Glossary of Forex Trading Terms A - B
- A -
Accrual - The apportionment of premiums
and discounts on forward exchange transactions that relate directly
to deposit swap (Interest Arbitrage) deals , over the period
of each deal.
Actualize - The underlying assets or
instruments which are traded in the cash market.
Adjustable Peg - Term for an exchange
rate regime where a country's exchange rate is "pegged" (i.e.
fixed) in relation to another currency , often the dollar or
French Franc, but where the rate may be changed from time to
time. This was the basis of the Bretton Woods system. See peg,
and crawling peg.
Adjustment - Official action normally
by either change in the internal economic policies to correct
a payment imbalance or in the official currency rate or.
Agent Bank - (1) A bank acting for a
foreign bank. (2) In the Euro market - the agent bank is the
one appointed by the other banks in the syndicate to handle
the administration of the loan.
Aggregate Demand - Total demand for
goods and services in the economy. It includes private and public
sector demand for goods and services within the country and
the demand of consumers and and firms in other countries for
good and services.
Aggregate risk - Size of exposure of
a bank to a single customer for both spot and forward contracts.
Aggregate Supply - Total supply of goods
and services in the economy from domestic sources (including
imports) available to meet aggregate demand.
Agio - Difference in the value between
currencies. Also used to describe percentage charges for conversion
from paper money into cash, or from a weak into a strong currency.
Appreciation - Describes a currency
strengthening in response to market demand rather than by official
Arbitrage - 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.
Arbitrage channel - The range of prices
within which there will be no possibility to arbitrage between
the cash and futures market.
Around - Used in quoting forward "premium
/ discount". "Five-five around" would mean five point on either
side of the present spot value.
Asset Allocation - Dividing instrument
funds among markets to achieve diversification or maximum return.
Ask - The price at which the currency
or instrument is offered.
Asset - In the context of foreign exchange
is the right to receive from a counterparty an amount of currency
either in respect of a balance sheet asset (e.g. a loan) or
at a specified future date in respect of an unmatched forward
Forward or spot deal.
At best - An instruction given to a
dealer to buy or sell at the best rate that can be obtained.
At or Better - An order to deal at a
specific rate or better.
Authorized Dealer - A financial institution
or bank authorized to deal in foreign exchange.
- B -
Back Office - Settlement and related
Backwardation - Term referring to the
amount that the spot price exceeds the forward price.
Balance of Payments - A systematic record
of the economic transactions during a given period for a country.
(1) The term is often used to mean either: (i) balance of payments
on "current account"; or (ii) the current account plus certain
long term capital movements. (2) The combination of the trade
balance, current balance, capital account and invisible balance,
which together make up the balance of payments total. Prolonged
balance of payment deficits tend to lead to restrictions in
capital transfers, and or decline in currency values.
Band - The range in which a currency
is permitted to move. A system used in the ERM.
Bank line - Line of credit granted by
a bank to a customer, also known as a " line".
Bank Rate - The rate at which a central
bank is prepared to lend money to its domestic banking system.
Base currency - United States Dollars.
The currency to which each transaction shall be converted at
the close of each position.
Basis - The difference between the cash
price and futures price.
Basis point - For most currencies, denotes
the fourth decimal place in exchange rate and represents 1/100
of one percent (.01%). For such currencies as the Japanese Yen,
a basis point is the second decimal place when quoted in currency
terms or the sixth and seventh decimal places, respectively,
when quoted in reciprocal terms.
Basis trading - Taking opposite positions
in the cash and futures market with the intention of profiting
from favorable movements in the basis.
Basket - A group of currencies normally
used to manage the exchange rate of a currency. Sometimes referred
to as a unit of account.
Bear market - A prolonged period of
generally falling prices.
Bear - An investor who believes that
prices are going to fall.
Bid - The price at which a buyer has
offered to purchase the currency or instrument.
Book - The summary of currency positions
held by a dealer, desk, or room. A total of the assets and liabilities.
If the average maturity of the book is less than that of the
assets, the bank is said to be running a short and open book.
Passing the Book 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.
Bretton Woods - The site of the conference
which in 1944 led to the establishment of the post war foreign
exchange system that remained intact until the early 1970s.
The conference resulted in the formation of the IMF. The system
fixed currencies in a fixed exchange rate system with 1% fluctuations
of the currency to gold or the dollar.
Broker - Brings buyers and sellers together
for a commission paid by the initiator of the transaction. Brokers
do not take market positions.
Bull market - A prolonged period of
generally rising prices.
Bull - An investor who believes that
prices are going to rise.
Bundesbank - Central Bank of Germany.
Buying Rate - Rate at which the market
and a market maker in particular is willing to buy the currency.
Sometimes called bid rate.