Forex Trading - Abbreviations [1....continued]

Arbitrage
Dealing in two or more markets at the same time (or in similar products in the same market) to take advantage of temporary mispricing in order to make a profit.

At-the-Money
In options, when the strike price equals the price of the underlying contract.

Bear
A person who believes that prices will decline.

Bear Market
A market characterized by declining prices.

Bid
The rate at which a dealer is willing to buy the vase currency.

Big Figure
The first three digits of an exchange rate, e.g. USD 1.62 per pound or DEM 1.49 per dollar.

Bull
A person who believes that prices will rise.

Bull Market
A market characterized by rising prices.

Cable
Dealer's slang for the UK sterling/US dollar exchange rate.

Call
An option that gives the buyer the right to long a position in the underlying contract at a specific price; the call writer (seller) may be assigned a short position in the underlying contract if the buyer exercises his call.

Call Rate
The overnight interest rate.

Cash Market
The market for the purchase and sale of physical currencies.

Convertible Currency
Currency which can be exchanged for other currencies of gold without authorization from the central bank.

Counterparties
The parties on either side of a transaction.

Cross Rate
Exchange rate that does not involve the US dollar.

Currency Clause
A clause in an export contract in which the sum payable is denominated in the buyer's currency; but the amount payable will vary with the exchange rate for the buyer's currency against the seller's currency.

Day Trading
Refers to opening and closing the same position or positions within one day's trading.

Delta
For options, also called the neutral hedge ratio. Expresses the expected change in the option price, given a one-unit change in the price of the underlying contract.

Derivative
Financial instruments, such as futures and options, which derive their value from underlying securities including bonds, bills, currencies, and equities.

Discount
Cheaper than the spot price, e.g. forward discount.

Dollar Rate
When a variable amount of a foreign currency is quoted against one unit of the US dollar, regardless of where the dealer is located or in what currency he is requesting a quote. The major exception is the UK sterling/US dollar rate cable which is quoted as units of the US dollar to UK sterling.

EMS
European Monetary System

ERM
Exchange Rate Mechanism

Eurobond
Marketable debt security issued outside the country in whose currency the debt is denominated.

Eurodollar
A dollar deposit acquired by a person or bank not residing in the United States and held outside the United States and therefore not subject to US reserve restrictions.

European Currency Unit
The currency unit in the EMS, where the unit is defined by the sum of quantities of each of the national currencies of the members of the EMS, so the value of the ECU changes in terms of third currencies, such as e.g. the US dollar.

Exchange Control
Government regulations restricting or forbidding certain types of foreign currency transactions including purchases from abroad, payment abroad of interest or dividends, and investing abroad.

Exchange Rate Depreciation
Currency which loses in value against one or more other currencies, especially if this happens in response to natural supply rather than by an official devaluation.

Exchange Rate Risk
The potential loss that could be incurred from a movement in exchange rates.

Exposure
A financial risk facing a business, which can be categorized according to its cause or source. Currency exposures are exposures to exchange rate risk.