|
"Blind broker" |
A mechanism for interdealer transactions that maintains
the anonymity of both parties to the trade. The broker
serves as the agent to the principals' transactions. |
|
Back |
Term referring to the amount that the spot price exceeds
the forward price. |
|
Back Office |
The departments and processes related to the settlement of
financial transactions. |
|
Back to Back |
(1) Transaction where all the obligations and liabilities
in one transaction are mirrored in a second transaction.
(2) Transaction where a loan is made in one currency in
one country against a loan in another country in another
currency. |
|
Backwardation |
Term referring to the amount that the spot price exceeds
the forward price. |
|
Bad days |
Refers to days delayed in the receipt of redemption
proceeds because the maturity date falls on a weekend or a
holiday. |
|
Balance |
The amount held in a customer’s account calculated for
closed transactions (currently opened positions are not
included). If there are no open positions, the balance and
equity will be equal. |
|
Balance of Payments |
AA 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. |
|
Balance of Trade |
The value of exports less imports. Invisibles are normally
excluded, and is otherwise referred to as merchantile or
physical trade. Figures can be quoted on FoB/ FaS, customs
cleared, or Fob export, FoB export. |
|
Band |
The range in which a currency is permitted to move. A
system used in the ERM. |
|
Bank line |
Line of credit granted by a bank to a customer, also known
as a “line.” |
|
Bank notes |
Banknotes 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 banknotes can be converted,
in some counties, into FX. Bank notes are normally priced
at a premium to the current spot rate for a currency. |
|
Bank Rate |
The rate at which a central bank is prepared to lend money
to its domestic banking system. |
|
Banking day |
see trading day and value date |
|
Baron Adesi and Whaley |
An option model for valuing American options, an extention
of Black Scholes. |
|
Barrier Option |
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 levelat 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. |
|
Base currency |
The first currency in a currency pair. A currency against
which the exchange rate is applied. Usually it stands
first in the codes of currency rates. It shows how much
the base currency is worth against the second one. For
instance, if the USD/CHF rate equals 1.6215, then one USD
is worth 1.6215 CHF. |
|
Base Rate |
A term used in the UK for the rate used by banks to
calculate the interest rate to borrowers. Top quality
borrowers will pay a small amount over base. |
|
Basis |
The difference between the cash price and futures price. |
|
Basis |
The difference between the cash price and futures price. |
|
Basis convergence |
The process whereby the basis tends towards zero as the
contract expiry approaches. |
|
Basis point |
One per cent of one per cent. |
|
Basis point |
One percent of one percent. |
|
Basis price |
The price expressed in terns of yield maturity or annual
rate of return. |
|
Basis trading |
Taking opposite positions in the cash and futures market
with the intention of profiting from favourable movements
in the basis. |
|
Basis trading |
Taking opposite positions in the cash and futures market
with the intention of profiting from favorable movements
in the basis. |
|
Basket |
A group of currencies normally used to manage the exchange
rate of a currency. Some times referred to as a unit of
account. |
|
Basket |
AA group of currencies normally used to manage the
exchange rate of a currency. Sometimes referred to as a
unit of account. |
|
BBA |
British Banking Association |
|
Bear |
Someone who believes that the prices/market will decline. |
|
Bear |
An investor who believes that prices are going to fall. |
|
Bear call spread |
A spread designed to exploit falling exchange rates by
purchasing a call option with a high exercise price and
selling one with a low exercise price. |
|
Bear Market |
A market in which prices decline sharply against a
background of widespread pessimism (opposite of Bull
Market). |
|
Bear market |
A prolonged period of generally falling prices |
|
Bear put spread |
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. |
|
Bear Squeeze |
Any official action in the market or through regulations
which makes it costly or difficult for bears to stay short
of a suspect currency. |
|
Bearer |
Refers to instruments in which ownership can transfer by
mere physical delivery, requires no registration as does
not have the name of the holder on its face. Certain stamp
duty advantages arise from this type of instrument. |
|
Benchmark |
A bond, frequently the most recent, sizeable issue, whose
terms set a standard for the market. The benchmark bond
usually has the greatest liquidity and the highest
turnover, and is the most frequently quoted. In certain
markets (e.g., Japan), there is a seasoning period during
which the bond is not the benchmark. The term is similarly
used in the commodities field particularly oil. |
|
Best of two Option |
Gives the option holder a payoff based on the independent
performance of two different instruments. |
|
Best Order |
Firm order with no rate limit stipulated. |
|
Beta |
A measure of relative volatility of the price of the
instrument to the overall performance of the market |
|
Bid |
The price at which a buyer has offered to purchase the
currency or instrument. |
|
Bid Price |
Bid is the market buying price, the price at which Delta
Stock or the market is prepared to buy a specified
currency in a foreign exchange contract or cross currency
contract. At this price, the trader can sell foreign
exchange. It is shown in the left side of the quotation,
for example 1.4527- 1.4532 |
|
Big Figure |
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 indicates
a price of 1.5530/40BIS Bank of International Settlement. |
|
Big Figure Quote |
A currency rate without the last two digits. Examples
USD/JPY rate of 122.05/122.10, the big figure is 122.
EUR/USD rate of 0.9325/0.9330, the big figure is 0.93. |
|
Bilateral Clearing |
A system used where foreign currency is limited. Payments
are usually routed through the central banks, and
sometimes require that the trade balance is equalled every
year. |
|
Binary Options |
A binary "call" (or "step up") is like a standard European
call option except that the pay off at expiry is fixed at
one unit of the counter currency, if the call expires in
the money. |
|
Black-Scholes Model |
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 |
|
Book |
In a professional trading environment, a "book" is the
summary of a trader’s or desk’s total positions. |
|
Book |
The summary of currency positions held by a dealer, desk,
or room. A total of the assets and liabilities. If the
average maturity of the book is less than that of the
assets, the bank is said to be running a short and open
book Passing the Book refers normally to transferring the
trading of the Banks positions to another office at the
close of the day, e.g. from London to New York. |
|
Book entry form |
The issuer records bond ownership without use of bond
certificates. This is usually a computerised system. |
|
Booked |
The recording of a transaction outside the country where
the transaction is itself negotiated. |
|
Boris |
Slang for Russian trading |
|
Box Option |
Options are purchased the gains/losses on which offset
positions in the underlying currency. |
|
Box Spread |
A combination of a horizontal, or calendar, call spread
and a horizontal put spread. Both spreads have the same
expiration dates on their long and short positions. A bear
call spread with a bull put spread is a credit box. A bull
call spread with a bear put spread is a debit box. |
|
Bps |
Basis points |
|
Brady Plan |
A plan conceived by Nicholas Brady US Treasury Secretary
to reschedule and restructure third world debt. |
|
Break |
A sudden or rapid fall in instrument pricing. |
|
Break even point |
The price of a financial instrument at which the option
buyer recovers the premium, meaning that he makes neither
a loss or gain. In the case of a call option, the
breakeven point is the exercise price plus the premium. |
|
Break out |
In the options market, undoing a conversion or a reversal
to restore the option buyer's original position. |
|
Bretton Woods |
The site of the conference which in 1944 led to the
establishment of the post war foreign exchange system that
remained intact until the early 1970s. The conference
resulted in the formation of the IMF. The system fixed
currencies in a fixed exchange rate system with 1%
fluctuations of the currency to gold or the dollar. |
|
Bretton Woods Accord of 1944 |
AnAn agreement that established fixed foreign exchange
rates for major currencies, provided for central bank
intervention in the currency markets, and set the price of
gold at 35 USD per ounce. The agreement lasted until
1971. |
|
Broad Money |
A broad definition of money supply including long term
deposits and corporate lending. |
|
Broken dates or period |
Deals that are undertaken for value dates that are not
standard periods eg. 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 period or broken period. |
|
Broker |
AnAn agent who handles investors' orders to buy and sell
currency. For this service, a commission is charged which,
depending on the broker and the amount of the transaction,
may or may not be negotiated. |
|
Broker |
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. |
|
Brokerage |
Commission charged by a broker. |
|
Broker-dealer |
See Dealer. |
|
BUBA |
Bundesbank, the reserve bank of Germany. |
|
Bull |
Someone who believes that the prices/market will rise. |
|
Bull |
An investor who believes that prices are going to rise. |
|
Bull (call or put) spread |
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. |
|
Bull Market |
AA market characterized by rising prices. |
|
Bull market |
A prolonged period of generally rising prices. |
|
Bulldogs |
Sterling bonds issued in the UK by foreign institutions. |
|
Bullet maturity |
A bond whose principal is paid only on the final maturity
date. |
|
Bullion |
A term for gold bars, not coin. |
|
Bundesbank |
Central Bank of Germany. |
|
Business Day |
Any day on which commercial banks are open for business in
the principal financial centers of the countries where
currencies are traded. |
|
Butterfly spread |
(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. |
|
Buy- Back valuation |
The valuation of a forward exchange transaction by
applying the current exchange rate that would apply to the
remaining period of the transaction. |
|
Buy in |
Market activity by an option writer when the writer holds
insufficient assets to meet delivery upon expiration. |
|
Buy-back |
see repurchase agreements |
|
Buyer/taker |
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. |
|
Buying Rate |
Rate at which the market and a market maker in particular
is willing to buy the currency. Sometimes called the bid
rate. |
|
Buying Rate |
Rate at which the market and a market maker in particular
is willing to buy the currency. Sometimes called bid rate. |
|
Buying the spread |
To buy the nearby contract and simultaneously sell the
deferred contract. Also referred to as a bull spread. |
