Glossary of Forex Trading Terms E - F
- E -
Easing - Modest decline in price.
Economic Indicator - A statistics which
indicates current economic growth rates and trends such as retail
sales and employment.
ECU - European Currency Unit.
EDI - Electronic Data Interchange.
Effective Exchange Rate - An attempt
to summarize the effects on a country's trade balance of its
currency's changes against other currencies.
EFT - Electronic Fund Transfer.
EMS - European Monetary System.
European Monetary System - A system
designed to stabilize if not eliminate exchange risk between
member states of the EMS as part of the economic convergence
policy of the EU. It permits currencies to move in a measured
fashion (divergence indicator) within agreed bands (the parity
grid) with respect to the ECU and consequently with each other.
Exchange control - Rules used to preserve
or protect the value of a countries currency.
Exotic - A less broadly traded currency.
Exposure - In foreign exchange, a potential
for gain or loss because of movement in foreign exchange rate.
There are three primary types of exposure:
- Economic: The change in future earning power and cash flow
arising from a change in exchange rates. In effect, it represents
a change in the value of a company holding foreign currency.
- Transnational: A potential gain or loss arising from transactions
that will definitely occur in the future, are currently in
progress, or could have already been completed. A signed but
not shipped sales contract, a receivable or foreign currency
payment collected but not converted to local currency would
all be examples of transaction exposure.
- Translation: The potential for change in reported earnings
and/or the book value of the consolidated company equity accounts,
as the result of a change in foreign exchange rates used to
translate the foreign currency statements of subsidiaries
and affiliates known as accounting exposure.
- F -
Fast market - Rapid movement in a market
caused by strong interest by buyers and/or sellers. In such
circumstances price levels may be omitted and bid and offer
quotations may occur too rapidly to be fully reported.
Fed Fund Rate - The interest rate on
Fed funds. This is a closely watched short term interest rate
as it signals the Feds view as to the state of the money supply.
Fed - The United States Federal Reserve.
Federal Deposit Insurance Corporation Membership is compulsory
for Federal Reserve members. The corporation had deep involvement
in the Savings and Loans crisis of the late 80s.
Federal Reserve System - The central
banking system in the United States.
Fill or Kill - An order which must be
entered for trading, normally in a pit three times, if not filled
is immediately canceled.
Fisher Effect - The relationship that
exists between interest rates and exchange rate movements, so
that in an ideal situation interest rate differentials would
be exactly off set by exchange rate movements. See interest
Fixed exchange rate - Official rate
set by monetary authorities. Often the fixed exchange rate permits
fluctuation within a band.
Flexible exchange rate - Exchange rates
with a fixed parity against one or more currencies with frequent
revaluation's. A form of managed float.
Floating exchange rate - An exchange
rate where the value is determined by market forces. Even floating
currencies are subject to intervention by the monetary authorities.
When such activity is frequent the float is known as a dirty
FOMC - 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.
Foreign Exchange - The purchase or sale
of a currency against sale or purchase of another.
Forex - Term commonly used when referring
to the foreign exchange market.
Forex Club - Groups formed in the major
financial centers to encourage educational and social contacts
between foreign exchange dealers, under the umbrella of Association
Forward margins - Discounts or premiums
between spot rate and the forward rate for a currency. Normally
quoted in points.
Forward Operations - Foreign exchange
transactions, on which the fulfillment of the mutual delivery
obligations is made on a date later than the second business
day after the transaction was concluded.
Forward Outright - A commitment to buy
or sell a currency for delivery on a specified future date or
period. The price is quoted as the Spot rate minus or plus the
forward points for the chosen period.
Forward Rate - Forward rates are quoted
in terms of forward points , which represents the difference
between the forward and spot rates. In order to obtain the forward
rate from the actual exchange rate the forward points are either
added or subtracted from the exchange rate. The decision to
subtract or add points is determined by the differential between
the deposit rates for both currencies concerned in the transaction.
The base currency with the higher interest rate is said to be
at a discount to the lower interest rate quoted currency in
the forward market. 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.
Free Reserves - Total reserves held
by a bank less the reserves required by the authority.
Front Office - The activities carried
out by the dealer , normal trading activities.
Fundamentals - The macro economic factors
that are accepted as forming the foundation for the relative
value of a currency, these include inflation, growth, trade
balance, government deficit, and interest rates.
FX - Foreign Exchange.