Glossary of Commonly Used Terms
ABA
A digital code used by the American Bankers Association to define a bank.
AUSSIE
Industry slang for the Australian dollar.
Bank Identifier Code (BIC or SWIFT Code)
A bank identifier code used to route wires through the SWIFT network.
Bank Note Physical Currency
Bank notes are the cash you would carry with you in your pocket.
Bank of Canada
The Canadian Central Bank.. www.bankofcanada.ca
Bank of England
Central Bank of the United Kingdom. www.bankofengland.co.uk
Base Currency
The currency which other currencies are quoted against.
Basis Point
One hundredth of one percentage point. A change from 5.25% to 5.75% is said to be a 50 basis point move. See 'Point' for currency moves.
BIC (SWIFT CODE)
A bank identifier code used to route wires through the SWIFT network.
Bid Price
The price that a buyer is willing to pay to purchase a given currency and sell another at a particular time.
Bundesbank
The German Central Bank. www.bundesbank.de
CABLE
Industry slang for the British pound.
CAC 40
The leading index of French stocks.
Central Bank
A Government institution in control of the nation's monetary policy and the printing of that nation's currency.
Consignment Account
A holding account that allows you to hold foreign currency without providing specific delivery instructions as to where the money will be wired or who drafts will be issued to.
Consumer Price Index (CPI)
A measure of the average amount (price) paid for a market basket of goods and services by a typical consumer in comparison to the average paid for the same basket in an earlier base year.
CPI (Consumer Price index)
A measure of the average amount (price) paid for a market basket of goods and services by a typical consumer in comparison to the average paid for the same basket in an earlier base year.
Cross Rates
The exchange rate between two currencies expressed as the ratio of two foreign exchange rates that are both expressed in terms of a third currency. Foreign exchange rate between two currencies other than the U.S. dollar, the currency in which most exchanges are usually quoted.
Currency
The State Tender of a Country
Currency Option
A product whereby a customer has the option, but not the obligation, to lock in an exchange rate for a future transaction.
Currency Swap
Usually associated with speculative trading and high trading volumes. A swap that involves the exchange of principal and interest in one currency for the same in another currency. Currency Swaps were originally used to circumvent currency controls.
Current Account
A category in the balance of payments account that includes all transactions that either contribute to national income or involve the spending of national income.
DAX
The leading index of German stocks.
Day Trading
Opening and closing the same position(s) before the close of that day's trading also associated with speculative trading.
Deficit Spending
A term which refers to the situation wherein he government spends more than it receives in taxes.
Discount Rate
The interest a private bank pays for a loan from the US Federal Reserve System.
Draft
A paper instrument used to transfer funds from one entity to another. Similar to a cheque, it is different in that a bank draft may not be exchanged for cash; it must be deposited into an account under the name of the beneficiary.
ECB (European Central Bank)
The Central Bank of the European Union. www.ecb.int
EFT (Electronic Funds Transfer)
Also known as a wire, or telegraphic transfer (t/t), this is the process of moving money from bank to bank electronically.
Electronic funds transfer (EFT)
Also known as a wire, or telegraphic transfer (t/t), this is the process of moving money from bank to bank electronically.
EMS
European Monetary System
Euro
The currency of the European Monetary Union (EMU). This is the amalgamation of the following currencies, after Jan. 1, 2002 these currencies will be considered legacy currencies. Germany Deutsche Marks, Italy Lira, Austria Schillings, France Franc, Belgium Francs, Netherlands (Dutch) Guilders, Finland Markka, Portugal Escudo, Greece Drachmas, Ireland Punt, Luxembourg Francs, Spanish Pesetas.
European Central Bank (ECB)
The Central Bank of the European Union. www.ecb.int
Federal Debt
The current dollar sum of obligations equal to the accumulated past deficits minus surpluses of the government.
Federal Open Market Committee (FOMC)
The body that is responsible for setting the interest rates and credit policies of the Federal Reserve System. A 12-member committee consisting of the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents. The Committee sets objectives for the growth of money and credit. These objectives are implemented through purchases and sales of U.S. government securities in the open market. The FOMC also establishes policy relating to System operations in the foreign exchange markets.
Federal Reserve System
The central bank of the United States, with responsibility for implementing the country's monetary policy and regulating member banks of the System. The Fed was created in 1913 and is composed of 12 regional Federal Reserve Banks and a national Board of Governors. www.federalreserve.gov
Fiscal Policy
Government policy regarding taxation and spending. Fiscal policy is made by Congress and the Administration.
Fixed Exchange Rate
Official rate set by monetary authorities for one or more currencies
Floating Exchange Rates
The value of a currency as decided by supply and demand.
FOMC (Federal Open Market Committee)
The body that is responsible for setting the interest rates and credit policies of the Federal Reserve System. A 12-member committee consisting of the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents. The Committee sets objectives for the growth of money and credit. These objectives are implemented through purchases and sales of U.S. government securities in the open market. The FOMC also establishes policy relating to System operations in the foreign exchange markets. www.federalreserve.gov/FOMC/
Foreign Exchange
The exchange of foreign currency. On the foreign exchange market, foreign currency is bought and sold for immediate (spot) or forward delivery.
Forex
Industry term. Same as Foreign Exchange
Forward Contract
A forward contract fixes the exchange rate for future delivery at a date to be agreed by both participants. A deposit (or a minimum margin) is usually required in forward transactions. For example, if I want to lock in today's rate to buy $10,000 USD at 1.5820 Canadian for the next 4 months, I will have the ability to purchase up to $10,000 USD at this rate.
FTSE ("footsie")
The leading index of United Kingdom stocks. Fundamental Analysis focuses on the economic forces of supply and demand that causes price movement. The Fundamentalist studies the causes of market movement, whereas the Technician studies the effects. Fundamental Analysis involves the study of economic and political events and how they impact exchange rates.
FX
An abbreviation of Foreign Exchange
Hang Seng
The major Hong Kong stock market index.
Hedging
A hedging transaction is a purchase or sale of a financial product, having as its purpose the elimination of loss arising from price fluctuations. With regards to currency transactions it would protect one against fluctuations in the foreign exchange rate. (see Forward Contract)
IBAN
International Bank Account Number
Initial Claims
Initial jobless claims measure the number of filings for state jobless benefits. This report provides a timely, but often misleading, indicator of the direction of the economy, with increases (decreases) in claims potential signalling slowing (accelerating) job growth. On a week-to-week basis, claims are quite volatile, and many analysts therefore track a four week moving average to get a better sense of the underlying trend. It typically takes a sustained move of at least 30K in claims to signal a meaningful change in job growth.
Institute for Supply Management (ISM or NAPM)
Formerly referred to as "National Association of Purchasing Managers". Source of key U.S. inflation data. www.napm.org
Interbank Rates
The Foreign Exchange rates at which large international banks quote other large international banks.
International Bank Account Number (IBAN)
A standardised format adopted by European Union member nations to facilitate cross-border money transfers within the European Union.
KIWI
Industry slang for the New Zealand dollar
LOONIE
Industry slang for the Canadian dollar
M1
One measure of the money supply that includes all coins, currency held by the public, travellers’ checks, checking account balances, interest bearing accounts, automatic transfer service accounts, and balances in credit unions.
M2
One measure of the money supply that includes M1, plus savings and small time deposits, overnight repos at commercial banks, and non- institutional money market accounts. A key economic indicator used to forecast inflation.
M3
One measure of the money supply that includes M2, plus large time deposits, repos of maturity greater than one day at commercial banks, and institutional money market accounts.
Margin
A cash deposit provided by a client as collateral to cover a forward position.
Monetarists
Followers of Milton Friedman who focus on the effect of money and monetary policy on changing price and employment levels.
Monetary Policy
The federal governments attempt to change aggregate demand through money supply changes.
Money Markets
Refers to financial investments that are generally under one year in duration and generally only open to banks and other financial institutions.
NIKKEI
The major Japanese stock market index
Offer Price
The price, or rate, that a willing seller is prepared to sell at.
Option
A product whereby a customer has the option, but not the obligation, to lock in an exchange rate for a future transaction.
Pegged Exchange Rate
A currency that is tied to a major currency - for example, the Hong Kong dollar is pegged to the U.S. dollar.
Point (or Pip)
The term used in currency market to represent the smallest incremental move an exchange rate can make. It is one one-hundredth of a percent.
Repurchase Agreements
When the Federal Reserve makes a repurchase agreement with a government securities dealer, it buys a security for immediate delivery with an agreement to sell the security back at the same price by a specific date (usually within 15 days) and receives interest at a specific rate. This arrangement allows the Federal Reserve to inject reserves into the banking system on a temporary basis to meet a temporary need and to withdraw these reserves as soon as that need has passed.
Reserve Bank of Australia
The Australian Central Bank. www.rba.gov.au
Safe Haven
A currency traders buy heavily in times of geopolitical uncertainty.
Settlement
(1)The final stage of a transaction, actual physical exchange of one currency for another (2) is the process by which available funds have been instructed by a client of Cambridge for transfer via wire, draft or deposit to a multi-currency account and a designated receiver of such funds.
Spot
Generally describes a transaction which will come to settlement in two days.
Spot Price
The current market price for a spot transaction.
Spot Rate
The current rate for a spot transaction.
Spread
The difference between the bid and offer prices. This is usually used for Interbank trade of currencies.
Standing Order
An order with a target rate where the f/x dealer monitors the market and automatically locks in a trade should the market hit the target rate. Generally associated with a specific time period, after which the standing order will expire.
Swap
Usually associated with speculative trading and high trading volumes. A swap that involves the exchange of principal and interest in one currency for the same in another currency. Currency Swaps were originally used to circumvent currency controls.
Swift
Society of Worldwide Interbank Financial Telecommunications. It is a dedicate computer network that is set up to support fund transfer messages between member banks worldwide.
SWIFT Code (BIC)
An bank identifier code used to route wires through the SWIFT network.
SWISSIE
Industry slang for the Swiss franc
Technical Analysis
Analysis based on market action through chart study, volume, trends, moving averages, patterns, formations and many other technical indicators.
Telegraphic Transfer (T/T)
The old terminology for what is now called an electronic funds transfer (EFT) or wire.
Trade Deficit
When the value of a country's imports exceed the value of a country's exports.
Trade Surplus
When the value of a country's exports exceed the value of that country's imports.
Treasury Bill
Short-term U.S. government obligations sold at a discount from face value. Treasury bills generally are issued with 13-, 26- or 52-week maturities.
Treasury Bond
Obligations of the U.S. government that mature in 15 or more years and pay a specified coupon.
Treasury Note
Obligations of the U.S. government that mature in 2 to 10 years and pay a specified coupon.
Trend
Simply the direction of the market, usually broken down to three categories … major, intermediate and short-term trends. Three directions are also associated with a trend ;that is, uptrend, downtrend, and a sideways trend.
United States Department of Labour
Resource for a lot of key U.S. economic data. www.dol.gov
US Prime Rate
The rate at which US banks will lend to their prime corporate customers.
Value Date
The date that both parties of a transaction agree to exchange payments.
Volatility
A measure of price fluctuations. The standard deviation of a price series is commonly used to measure price volatility.
Volume
Represents the total amount of trading activity in a particular stock, commodity or index for that day. It is the total number of contracts traded during the day.
Wire Transfer
Also known as an electronic funds transfer (EFT) or telegraphic transfer (T/T) this is the process of moving money from bank to bank electronically.
