The price at which the currency or instrument is offered.
The rate at which a central bank is prepared to lend money to its domestic banking system.
A prolonged period of generally falling prices.
An investor who believes that prices are going to fall.
The price at which a buyer has offered to purchase the currency or instrument.
Refers normally to the first three digits of an exchange rate that dealers treat as understood in quoting. For example a quote of "30/40" on dollar mark could indicate a price of 1.5530/40
Break Even Point
The price of a financial instrument, meaning that buyer makes neither a loss nor a gain
Bundesbank, the reserve bank of Germany.
A prolonged period of generally rising prices.
An investor who believes that prices are going to rise.
Central Bank of Germany.
Rate at which the market and a market maker in particular is willing to buy the currency. Sometimes called bid rate.
A term used in the foreign exchange market for the US Dollar/British Pound rate.
French term for foreign exchange dealer.
A bank which is responsible for controlling a country's monetary policy. It is normally the issuing bank and controls bank licensing, and any foreign exchange control regime.
An individual who studies graphs and charts of historic data to find trends and predict trend reversals which include the observance of certain patterns and characteristics of the charts to derive resistance levels, head and shoulders patterns, and double bottom or double top patterns which are thought to indicate trend reversals.
The process of setting a number of items against one another and making fund transfers on the net balance only as part of the settlement process.
A transaction which leaves the trade with a zero net commitment to the market with respect to a particular currency.
The fee that a broker may charge clients for dealing on their behalf.
A memorandum to the other party describing all the relevant details of the transaction.
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. Rising CPI is normally associated with expectation of higher short term interest rates and may therefore be supportive for a currency in the short term. Nevertheless, a longer term inflation problem will eventually undermine confidence in the currency and weakness will follow.
The foreign banks representative who regularly performs services for a bank which has no branch in the relevant centre, e.g. to facilitate the transfer of funds. In the US this often occurs domestically due to inter state banking restrictions.
Cost of Living Index
Broadly equivalent to Retail Price Index or Consumer price.
The other organization or party with whom the exchange deal is being transacted.
Where a person buys a currency against the dollar it is the dollar value of the transaction.
A foreign exchange deal entered into involving two currencies, neither of which is the base currency.
Rates between two currencies, neither of which is the US Dollar.
An order that if not executed on the specific day is automatically canceled.
Speculators who take positions which are then liquidated prior to the close of the same trading day.
Shortfall in the balance of trade, balance of payments, or government budgets.
Difference between real and nominal Gross National Product, which is equivalent to the overall inflation rate.
A fall in the value of a currency due to market forces rather than due to official action.
A broad term relating to risk management instruments such as futures, options, swaps, etc. The contract value moves in relation to the underlying instrument or currency. The issue of derivatives and their control following large losses by banks and corporates has been subject of much debate.
The rate at which a bill is discounted. Specifically it refers to the rate at which a central bank is prepared to discount certain bills for financial institutions as a means of easing their liquidity, and is more accurately referred to as the official discount rate.
Durable Goods Orders
Durable Goods Orders are a measure of the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. Durable Goods Orders are a major indicator of manufacturing sector trends because most industrial production is done to order.
A statistic which indicates current economic growth rates and trends such as retail sales and employment.
The group formerly known as the European Community.
A system of controlling inflows and outflows of foreign exchange, devices include licensing multiple currencies, quotas, auctions, limits, levies and surcharges.
A less broadly traded currency.
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.
Cash balances held by banks with their local Federal Reserve Bank. The normal transaction with these funds is an inter bank sale of a Fed fund deposit for one business day. Straight deals are where the funds are traded overnight on an unsecured basis.
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 Board
The board of the Federal Reserve System, appointed by the US President for 14 year terms, one of whom is appointed for four years as chairman.
Federal Reserve System
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 Controller of Currency and optional for state chartered banks.
The price given in response to a request for a rate at which the quoting party is willing to execute a deal for a reasonable amount for spot settlement. Screen quotes are indicative. Quotes on matching systems are normally firm depending on systems requirement to reconfirm rate prior to completing matching.
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.
The purchase or sale of a currency against sale or purchase of another.
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.
The Group of Five. The five leading industrial countries, being US, Germany, Japan, France, UK.
The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy.
G7 plus Belgium, Netherlands and Sweden, a group associated with IMF discussions. Switzerland is sometimes peripherally involved.
A monetary system that backs its currency with a reserve of gold, and allows currency holders to convert their currency into gold. The U.S. went off the gold standard in 1971.
Good Until Canceled
(GTC) An instruction to a broker that unlike normal practice the order does not expire at the end of the trading day, although normally terminates at the end of the trading month.
(GTC) Before deduction of tax.
Gross Domestic Product
GDP is the broadest measure of aggregate economic activity available. Reported quarterly, GDP growth is widely followed as the primary indicator of the strength of economic activity. GDP represents the total value of a country’s production during the period and consists of the purchases of domestically produced goods and services by individuals, businesses, foreigners and the governments.
Gross National Product
(GNP) Gross domestic product plus "factor income from abroad" - income earned from investment or work abroad.
Removes inflation from the GNP figure. Usually expressed as a percentage and based on an index figure.
Head and Shoulders
SA pattern in price trends which chartists consider indicates a price trend reversal. The price has risen for some time, at the peak of the left shoulder, profit taking has caused the price to drop or level. The price then rises steeply again to the head before more profit taking causes the price to drop to around the same level as the shoulder. A further modest rise or level will indicate that a further major fall is imminent. The breach of the neckline is the indication to sell.
The purchase or sale currency as a temporary substitute for a transaction to be made at a later date involves opposite positions.
Hong Kong Inter-bank Offered Rate.
The annualized standard deviation of percentage changes in futures prices over a specific period. It is an indication of past volatility in the marketplace.
Housing Starts are a measure of the number of residential units on which construction is begun each month.
Very high and self sustaining inflation levels. One definition being the period while inflation exceeds 50% until it has dropped below that level for 12 months.
Currency which cannot be exchanged for other currencies, because this is forbidden by the foreign exchange regulations.
Industrial Production Index
A coincident indicator measuring physical output of manufacturing, mining and utilities.
Continued rise in the general price level in conjunction with a related drop in purchasing power. Sometimes referred to as an excessive movement in such price levels.
Rate given for information purposes only.
The margin is a returnable deposit required to be lodged by buyers and sellers with the clearing house to secure a new position.
The bid and offer rates at which international banks place deposits with each other. The basis of the Interbank market.
Action by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.
Intra Day Limit
Limit set by bank management on the size of each dealer's Intra Day Position.
Intra Day Position
Open positions run by a dealer within the day. Usually squared by the close.
Slang for the New Zealand dollar.
Statistics that are considered to precede changes in economic growth rates and total business activity, e.g. factory orders.
The London Interbank Bid Rate. The rate charged by one bank to another for a deposit
The London Interbank Offered Rate, the rate charged by one bank to another for lending money.
An order to buy or sell a specified amount of a currency at a specified price.
Any transaction that offsets or closes out a previously established position.
The ability of a market to accept large transactions.
The holding of an excess of a particular currency.
The minimum margin which an investor must keep on deposit in a margin account at all times in respect of each open contract.
A demand for additional funds to be deposited in a margin account to meet margin requirements because of adverse future price movements.
A market maker is a person or firm authorized to create and maintain a market in an instrument.
An order to buy or sell a financial instrument immediately at the best possible price.
The study of economic activity as it applies to individual firms or well defined small groups of individuals or economic sectors.
A market consisting of financial institutions and dealers in money or credit who wishes to either borrow or lend.
Money Market Operations
Comprises the acceptance and re-lending of deposits on the money market.
The amount of money in the economy, which can be measured in a number of ways. See definitions of M0-M4.
A way of smoothing a set of data, widely used in price time series.
The price at which a seller is willing to sell. The best offer is the lowest such price available.
The closing-out or liquidation a position.
The operations of a financial institution which although physically located in a country, has little connection with that country's financial systems. In certain countries a bank is not permitted to do business in the domestic market but only with other foreign banks. This is known as an off shore banking unit.
The difference between assets and liabilities in a particular currency. This may be measured on a per currency basis or the position of all currencies when calculated in base currency.
Over the Counter, the term used to describe futures and options not traded on an exchange. Trade is directly between buyers and sellers and there is no standardization of strikes or expirations.
Net long or short position in one or more currencies that a dealer can carry over into the next dealing day. Passing the book to other bank dealing rooms in the next trading time zone reduces the need for dealers to maintain these unmonitored exposures.
A deal from today until the next business day.
Payroll employment is a measure of the number of people being paid as employees by non-farm business establishments and units of government. Monthly changes in payroll employment reflect the number of net new jobs created or lost during the month and changes are widely followed as an important indicator of economic activity. Large increases in payroll employment are seen as signs of strong economic activity that could eventually lead to higher interest rates that are supportive of the currency at least in the short term.
Point. (0.0001 of a unit).
(1) 100th part of a per cent, normally 10,000 of any spot rate. Movement of exchange rates are usually in terms of points. (2) One percent on an interest rate e.g. from 8-9%. (3) Minimum fluctuation or smallest increment of price movement.
The netted total commitments in a given currency. A position can be either flat or square (no exposure), long, (more currency bought than sold), or short (more currency sold than bought).
(1) The rate from which lending rates by banks are calculated in the US. (2) The rate of discount of prime bank bills in the UK.
Producer Price Index (PPI)
PPI is a measure of the average level of prices of a fixed basket of goods received in primary markets by producers. A rising PPI is normally expected to lead to higher CPI and thereby to potentially higher short term interest rates.
The unwinding of a position to realize profits.
An indicative price. The price quoted for information purposes but not to deal
The difference between the highest and lowest price of a future recorded during a given trading session.
The rate at which interest earned on a loan can be reinvested. The rate may not attract the same level of interest as the principal amount.
Resistance Point or Level
A price recognized by technical analysts as a price which is likely to result in a rebound but if broken through is likely to result in a significant price movement.
Retail Price Index
Measurement of the monthly change in the average level of prices at retail, normally of a defined group of goods.
Retail Sales are a measure of the total receipts of retail stores. Monthly percentage changes reflect the rate of change of such sales and are widely followed as an indicator of consumer spending. Rising in Retail Sales are often associated with a strong economy and therefore an expectation of higher short term interest rates that are often supportive to a currency in at least the short term.
The identification and acceptance or offsetting of the risks threatening the profitability or existence of an organization. With respect to foreign exchange involves among others consideration of market, sovereign, country, transfer, delivery, credit, and counterparty risk.
An asset or liability, which is exposed to fluctuations in value through changes in exchange rates or interest rates.
An overnight swap, specifically the next business day against the following business day (also called Tomorrow Next, abbreviated to Tom-Next).
Running a Position
Keeping open positions in the hope of a speculative gain.
Same Day Transaction
A transaction that matures on the day the transaction takes place.
A strategy of buying at the bid and selling at the offer as soon as possible.
The date by which an executed order must be settled by the transference of instruments or currencies and funds between buyer and seller.
The official closing price set by the clearing house at the end of each trading day.
(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.
The price at which the currency is currently trading in the spot market.
(l)The difference between the bid and ask price of a currency. (2) The difference between the price of two related futures contracts. (3) For options, transactions involving two or more option series on the same underlying currency.
A speaker connected to a phone often used in broker trading desks.
British pound, otherwise known as Cable.
Stop Loss Order
Order given to ensure that , should a currency weaken by a certain percentage, a short position will be covered even though this involves taking a loss. Realize profit orders are less common.
When an exchange rate depreciates or appreciates to a level where (1) Technical analysis techniques suggest that the currency will rebound, or not go below; (2) The monetary authorities intervene to stop any further downward movement. See Resistance Point.
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.
Society for World-wide Interbank Telecommunications is a Belgian based company that provides the global electronic network for settlement of most foreign exchange transactions.
Market slang for Swiss Franc.
Is concerned with past price and volume trends - often with the help of chart analysis - in a market, in order to be able to make forecasts about future price developments of the commodity being traded.
An adjustment to price not based on market sentiment but technical factors such as volume and charting.
A market in which trading volume is low and in which consequently bid and ask quotes are wide and the liquidity of the instrument traded is low.
A minimum change in price, up or down.
Simultaneous buying of a currency for delivery the following day and selling for the spot day, or vice versa. Also referred to as overnight.
The Trade Balance is a measure of the difference between imports and exports of tangible good and services. The level of the trade balance and changes in exports and imports are widely followed by foreign exchange markets.
The date on which a trade occurs.
The difference between the value of imports and exports. Often only reported in visible trade terms.
The date on which a trade occurs.
The buying or selling of currency resulting from the execution of an order.
The calculation of loss or profit resulting from the valuation of foreign assets and liabilities for balance sheet purposes, when consolidating into the base currency.
A transaction executed at a price greater than the previous transaction.
For exchange contracts it is the day on which the two contracting parties exchange the currencies which are being bought or sold. For complete description see the chapter on trading. 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 of the foreign currency. 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 month’s 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 centers then the operative date would be the next business day that is common. The adjustment of the maturity for a particular month does not effect 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.
Wholesale Price Index
It measures changes in prices in the manufacturing and distribution sector of the economy and tends to lead the consumer price index by 60 to 90 days. The index is often quoted separately for food and industrial products.
A bank made up of members of the IMF whose aim is to assist in the development of member states by making loans where private capital is not available.