The set of expiration dates applicable to different classes of options.
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.
The net balance of a country's international payment arising from exports and imports together with unilateral transfers such as aid and migrant remittances. It excludes capital flows.
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.
Various weightings of other currencies grouped together in relation to a basket currency (e.g. ECU or SDR). Sometimes used by currencies to fix their rate often on a trade weighted basket.
A cross-trade transaction is a transaction where either the buy broker and the sell broker are the same, or the buy broker and the sell broker belong to the same firm.
An exchange rate between two currencies, usually constructed from the individual exchange rates of the two currencies, as most currencies are quoted against the dollar.
A technique using financial futures to hedge different but related cash instruments based on the view that the price movements between the instruments move in concert.
A foreign exchange deal entered into involving two currencies, neither of which is the base currency.
The risk that a debtor will not repay; more specifically the risk that the counterparty does not have the currency promised to be delivered.
Crawling Peg (Adjustable Peg)
An exchange rate system where a country's exchange rate is "pegged" (i.e. fixed) in relation to another currency. The official rate may be changed from time to time.
Covered Interest Rate Arbitrage
An arbitrage approach which consists of borrowing currency A, exchanging it for currency B, investing currency B for the duration of the loan, and, after taking off the forward cover on maturity, showing a profit on the entire set of deals. It is based on the theorem of interest rate parity (one of the key theoretical economic relationships) which says that the return on a hedged foreign investment will just equal the domestic interest rate on investments of identical risk. When the covered interest rate differential between the two money markets is zero, there is no arbitrage incentive to move funds from one market to another.
(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.
(1) On bearer stocks, the detachable part of the hide behind nominee status. A certificate exchangeable for dividends.
(2) Denotes the rate of interest on a fixed interest security.
The annual rate of interest of a bond.
Factors that affect currency trading unique to the specific country include political, regulatory, legal and holiday risks.
The risk to each party of a contract, that the counterparty will not live up to its contractual obligations. Counterparty risk as a risk to both parties and should be considered when evaluating a contract.
The customer or bank with which a foreign exchange deal is executed.
Cost of Carry
The interest rate parity, where the forward price is determined by the cost of borrowing money in order to hold the position.
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.
An agreement to buy or sell a specified amount of a particular currency or option for a specified month in the future (See Futures contract).
The month in which a futures contract matures or becomes deliverable if not liquidated or traded out before the date specified.
Contract Expiration Date
The date on which a currency must be delivered to fulfill the terms of the contract. For options, the last day on which the option holder can exercise his right to buy or sell the underlying instrument or currency.
A memorandum to the other party describing all the relevant details of the transaction.
An option on an option, the dates and price of such option being fixed.
The fee that a broker may charge clients for dealing on their behalf.
Commodity Exchange of New York.
An economic indicator that generally moves in line with the general business cycle such as industrial production.
Closing Purchase Transaction
The purchase of an option identical to one already sold to liquidate a position.
Executing a security transaction that is the exact opposite of an open position, thereby nullifying it and eliminating the initial exposure. Closing a long position in a security would entail selling it, while closing a short position in a security would involve buying it back.
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.
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.
Exchange rates against the ECU adopted for each currency within the EMS. Currencies have limited movement from the central rate according to the relevant band.
A central bank provides financial and banking services for a country's government and commercial banks. It implements the government's monetary policy, as well, by changing interest rates.
Normally refers to an exchange transaction contracted for settlement on the day the deal is struck. This term is mainly used in the North American markets and those countries which rely for foreign exchange services on these markets because of time zone preference i.e. Latin America. In Europe and Asia, cash transactions are often referred to as value same day deals.
Cash and Carry
The buying of an asset today and selling a future contract on the asset. A reverse cash and carry is possible by selling an asset and buying a future.
A procedure for settling futures contract where the cash difference between the future and the market price is paid instead of physical delivery.
The interest cost of financing securities or other financial instruments held.
A finance charge associated with the storing of commodities (or foreign exchange contracts) from one delivery date to another.
A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public and private international investments flowing in and out of a country.
An option that gives the holder the right to buy the underlying instrument at a specified price during a fixed period.
A call option confers the right but not the obligation to buy stock, shares or futures at a specified price.
A term used in the foreign exchange market for the British Pound / US Dollar rate.
Telegraphic transfer of funds from one centre to another. Now synonymous with interbank electronic fund transfer.
Committee on Payment and Settlement Systems.
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.
Contracts for Difference (CFD)
An arrangement made in a futures contract whereby differences in settlement are made through cash payments, rather than the delivery of physical goods or securities.
Chicago Mercantile Exchange.
The New York clearing house clearing system. (Clearing House Interbank Payment System). Most Euro transactions are cleared and settled through this system.
Clearing House Automated Payment System.
The Commodity Futures Trading Commission, the US Federal regulatory agency for futures traded on commodity markets, including financial futures.
Certificate of Deposit.
CBOT or CBT
Chicago Board of Trade.
Chicago Board Options Exchange.