Back Office Settlement and related processes.
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
Balance of Payments
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
Balance of Trade
The value of exports less imports. Invisibles are normally
excluded, which is why balance of trade is also referred to
as mercantile or physical trade. Figures can be quoted as
FoB/FaS , customs cleared, or 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 are paper issued by the central or issuing bank.
They are legal tender, but are not usually considered to be
part of the FX market. However bank notes can be
converted, in some counties, into FX. Bank notes are
normally priced at a premium to the current spot rate for a
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.
page 75 of 110
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.
Base Currency The currency in which the operating results of the bank or
institution are reported.
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 Convergence The process whereby the basis tends towards zero as the
contract expiry approaches.
Basis Point One per cent of one per cent.
Basis Price The price expressed in terns of yield maturity or annual rate
Taking opposite positions in the cash and futures market
with the intention of profiting from favorable movements in
A group of currencies normally used to manage the
exchange rate of another currency, sometimes referred to
as a unit of account.
Bear A person (investor) who believes that prices will decline.
A market in which prices decline sharply against a
background of widespread pessimism (opposite of Bull
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.
The price at which a buyer has offered to purchase the
currency or instrument. Bid is the highest price that the
buyer is offering for the particular currency at the moment;
the difference between the ask price and the bid price is
the spread. Together, the two prices constitute a quotation.
The bid-ask spread is stated as a percentage cost of
transacting in the foreign.(???? sentence incomplete)
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
1.5530/40BIS: Bank of International Settlement.
A system used where foreign currency is limited. In such a
system, payments are usually routed through the central
banks, and sometimes require that the trade balance is
equaled every year.
page 76 of 110
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 when the call expires in the
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
Booked The recording of a transaction outside the country where
the transaction is itself negotiated.
Boris Slang for Russian trading.
Break Even Point
The price of a financial instrument at which the option
buyer recovers the premium, meaning that either a loss or
gain is made. In the case of a call option, the break even
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.
The site of the 1944 conference which led to the
establishment of the post war foreign exchange system that
remained intact until the early 1970s. The conference also
resulted in the formation of the IMF. The fixed exchange
rate system established at Bretton-Woods allowed 1%
fluctuations of a given currency to gold or the dollar.
Broken Dates or Period
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
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
Brokerage Commission charged by a broker.
Broker-Dealer See Dealer.
BUBA Bundesbank, the central bank of Germany.
Bull A person (investor) who believes that prices will 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
Bull Market A market characterized by rising prices.
page 77 of 110
Bulldogs Sterling bonds issued in the UK by foreign institutions.
Bullion A term for gold bars, not coin.
Bundesbank Central bank of Germany.
(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.
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
are 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.