on a future date.
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An abbreviation of Foreign Exchange
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The seven leading industrial countries, being USA, Germany, Japan, France,
UK, Canada, Italy.
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G7 plus Belgium, Netherlands and Sweden, a group associated with the IMF
discussions. Switzerland is sometimes involved.
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A
group composed of the Finance Ministers and central bankers of the
following 20 countries: Argentina, Australia, Brazil, Canada, China,
France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi
Arabia, South Africa, South Korea, Turkey, the United Kingdom, the USA
and the European Union. The IMF and the World Bank also participate.
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The rate at which a delta changes over time for one unit change in the price
of the underlying asset.
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The original system for supporting the value of currency issued. This system
was in vogue before 1973 when fixed exchange rates were commonplace.
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A figure used to remove inflation from the GNP figure, usually expressed as
a percentage and based on an index figure.
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The difference between the actual real GNP and the potential real GNP. If
the gap is negative an economy is overheated.
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The purchase of a stock, commodity, or currency for investment or speculation.
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The sale of a currency or instrument not owned by the seller.
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Gross Domestic Product (GDP)
The total value of a country's output, income or expenditure produced within
the country's physical borders over a defined time period, usually quarterly.
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Gross National Product (GNP)
Gross domestic product plus income earned from investment or work abroad.
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Good 'Til Cancelled Order (GTC)
An order to buy or sell at a specified price. This order remains open until
filled or until the client cancels.
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A currency whose value is expected to remain stable or increase in terms of
other currencies.
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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.
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A private, unregulated investment fund for wealthy investors specializing in
high risk, short-term speculation on bonds, currencies, stock options and
derivatives.
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Very high, self-sustaining inflation.
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The International Foreign Exchange Master Agreement.
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The International Monetary Fund established in 1946 to provide short and
medium term international liquidity and to foster liberalization of exchange
rates.
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The difference between spot and forward rates.
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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.
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Currency that cannot be exchanged for other currencies either because it
is prohibited by foreign exchange regulations or the currency experiences
such extreme volatility that it is not perceived to be a safe place to park
funds.
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A market-maker's price which is not firm.
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The economic condition where prices for consumer goods rise, eroding purchasing power.
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The Foreign Exchange rates which large international banks quote to other
large international banks.
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Action by a central bank to affect the value of its currency.
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he possibility of an adverse change in interest rates
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The maximum set by a bank or a company on the size of each dealer's Intra Day Position.
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Open positions run by a dealer within a particular day, usually squared by
the close of day's trading.
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Index and Options Market part of the Chicago Mercantile Exchange
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The Industrial Production Index. A coincident indicator measuring physical
output of manufacturing, mining and utilities.
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The International Swaps and derivatives Association. Formed in 1985 to
regulate inter-bank markets and exchanges, particularly in relation to
derivatives and risk-management.
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The expected effect of a devaluation on a country's trade balance. It is
anticipated that the cost of imports will rise before export orders and
receipts increase.
Market jargon for the New Zealand dollar.
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A process whereby a barrier option becomes active only after a certain price
level is reached before the option expires.
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A process whereby an option may permanently cease to exist or is knocked out after obtaining a certain price.
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Statistics that are considered to predict future economic activity.
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The effect on foreign trade payments of an anticipated move in the exchange
rate, normally a devaluation. The importers speed up the payment for the
imports and exporters delay receiving payment for the exports.
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Also called margin. It is the ratio of the amount used in a transaction to
the required security deposit.
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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.
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The London Inter-Bank Offered Rate. Banks use LIBOR as a benchmark when borrowing from other banks.
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The London International Financial Futures Exchange.
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An order to buy at a maximum price to be paid or to sell for a minimum
price.
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Where
residents of a country are prohibited from buying foreign currencies
even though non-residents may be free to buy or sell the national
currency and foreign institutional investors also have the liberty to
buy and sell shares on the stock exchange of that country.
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The closing of an existing position by executing an offsetting transaction
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The ability of a market to accept large transactions with minimal or no impact on price stability.
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A position that appreciates in value if market prices increase. When the
base currency in the pair is bought, the position is said to be long.
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A unit to measure the value of a deal. The value of a deal always corresponds to an integer number.
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When the monetary authorities intervene regularly in the market to stabilise
the rates or to push the exchange rate in a required direction.
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(1) A cash deposit provided by a client as collateral to cover a forward (2)
The equity that an investor is required to deposit to collateralize a
position.
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A request from a broker or dealer for additional funds or other collateral
to guarantee performance on a position that has moved against the customer.
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A dealer who regularly quotes both bid and ask prices and is ready to make a
two-sided market for any financial instrument.
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The possibility of being adversely affected by market movements
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The process of re-evaluating all open positions with the current market
prices. These new values are then used to determine margin requirements.
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The settlement date or expiry date of a financial instrument.
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The Japanese ministry of International Trade & Industry.
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Money Markets
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The branch of economic policy concerned with managing money supply, interest
rates and financial conditions generally. Monetary policy is usually formulated and implemented by a country's central bank.
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The
short term part of the capital markets where banks and other
organizations trade short-term securities and lend and borrow cash for
short
periods, normally less than 12 months and in many cases overnight.
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An account with a foreign bank. The account is used to receive and pay
currency assets and liabilities denominated in the currency of the country
in which the bank resides.
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A financial instrument constituting a promise to pay as distinct from an
order to pay or a certificate of indebtedness.
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The rate at which a dealer is willing to sell a currency. See Ask (offer)price
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A trade which serves to negate some or all of the market risk of an open
position.
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One Cancels the Other Order (OCO)
A designation for two orders whereby if one of the two orders is executed
the other is automatically canceled.
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An order that will be executed when a market moves to a specified price.
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An active trade with corresponding unrealized P&L, which has not been offset
by an equal and opposite deal.
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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.
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Foreign exchange transaction involving either the purchase or the sale of a
currency for settlement at a future date.
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The forward rate of a foreign exchange deal based on spot price plus any
forward discount/premium.
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Used to describe any transaction that is not conducted through a recognised
exchange.
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The limit imposed on a net long or short position in one or more currencies
that a trader can carry over into the next dealing day.
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An instruction to execute a trade at a specified rate.
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(1) The official value of a currency. (2) The nominal (face) value of a
security or instrument.
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Of equal value. In foreign exchange it means "one for one" for example, if
one Australian dollar buys one US dollar, the two currencies are said to
have parity.
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A currency that is permitted by the rules and regulations of the issuing
country to be converted into major reserve currencies and for which there is
a fairly active and liquid market.
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The
term used in the currency market to represent the smallest move an
exchange rate can make. It is one one-hundredth of a percent. For
example, when a currency moves from 1.5270 to 1.5271 it has moved 1
points. Also called Points. PIP is an acronym for 'price interest
point'.
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The term used in the currency market to represent the smallest move an
exchange rate can make one one-hundredth of a percent. For example, when a
currency moves from 1.5270 to 1.5271 it has moved 1 points. Also called
Pips.
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Exposure to changes in governmental policy which will have an adverse effect
on a traders or investors position.
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A view expressed by a trader through the buying or selling of currencies,
and can also refer to the amount of currency either owned or owed by an
investor.
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Producer Price Indices. See wholesale price indices.
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(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) The price an
option buyer must pay to a seller for an option contract. (4) The margin
paid above the normal price level.
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(1) The rate which commercial banks lend to their best or most credit-
worthy clients. (2) The rate of discount of prime bank bills in the UK.
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A dealer who buys or sells stock for his/her own account.
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The unwinding of a position to realize profits.
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A theory based on the proposition that but for exchange rate differences,
the price of goods in one country should be equal to the price of the same
goods in another country. This theory is used to provide gauge of how
undervalued or overvalued a currency may be.
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The right (but not the obligation) to sell shares, futures or currencies or
other securities at the option exercise price within a specified time period.
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An indicative price. The price quoted for information purposes but not to
deal.
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A recovery in prices after a period of decline.
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The difference between the highest and lowest price of a currency, an index
or a future recorded during a given trading session or time frame
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The price of one currency in terms of another.
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A drastic slowing of the economy. Generally defined as two consecutive
quarters with negative growth in GDP.
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Repurchase Agreements (REPO)
A contract between two parties to exchange securities for cash on the basis
that the deal will be reversed on a predetermined date and at an agreed
rate. These agreements are used by arrangement is used by central banks
inject reserves into the banking system to meet a temporary need and then
withdraw them as soon as that need has passed.
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A
currency held by a central bank on a permanent basis as a store of
international liquidity normally the US Dollar, Euros, and sterling.
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Funds held against future contingencies, normally a combination of
convertible foreign currency, gold, and SDRs.
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The price level at which sellers or buyers lose interest. At this point the
price should either stabilize or reverse direction.
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Measurement of the monthly change in the average level of prices at retail,
normally of a defined group of goods.
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A system for screen based trading that has been in operation since the early
1980s.
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The identification and acceptance or offsetting of the risks threatening an
individual or organisation. With respect to foreign exchange, it involves
management of many kinds of risk including market, sovereign, country,
transfer, delivery, credit, and counterparty risk.
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Where the settlement of a deal is carried forward to another value date
based on the interest rate differential of the two currencies, for example:
next day.
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A US stockmarket measure calculated by Standard & Poor's (an influential US
ratings agency) based on the performance of 500 widely held shares.
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The rate at which a bank is willing to sell a foreign currency.
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The date specified for delivery of the currencies bought and sold under a
foreign exchange contract. The settlement of currency trades may or may not
involve the actual physical exchange of one currency for another.
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A market position that benefits from a decline in market price. When the
base currency in the pair is sold, the position is said to be short.
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Spot refers to the buying and selling of currencies where the settlement
date is two business days forward.
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The overnight swap from the spot date to the next business day.
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The current rate for a spot transaction.
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(1) The difference between the bid and ask price of a currency. (2) The
difference between the price of two related futures contracts.
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An active market which can absorb large sales or purchases of currency
without having any major impact on the interest rates.
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An influential US ratings agency.
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Market jargon for the British Pound.
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An order where an open position is automatically liquidated at a specified
price. These orders are typically used to minimize exposure to losses if the
market moves against an investor's position.
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The simultaneous purchase/sale of both call and put options for the same
share, exercise/strike price and expiry date.
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Recession or low growth in conjunction with high inflation rates and
interest rates
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Also called the exercise price. The price at which an option holder can buy
or sell the underlying instrument.
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A combination of two puts and one call.
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Unemployment levels inherent in an economic structure.
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A technique used in technical analysis that indicates a specific price floor
at which a given exchange rate will automatically correct itself. This is
the opposite of resistance.
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A currency swap is the simultaneous sale and purchase of the same amount of
a given currency at a forward exchange rate.
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Society of Worldwide Interbank Financial Telecommunications. It is a
computer network is set up to transmit fund transfer messages between member
banks worldwide.
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Market jargon for the Swiss Franc.
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An effort to forecast prices by graphing and analyzing historical and
current market data including historical price trends and averages, moving
averages, volume, trends, patterns, formations and many other technical
indicators
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An adjustment to price based not on market sentiment but technical factors
such as volume and charting.
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The ratio between export and import price indices.
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A measure of the sensitivity of the price of an option to a change in its
time to expiry.
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A market in which there is low activity, volume or depth. In a thin market,
large transactions can result in large price movements. It can be caused by
lack of supply or demand, by holidays or uncertainty.
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The Tokyo Inter-bank Offered Rate.
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A minimum change in price, up or down.
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The Tokyo International Financial Futures Exchange.
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The simultaneous buying and selling of a currency for delivery the following
day.
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The date on which a trade occurs. Also known as the transaction date
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From the French for "slice". In the financial context it means a portion of
a loan facility or a share issue.
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The cost of buying or selling a financial instrument.
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The date on which a trade occurs. Also known as the trade date
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The potential for profit or loss created by current foreign exchange
transactions.
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Short-term securities issued by governments to cover short-term funding
needs. US Treasury bills generally are issued with maturities of 13, 26 or
52 weeks. US Treasury notes, however, are longer term securities,
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These are medium to long term securities issued by the governments at yields
determined by bidders. US Treasury Bonds mature in 15 or more years and pay
a specified coupon.
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These are government-issued securities, generally with a medium term
maturity. US Treasury Notes mature in 2 to 10 years. By contrast, Australian
Treasury Notes are issued with maturities of 5, 13 and 26 weeks.
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The direction of market prices. They are typically categorized as either
major, intermediate or short-term.
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The total value of all executed transactions in a given period.
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A currency is generally regarded as undervalued when it is priced below its
purchasing power parity.
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The theoretical gain or loss on Open Positions valued at current market
rates.
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A new quote at a price higher than the preceding quote
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A US regulation that a security may not be sold short unless the last trade
prior to the short sale was at a price lower than the price at which the
short sale is executed.
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The rate at which US banks will lend to their prime corporate customers
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The date that both parties of a transaction agree to exchange payments.
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Normally settlement for two working days from the date the contract is
entered into.
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A transaction executed for same day settlement. Also known as a cash
transaction.
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A simple option whose terms and conditions do not include any provisions
other than exercise style, expiry and strike. As distinct from exotic
options which have additional terms.
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The rate at which the price of an option changes in relation to a small
change in volatility of the underlying asset or instrument.
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The speed with which money circulates or turnover in the economy. It is
considered to be an important economic indicator but measurable only after
the event.
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(1) A measure of a market's price movements over time. (2) A measure of the
amount by which an asset price is expected to fluctuate over a given period.
This is generally measured by the annual standard deviation of historic
daily price changes.
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The total number of contracts traded in a day, or other specified period.
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From the Latin for "yours", it is the counterpart to a nostro account
("ours"). It is the record of an account held by a bank as correspondent on
behalf of a foreign bank. See nostro account and correspondent bank.
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A predetermined level at which a trading platform will send you an automated
e-mail advising that your margin is insufficient to cover the current mark
to market of your outstanding positions.
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Jargon for a highly volatile market where a sharp price movement is quickly
followed by a sharp reversal.
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Money borrowed in large amounts from banks and institutions rather than from
small investors.
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A measure of price changes in the manufacturing and distribution sector of
the economy (i.e. before goods reach the consumer). This index tends to lead
the consumer price index by 60 to 90 days.
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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 currency centers are open.
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A bank made up of members of the IMF. Its original objective was to help
fund postwar reconstruction on Europe and foster steady growth in world
trade. It now aims to assist in the development of member states by making
loans where private capital is not available.
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The seller of a position. Also known as the grantor of the trade.
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Selling a currency
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Slang for an American billion, one thousand million.
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The annual return on an investment, expressed as a percentage
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A
graph showing the relationship between the yield to maturity and the
time to maturity of a group of similar securities. 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.
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A bond that pays no interest. Rather, it is sold at a deep discount to its
face value (which the holder receives at maturity).
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