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Forex glossary |
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 EDUCATION |
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A |
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| Aggregate Demand |
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It includes private and public sector demand for goods and services
within the country and the demand of consumers and firms in other
countries for goods and services. |
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| Aggregate Risk |
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Size of exposure of a bank to
a single customer for both spot and forward contracts. |
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| Aggregate Supply |
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Total supply of goods and services in the economy from domestic sources (including imports) available to meet aggregate demand. |
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| Agio |
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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. |
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| American Option |
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An option which may be exercised at any time prior to expiration.
Compared with a European option that can only be exercised on a specific date. |
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| Arbitrage |
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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. |
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| Ask |
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The price at which the currency or instrument is offered. |
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| Association Cambiste International |
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The international society of foreign exchange dealers consisting of national "Forex clubs" affiliated on a world wide basis. |
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| At or Better |
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An order to deal at a specific rate or better |
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| At-the-Money |
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An option whose strike/exercise price is equal to or near the current market price of the underlying instrument. |
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| Back Office |
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Settlement and related processes. |
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| Balance of Payments |
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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. |
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| Balance of Trade |
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The value of exports less imports. Invisibles are normally excluded, and is otherwise referred to as mercantile or physical trade. |
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| Bank Line |
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Line of credit granted by a bank to a customer, also known as a "line".. |
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| Bank Notes |
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Bank notes are paper issued by the central or issuing bank
and are legal tender, but are not usually considered to be part of the FX market.
However bank notes can be converted, in some countries, into FX.
Bank notes are normally priced at a premium to the current spot rate for a currency. |
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| Bank Rate |
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The rate at which a central bank is prepared to lend money to its domestic banking system. |
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| Banking Day |
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see trading day and value date. |
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| Barrier Option |
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A family of path dependent options whose pay-off pattern and survival
to the expiration date depend not only on the final price of the
underlying currency but also on whether or not the underlying currency breaks
a predetermined price level at any time during the life of the option. See Down and Out call/put,
Down and in call/put, Up and out call/put, Up and in call/put. |
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| Base Currency |
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The currency in which the operating results of the bank or institution are reported. |
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| Basis Point |
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One per cent of one per cent. |
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| Basis |
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The difference between the cash price and futures price. |
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| Bear Put Spread |
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A spread designed to exploit falling exchange rates by purchasing a put option with a high exercise price and selling one with a low exercise price. |
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| Bear Market |
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A prolonged period of generally falling prices. |
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| Bear |
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An investor who believes that prices are going to fall. |
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| Bid |
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The price at which a buyer has offered to purchase the currency or instrument. |
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| Big Figure |
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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 |
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| Black-Scholes Model |
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An option pricing formula initially derived by Fisher Black and Myron Scholes for securities options and later refined by Black for options on futures. It is widely used in the currency markets. |
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| Break Even Point |
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The price of a financial instrument at which the option buyer recovers the premium, meaning that he makes neither a loss nor a gain. In the case of a call option, the break even point is the exercise price plus the premium. |
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| Break Out |
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In the options market, undoing a conversion or a reversal to restore the option buyer's original position. |
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| Broken Dates or Period |
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Deals that are undertaken for value dates that are not standard periods e.g. 1 month. The standard periods are 1 week, 2 weeks, 1, 2, 3, 6 and 12 months. Terms also used are odd dates, or cock dates, broken dates or broken period. |
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| Broker-Dealer |
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See Dealer. |
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| Broker |
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An agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account. In the foreign exchange market, brokers tend to act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties. There are four or five major global brokers operating through subsidiaries affiliates and partners in many countries. |
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| Brokerage |
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Commission charged by a broker. |
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| BUBA |
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Bundesbank, the reserve bank of Germany. |
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| Bull Market |
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A prolonged period of generally rising prices. |
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| Bull (call or put) Spread |
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An option position composed of both long and short options of the same type, either calls or puts, designed to be profitable in a declining market. An option with a lower strike price is bought and one with a higher strike price is sold. |
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| Bull |
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An investor who believes that prices are going to rise. |
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| Bullion |
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A term for gold bars, not coin. |
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| Bundesbank |
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Central Bank of Germany. |
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| Butterfly Spread |
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(1) A futures butterfly spread is a spread trade in which multiple futures months are traded simultaneously at a differential. The trade basically consists of two futures spread transactions with either three or four different futures months at one differential. (2) An options butterfly spread is a combination of a bear and bull spread trade in which multiple options months and strike prices are traded simultaneously at a differential. The trade basically consists of two options spread transactions with either three or four different options months and strikes at one differential. |
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| Buyer/Taker |
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The purchaser of an option, whether a call or put option. The buyer may also be referred to as the option holder. Option buyers receive the right, but not the obligation, to enter a futures/securities market position. |
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| Buying Rate |
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Rate at which the market and a market maker in particular is willing to buy the currency. Sometimes called bid rate. |
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| Buying The Spread |
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To buy the nearby contract and simultaneously sell the deferred contract. Also referred to as a bull spread. |
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| Cable |
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A term used in the foreign exchange market for the US Dollar/British Pound rate. |
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| Calendar Spread |
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An option position comprised of purchase and sale of two option contracts of the same type with different expiration dates at the same exercise price. |
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| Call Option |
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A call option confers the right but not the obligation to buy stock, shares or futures at a specified price. |
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| Call |
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A (1) An option that gives the holder the right to buy the underlying instrument at a specified price during a fixed period. (2) A period of trading. (3) The right of a bond issuer to pre pay debt and demand the surrender of its bonds. |
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| Cambiste |
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French term for foreign exchange dealer. |
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| Cash Delivery |
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Same day settlement. |
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| CBOE |
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Chicago Board Options Exchange. |
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| CBOT or CBT |
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Chicago Board of Trade. |
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| CD |
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Certificate of Deposit. |
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| Central Bank |
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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. |
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| Certificate of Deposit (CD) |
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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. |
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| Chartist |
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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. |
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| Clearing |
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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. |
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| Closed Position |
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A transaction which leaves the trade with a zero net commitment to the market with respect to a particular currency. |
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| Closing Purchase Transaction |
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The purchase of an option identical to one already sold to liquidate a position. |
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| CME |
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Chicago Mercantile Exchange. |
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| Comex |
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Commodity Exchange of New York. |
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| Commission |
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The fee that a broker may charge clients for dealing on their behalf. |
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| Comptant |
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French term for spot settlement in foreign exchange. |
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| Confirmation |
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A memorandum to the other party describing all the relevant details of the transaction. |
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| Consumer Price Index |
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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. |
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| Contract Expiration Date |
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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. |
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| Contract |
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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). |
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| Cover |
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Calls are sold on the underlying currency with strikes which are higher than the market price. The strike price limits the profit that can be realized from the position. |
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| Covered Call |
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A term used in the foreign exchange market for the US Dollar/British Pound rate. |
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| Correspondent Bank |
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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. |
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| Cost of Living Index |
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Broadly equivalent to Retail Price Index or Consumer price. |
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| Counter Party |
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The other organisation or party with whom the exchange deal is being transacted. |
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| Counter Value |
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Where a person buys a currency against the dollar it is the dollar value of the transaction. |
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| Cours du Change |
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Exchange rate. |
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| Cours Libre |
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Free exchange rate. |
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| Cours Officiel |
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Official exchange rate. |
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| Court |
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French for "short" as in une position courte. |
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| Courtier |
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French term for broker. |
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| Cours Officiel |
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Official exchange rate. |
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| Cover |
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(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. |
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| Covered Call Write |
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A strategy of writing call options against a long position in the underlying asset. A covered put write being based on a short position in the asset. |
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| Covered Margin |
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The interest rate margin between two instruments denominated in different currencies after taking account of the cost of forward cover. |
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| CPSS |
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Committee on Payment and Settlement Systems. |
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| Cours Officiel |
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Official exchange rate. |
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| CPSS |
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Committee on Payment and Settlement Systems. |
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| Credit Lombard |
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See Lombard rate. |
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| Credit Risk |
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The risk that a debtor will not repay; more specifically the risk that the counterparty does not have the currency promised to be delivered. |
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| Cross Deal |
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A foreign exchange deal entered into involving two currencies, neither of which is the base currency. |
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| Cross Hedge |
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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. |
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| Cross Rates |
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Rates between two currencies, neither of which is the US Dollar. |
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| Crossed Market |
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The situation which exists when a broker's bid is higher than the lowest offer of another broker. |
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| Current Account |
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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. |
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| Current Balance |
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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. |
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| Currency Swaps |
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See swaps. |
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| Day Order |
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An order that if not executed on the specific day is automatically canceled. |
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| Day Trader |
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Speculators who take positions which are then liquidated prior to the close of the same trading day. |
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| Daylight Exposure Limit |
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see intra day position. |
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| Deal Date |
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The date on which a transaction is agreed upon. |
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| Deal Ticket |
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The primary method of recording the basic information relating to a transaction. |
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| Dealer |
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An individual or firm acting as a principal, rather than as an agent, in the purchase and/or sale of securities. Dealers trade for their own account and risk. |
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| Dealing Board |
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The panel of communications equipment forming part of a dealer's desk. |
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| Declaration Date |
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The latest day or time by which the buyer of an option must indicate to the seller his intention to execute the option. |
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| Deficit |
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Shortfall in the balance of trade, balance of payments, or government budgets. |
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| Deflator |
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Difference between real and nominal Gross National Product, which is equivalent to the overall inflation rate. |
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| Delivery Date |
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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. |
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| Delivery Month |
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The calendar month in which a futures contract comes to maturity and becomes deliverable. |
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| Delivery Points |
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Those locations designated by futures exchanges at which the currency represented by a futures contract may be delivered in fulfillment of the contract. |
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| Delivery |
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The settlement of a futures contract by receipt or tender of a financial instrument or currency. |
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| Delta |
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The change in the value of the option premium made fully paid by the capitalisation of reserves and given relative to the instantaneous change in the value of the underlying instrument, expressed as a coefficient. |
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| Delta Hedging |
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A method used by option writers to hedge risk exposure of written options by purchase or sale of the underlying instrument in proportion to the delta. |
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| Delta Spread |
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A ratio spread of options established as a neutral position by using the deltas of the options concerned to determine the hedge ratio. |
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| Depo |
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Deposit |
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| Deport |
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French term for discount. |
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| Deposit Dealings |
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Money Market operations. |
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| Depreciation |
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A fall in the value of a currency due to market forces rather than due to official action. |
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| Derivatives |
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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. |
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| Desk |
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Term referring to a group dealing with a specific currency or currencies. |
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| Details |
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All the information required to finalize a foreign exchange transaction, i.e. name, rate, dates, and point of delivery. |
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| Devaluation |
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Deliberate downward adjustment of a currency against its fixed parities or bands, normally by formal announcement. |
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| Devisen, Devises |
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Foreign exchange in German and French respectively. |
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| Devisenkassamarkt |
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German for spot exchange market. |
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| Devisenterminmarkt |
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German for forward exchange market. |
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| Diagonal (bull or bear) Spread |
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The purchase of a longer maturity option and the sale of a shorter maturity, lower exercise price option. The choice of calls or puts will determine its bear or bull character. |
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| Discount |
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(1) See forward Rate. Forward rate is lower than spot rate (2) an option that is trading for less than its intrinsic value. |
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| Discount Rate |
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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. |
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| Disposable Income |
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Earnings after tax. |
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| Durable Goods Orders |
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Durable Goods Orders are a measure of the new orders placed with domestic manufacturers for immediate and future delivery of factory hardgoods. Durable Goods Orders are a major indicator of manufacturing sector trends because most industrial production is done to order. |
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| Easing |
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Modest decline in price |
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| Economic Indicator |
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A statistic which indicates current economic growth rates and trends such as retail sales and employment. |
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| End/End |
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Indicates that both the spot and forward maturity, or two forward maturities in a swap transaction, fall due on the last business day of appropriate calendar months. |
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| Euro Clear |
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A computerized settlement and depository system for safe custody, delivery of, and payment for Eurobonds. |
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| Eurobonds |
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A long-term loan issued in a currency other than that of the country or market in which it is issued. Interest is paid without the deduction of tax. |
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| Eurocurrency |
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A currency domiciled outside its country of origin normally held by non residents. |
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| Eurodollars |
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US dollars deposited in a bank (US or non US) located outside the USA. |
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| Eurofranc |
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Swiss Franc or Belgian Francs traded on the Eurocurrency market. Normally Swiss Francs are the more common currency. |
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| Euromark |
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Deutschmarks traded on the Eurocurrency market. |
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| European Option |
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An option that can be exercised only on its expiration date rather than before that date. |
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| European Union |
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The group formerly known as the European Community. |
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| Exchange Control |
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A system of controlling inflows and outflows of foreign exchange, devices include licensing multiple currencies, quotas, auctions, limits, levies and surcharges. |
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| Exercise Notice |
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The formal notification that the holder of a call (or put) option wishes to buy (or sell) the underlying security at the exercise price. |
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| Exercise Limit |
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A limit on the number of options contracts a holder may exercise within a specific period. |
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| Exercise Price |
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See Strike price. |
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| Exercise Value |
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For a call option, this is the amount by which the strike price is below the underlying investment; for a put option, it is the amount by which the strike price is above the underlying investment.. |
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| Exotic |
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A less broadly traded currency. |
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| Expiration Date |
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(1) Options - the last date after which the option can no longer be exercised. (2) Bonds-the date on which a bond matures. |
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| Expiration Month |
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The month in which an option expires. |
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| Expiry Date |
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The last date on which an option can be bought or sold. |
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| Exposure |
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see Position and Mismatch. Various methods of calculating an exposure exist (i) Net working capital - The current assets in a foreign currency minus current liabilities in the currency; (ii) Net financial method - The current assets in a foreign currency minus current liabilities and long term debt in the currency; (iii) Monetary/non-monetary method - Monetary assets and liabilities in the foreign currency are valued at present exchange rates, while non-monetary items are entered at the relevant historic rates. |
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| Fast Market |
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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. |
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| Fed Fund Rate |
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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. |
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| Fed Funds |
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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. |
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| Fed |
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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. |
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| Federal Open Market Committee |
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See FOMC. |
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| Federal Reserve Board |
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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. |
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| Federal Reserve System |
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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. |
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| Financial Future |
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A futures contract based on a financial instrument. |
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| Fine Rate |
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(1) A quote with a narrow spread. (2) The most favorable rate charged to a high quality borrower. |
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| Firm Quotation |
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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. |
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| Fixed Dates |
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he monthly calendar dates similar to the spot. There are two exceptions. For detailed description see value dates. |
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| Fixed Exchange Rate |
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Official rate set by monetary authorities. Often the fixed exchange rate permits fluctuation within a band. |
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| Fixing |
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A method of determining rates by normally finding a rate that balances buyers to sellers. Such a process occurs either once or twice daily at defined times. Used by some currencies particularly for establishing tourist rates. The system is also used in the London Bullion market. |
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| Flexible Exchange Rate |
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Exchange rates with a fixed parity against one or more currencies with frequent revaluation. A form of managed float. |
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| Floating Exchange Rate |
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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 float. |
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| Floor |
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(1) An agreement with a counterparty that sets a lower limit to interest rates for the floor buyer for a stated time. (2) A term for an exchanges trading area (cf. screen based trading), normally the trading area is referred to as a pit in the commodities and futures markets. |
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| FOMC |
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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. |
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| Foreign Exchange |
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The purchase or sale of a currency against sale or purchase of another. |
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| Forex |
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Foreign Exchange. |
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| Forward Contract |
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Sometimes used as synonym for "forward deal" or "future". More specifically for arrangements with the same effect as a forward deal between a bank and a customer. |
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| Forward Cover Taking |
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Forward contracts to protect against movements in the exchange rate. |
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| Forward Deal |
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A deal with a value date greater than the spot value date. |
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| Forward Forward |
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A forward / forward deal is one where both legs of the deal have value dates greater than the current spot value date. |
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| Forward Margins |
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Discounts or premiums between spot rate and the forward rate for a currency. Normally quoted in points. |
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| Forward Maturities |
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Trading days on which days contracts can be transacted later than the spot date. |
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| Forward Operations |
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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. |
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| Forward Outright |
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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. |
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| Forward Rate Agreements |
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The FRA is an agreement between two parties that determine the interest rate that will apply to a notional future loan or deposit of an agreement. |
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| Forward Rate |
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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. 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. |
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| Free Reserves |
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Total reserves held by a bank less the reserves required by the authority. |
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| Front Office |
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The activities carried out by the dealer , normal trading activities. |
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| Fundamentals |
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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. |
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| Futures Contract |
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A contract traded on a futures exchange which requires the delivery of a specified quality and quantity of a commodity, currency or financial instruments a specified future month, if not liquidated before the contract matures. |
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| FX |
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Foreign Exchange. |
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G |
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| G5 |
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The Group of Five. The five leading industrial countries, being US, Germany, Japan, France, UK. |
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| G7 |
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The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy. |
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| G10 |
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G7 plus Belgium, Netherlands and Sweden, a group associated with IMF discussions. Switzerland is sometimes peripherally involved. |
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| Gamma |
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The rate at which a delta changes over time or for one unit change in the price of the underlying asset. |
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| Gap |
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A mismatch between maturities and cash flows in a bank or individual dealers position book. Gap exposure is effectively interest rate exposure. |
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| GLOBEX |
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A system for global after hours electronic trading in futures and options developed by Reuters for CME and CBOT for use in conjunction with various exchanges around the world. |
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| Going Long |
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The purchase of a stock or commodity for investment or speculation. |
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| Going Short |
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The selling of a currency or instrument not owned by the seller. |
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| Gold Standard |
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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. |
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| Good Until Canceled |
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(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. |
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| Gross |
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(GTC) Before deduction of tax. |
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| Gross Domestic Product |
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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. |
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| Gross National Product |
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(GNP) Gross domestic product plus "factor income from abroad" - income earned from investment or work abroad. |
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| GNP Deflator |
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Removes inflation from the GNP figure. Usually expressed as a percentage and based on an index figure. |
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| GTC |
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See Good until canceled. |
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H |
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| Head and Shoulders |
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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. |
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| Hedge |
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The purchase or sale of options or futures contracts as a temporary substitute for a transaction to be made at a later date. Usually it involves opposite positions in the cash or futures or options market. |
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| HIBOR |
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Hong Kong Inter-bank Offered Rate. |
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| Historical Volatility |
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The annualized standard deviation of percentage changes in futures prices over a specific period. It is an indication of past volatility in the marketplace. |
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| Hit the Bid |
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Acceptance of purchasing at the offer or selling at the bid. |
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| Holder |
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Same as buyer. |
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| Housing Starts |
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Housing Starts are a measure of the number of residential units on which construction is begun each month. |
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| Hyperinflation |
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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. |
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| IMF |
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International Monetary Fund, established in 1946 to provide international liquidity on a short and medium term and encourage liberalization of exchange rates. The IMF supports countries with balance of payments problems with the provision of loans. |
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| IMM |
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International Monetary Market part of the Chicago Mercantile Exchange that lists a number of currency and financial futures. |
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| Implied Volatility |
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A measurement of the market's expected price range of the underlying currency futures based on the traded option premiums. |
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| Implied Volatility Skews |
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The implied volatility varies for different strikes of an option. |
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| Implied Rates |
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The interest rate determined by calculating the difference between spot and forward rates. |
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| In-the-Money |
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A call option is In-the-money if the price of the underlying instrument is higher than the exercise/strike price. A put option is In-the-money if the price of the underlying instrument is below the exercise/strike price. See Out-of-the-money. |
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| Inconvertible Currency |
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Currency which cannot be exchanged for other currencies, because this is forbidden by the foreign exchange regulations. |
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| Indicative Quote |
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A market-maker's price which is not firm. |
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| Industrial Production Index |
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A coincident indicator measuring physical output of manufacturing, mining and utilities. |
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| Inflation |
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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. |
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| Info Quote |
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Rate given for information purposes only. |
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| Initial Margin |
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The margin is a returnable deposit required to be lodged by buyers and sellers with the clearing house to secure a new futures or options position. |
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| Inter-Bank Rates |
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The bid and offer rates at which international banks place deposits with each other. The basis of the Interbank market. |
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| Interest Rate Options |
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An agreement permitting a party to obtain a particular interest rate, issued both OTC and by exchanges. |
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| Interest Rate Floor |
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An agreement which provides the buyer of the floor with a minimum interest rate for future lending requirements. |
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| Interest Rate Floor |
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An agreement which provides the buyer of the floor with a minimum interest rate for future lending requirements. |
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| Interest Rate Swaps |
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An agreement to swap interest rate exposures from floating to fixed or vice versa. There is no swap of the principal. It is the interest cash flows be they payments or receipts that are exchanged. |
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| Intervention |
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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. |
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| In the Money |
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A call option is in the money when the strike price is less than the current price of the underlying instrument. A put is when the strike price is greater. |
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| Intra Day Limit |
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Limit set by bank management on the size of each dealer's Intra Day Position. |
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| Intra Day Position |
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Open positions run by a dealer within the day. Usually squared by the close. |
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| Intrinsic Value |
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The amount by which an option is In-the-money. The intrinsic value is the difference between the exercise/strike price and the price of the underlying security. |
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K |
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| Key Currency |
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Small countries, which are highly dependent on exports, orientates their currencies to their major trading partners, the constituents of a currency basket. |
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| Kiwi |
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Slang for the New Zealand dollar. |
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| Knock In |
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A process where a barrier option (European) becomes active as the underlying spot price is in the money. |
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| Knock Out |
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Has a corresponding meaning although the option may permanently cease to exist. |
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L |
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| Last Trading Day |
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The day on which trading ceases for an expiring contract. |
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| Leading Indicators |
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Statistics that are considered to precede changes in economic growth rates and total business activity, e.g. factory orders. |
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| Leverage |
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In options terminology, this expresses the disproportionately large change in the premium in terms of the relative price movement of the underlying instrument. |
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| LIBID |
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The London Interbank Bid Rate. The rate charged by one bank to another for a deposit. |
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| LIBOR |
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The London Interbank Offered Rate, the rate charged by one bank to another for lending money. |
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| LIFFE |
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London International Financial Futures Exchange. |
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| Limit Down |
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The maximum price decline from the previous trading day's settlement price permitted in one trading session. |
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| Limit Order |
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An order to buy or sell a specified amount of a security at a specified price or better. |
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| Limit Up |
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The maximum price advance from the previous trading day's settlement price permitted in one trading session. |
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| Limit |
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(1)The maximum price fluctuation permitted by an exchange from the previous session's settlement price for a given contract. (2) In international banking the limit a bank is willing to lend in a country. (3) The amount that one bank is prepared to trade with another. (4) The amount that a dealer is permitted to trade in a given currency. |
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| Lines |
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An arrangement by which a bank agrees to lend to the line holder during some specified period any amount up to the full amount of the line. |
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| Liquidation |
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Any transaction that offsets or closes out a previously established position. |
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| Liquidity |
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The ability of a market to accept large transactions. |
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| Lombard Rate |
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One of the key commercial interest rates normally referring to Germany although such rates exist in France, Belgium, and Switzerland. An interest rate for a loan against the security of pledged paper. |
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| Long |
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The holding of an excess of a particular currency. |
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| Long Hedge |
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The purchase of futures contracts for price protection purposes, as a defensive position against an increase in cash prices, or falling interest rates. |
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M |
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| M0 |
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Cash in circulation . Only used by the UK. |
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| M1 |
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Cash in circulation plus demand deposits at commercial banks. There are variations between the precise definitions used by national financial authorities. |
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| M2 |
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Includes demand deposits, time deposits and money market mutual funds excluding large CDs. |
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| M3 |
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In the UK it is M1 plus public and private sector time deposits and sight deposits held by the public sector. |
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| M4 |
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In the US it is M2 plus negotiable CDs. |
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| Maintenance Margin |
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The minimum margin which an investor must keep on deposit in a margin account at all times in respect of each open contract. |
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| Margin Call |
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A demand for additional funds to be deposited in a margin account to meet margin requirements because of adverse future price movements. |
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| Margin |
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(1) Difference between the buying and selling rates, also used to indicate the discount or premium between spot or forward. (2) For options, the sum required as collateral from the writer of an option. (3) For futures, a deposit made to the clearing house on establishing a futures position account. (4) The percentage reserve required by the US Federal Reserve to make an initial credit transaction. |
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| Marginal Risk |
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The risk that a customer goes bankrupt after entering into a forward contract. In such an event the issuer must close the commitment running the risk of having to pay the marginal movement on the contract. |
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| Mark Up |
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Premium. |
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| Market Amount |
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The minimum amount conventionally dealt for between banks. |
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| Market Maker |
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A market maker is a person or firm authorized to create and maintain a market in an instrument. |
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| Market Order |
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An order to buy or sell a financial instrument immediately at the best possible price. |
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| MATIF |
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Marche a Terme International de France.. |
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| Maturity Date |
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(1) The last trading day of a futures contract. (2) Date on which a bond matures, at which time the face value will be returned to the purchaser. Sometimes the maturity date is not one specified date but a range of dates during which the bond may be repaid. |
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| Micro Economics |
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The study of economic activity as it applies to individual firms or well defined small groups of individuals or economic sectors. |
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| Mid Office |
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