Ask

The price at which the currency or instrument is offered.

At Best

An instruction given to a dealer to buy or sell at the best rate that is currently available in the market.

At Par Forward Spread

When the forward price is equivalent to the spot price.

At the Price Stop-Loss Order

A stop-loss order that must be executed at the requested level regardless of market conditions.

Back Office

Settlement and related processes

Base Price

One hundredth of a percentage point. 50 basis points [50bp] is half a percentage point.

Bid-Offer Spread

The difference between the buy (bid) and sell (offer) price of a currency or financial instrument.

Buying Rate

Rate at which a bank is prepared to buy foreign exchange. Also known as the Bid Rate.

Cable

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

Candlestick Chart

A type of chart which consist of four major prices: high, low, open, close. The body of the candlestick bar is formed by the opening and closing prices. To indicate that the opening was lower than the closing, the body of the bar is left blank. If the currency closes below its opening, the body is filled. The rest of the range is marked by two “shadows”: the upper shadow and the lower shadow.

CHAPS

Clearing House Automated Payment System.

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 can be closely correlated with the Euro.

Cross-Rate

The exchange rate between two currencies e.g., US Dollar/Yen.

Currency

The type of money that a country uses. It can be traded for other currencies on the foreign exchange market, so each currency has a value relative to another.

Delivery Date

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.

Delivery Risk

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

Devaluation

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

Fedwire

An automated communications and settlement system linking the Federal Reserve banks with other banks and with depository institutions.

Foreign Exchange Market

Market where currencies are traded internationally. About 4-5 trillion (million million) dollars-worth of foreign exchange is traded globally every day, making foreign exchange larger than all bond markets put together. Currency markets exist in the form of spot, forward, futures and options markets.

Forward Rate

Forward rates are quoted in terms of forward points, which represents the difference between the forward and spot rates. 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. Therefore, 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 Spread (forward points or forward pips)

Forward price used to adjust a spot price to calculate a forward price. It is based on the current spot exchange rate, interest rate differential and the number of days to delivery.

Hedging

A strategy used to offset market risk, whereby one position protects another.

Implied Rates

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

Inconvertible/Non-deliverable Currency

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

Indicative Quote

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

Inter-bank Rates

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

Intervention

Action by a central bank to affect the value of its currency by entering the market.

Concerted intervention refers to action by a number of central banks to control exchange rates.

Left-hand Side

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

Liability

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.

Limit Order

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

Limited Convertibility

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.

Maintenance Margin

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

Margin

Difference between the buying and selling rates, also used to indicate the discount or premium between spot or forward.

Margin Call

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

Mark to Market

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

Markup

Premium.

Market Order

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

Mid-price or Middle Rate

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

Offer

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

Overnight

A deal from today until the next business day.

Par

The official value of a currency.

Parity

(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.

Parities

The value of one currency in terms of another.

Pip

See point (below).

Point

100th part of a per cent, normally 10,000 of any spot rate. Movement of exchange rates are usually in terms of points.

One percent on an interest rate e.g., from 8% -9%.

Minimum fluctuation or smallest increment of price movement.

Quote

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

Rally

A recovery in price after a period of decline.

Reserve Currency

A currency held by a central bank on a permanent basis as a store of international liquidity, these are normally Dollar, Euro, and sterling.

Right-hand Side

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.

Rollover

An overnight swap, specifically the next business day against the following business day (also called Tomorrow Next, abbreviated to Tom-Next).

Selling rate

Rate at which a bank is willing to sell foreign currency.

Sepa

Single Euro Payments Area (SEPA) where customers can make cashless euro payments via credit transfer and direct debit to anywhere in the European Union, as well as a few non-EU countries, in a fast, safe and efficient way, just like national payments.

Settlement Date

The date by which an executed order must be settled by the transference of instruments or currencies and funds between buyer and seller.

Settlement Risk

Risk associated with the non-settlement of the transaction by the counter party.

Spot

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.

Spot Next

The overnight swap from the spot date to the next business day.

Spot Price/Rate

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

Spread

The difference between the bid and ask price of a currency.

Swap

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.

Swap as a Percentage

Swaps expressed as an annualized percentage.

Swap Price

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

SWIFT

Society for World-wide Interbank Telecommunications is Belgian based company that provides the global electronic network for settlement of most foreign exchange transactions.

Tick

A minimum change in price, up or down.

Tier One

A measure of a bank’s 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 percent on risk-weighted assets.

Trade Date

The date on which a trade occurs.

Tradeable Amount

Smallest transaction size acceptable.

Trade Ticket

See deal ticket.

Transaction Date

The date on which a trade occurs.

Two-Tier Market

A dual exchange rate system where normally only one rate is open to market pressure.

Two-Way Quotation

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

Up-Tick

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

Value Date

For exchange contracts, it is the day on which the two contracting parties exchange the currencies which are being bought or sold. 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/countries of the foreign currency/currencies. 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 centres, the operative date would be the next business day that is common. The adjustment of the maturity for a particular month does not affect 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).

Value Spot

Normally settlement for two working days from today.

Value Today

Transaction executed for same day settlement; sometimes also referred to as “cash transaction.”

Volatility

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, see implied volatility.