EURO.uz -The Forex quick guide for beginners and private traders

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The Forex quick guide for beginners and private traders

Cable A term used in the foreign exchange market for the US

Dollar/British Pound rate.

Cable Transfer Telegraphic transfer of funds from one centre to another.

Now synonymous with interbank electronic fund transfer.

Calendar Spread

An option position comprising the purchase and sale of two

option contracts of the same type with different expiration

dates at the same exercise price.

Call

An option that gives the holder the right to buy the

underlying instrument at a specified price during a fixed

period.

Call Option A call option confers the right but not the obligation to buy

stock, shares or futures at a specified price.

Cambiste French term for foreign exchange dealer.

Capital Account Juxtaposition of the long and short term capital imports and

exports of a country.

Carry The interest cost of financing securities or other financial

instruments held.

Carry-Over Charge

A finance charge associated with the storing of commodities

(or foreign exchange contracts) from one delivery date to

another.

page 78 of 110

Value Definition

Cash

Normally refers to an exchange transaction contracted for

settlement on the day the deal is struck. This term is mainly

used in the North American markets and those countries

that rely on these markets for foreign exchange services

because of time zone preferences i.e. Latin America. In

Europe and Asia, cash transactions are often referred to as

"value same day" deals.

Cash and Carry

The buying of an asset today and selling of a future contract

on the asset. A reverse cash and carry is possible by selling

an asset and buying a future.

Cash Delivery Same day settlement.

Cash Settlement

A procedure for settling futures contract where the cash

difference between the future and the market price is paid

instead of physical delivery.

CBOE Chicago Board Options Exchange.

CBOT or CBT Chicago Board of Trade.

CD Certificate of Deposit.

Central Bank

A central bank provides financial and banking services for a

country's government and commercial banks. It implements

the government's monetary policy as well by changing

interest rates. It is normally the issuing bank and controls

bank licensing, and any foreign exchange control regime.

Central Rate

Exchange rates against the ECU adopted for each currency

within the EMS. Currencies have limited movement from the

central rate according to the relevant band.

Certificate of Deposit (CD)

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.

CFTC

The Commodity Futures Trading Commission, the US Federal

regulatory agency for futures traded on commodity

markets, including financial futures.

CHAPS Clearing House Automated Payment System.

Chartist

An individual who studies graphs and charts of historic data

to find trends and predict trend reversals. These 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.

CHIPS

The New York clearing house clearing system. (Clearing

House Interbank Payment System). Most euro transactions

are cleared and settled through this system.

page 79 of 110

Value Definition

CIBOR

Copenhagen Interbank Rate, the rate at which the banks

lend the Danish Krone on an unsecured basis. The rate is

calculated daily by the Denmark's Nationalbank (the Danish

Central Bank), based on rules set out by the Danish Banker's

Association.

Clearing

The process of setting a number of items against one

another and making fund transfers only on the net balance

as part of the settlement process.

Closed Position

A transaction which leaves the trade with a zero net

commitment to the market with respect to a particular

currency.

Closing Purchase

Transaction

The purchase of an option identical to one already sold to

liquidate a position.

CME Chicago Mercantile Exchange Cock Dates (see broken dates).

Coincident Indicator An economic indicator that generally moves in line with the

general business cycle such as industrial production.

Comex Commodity Exchange of New York.

Commission The fee that a broker may charge clients for dealing on

their behalf.

Compound Option An option on an option, the dates and price of such option

being fixed.

Comptant French term for spot settlement in foreign exchange.

Confirmation A memorandum to the other party describing all the

relevant details of the transaction.

Consumer Price Index

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

expectations 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.

Contract

An agreement to buy or sell a specified amount of a

particular currency or option during a specified month in

the future (See Futures contract).

Contract Expiration Date

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.

Contract Month

The month in which a futures contract matures or becomes

deliverable if not liquidated or traded out before the date

specified.

Correspondent Bank

The bank that regularly performs services on behalf of a

foreign bank that has no branch in the relevant centre, e.g.

to facilitate the transfer of funds. In the US, this often

occurs domestically due to interstate banking restrictions.

page 80 of 110

Value Definition

Cost of Carry

The interest rate parity, where the forward price is

determined by the cost of borrowing money in order to hold

the position.

Cost of Living Index Broadly equivalent to Retail Price Index or Consumer price.

Counter Value Where a person buys a currency against the dollar, it is the

dollar value of the transaction.

Counterparty The other side to a deal (customer, or bank) with which a

foreign exchange deal is executed.

Counterparty Risks

Foreign Currency Inter-bank Exchange (FOREX) instruments

are Positions (Buy and/or Sell) between the Client and its

Counterparty and, unlike exchange-traded foreign exchange

instruments which are, in effect, guaranteed by a clearing

organization affiliated with the exchange on which the

instruments are traded, are not guaranteed by a clearing

organization. Thus, when the Customer purchases an OTC

foreign exchange instrument, it relies on the Counterparty

from which it has purchased the instrument to fulfill the

contract. Failure of a Counterparty to fulfill a Position could

result in losses of any prior payment made pursuant to the

Positions, as well as the loss of the expected benefit of the

transaction.

Country Risk

Factors that affect currency trading unique to the specific

country including political, regulatory, legal and holiday

risks.

Coupon

(1) On bearer stocks, the detachable part of the hide behind

nominee status. Certificate exchangeable for dividends. (2)

Denotes the rate of interest on a fixed interest security.

Coupon Value The annual rate of interest of a bond.

Cours du Change (French) Exchange rate.

Cours Libre (French) Free exchange rate.

Cours Officiel (French) Official exchange rate.

Court French for "short" as in "une position courte".

Courtier (French) Broker.

Cover

(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.

Covered Call A term used in the foreign exchange market for the US

Dollar/British Pound rate.

Covered Call Write

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.

page 81 of 110

Value Definition

Covered Interest Rate

Arbitrage

An arbitrage approach which consists of borrowing currency

A, exchanging it for currency B, investing currency B for the

duration of the loan, and, after taking off the forward cover

on maturity, showing a profit on the entire set of deals. It is

based on the theorem of interest rate parity (one of the key

theoretical economic relationships), which says that the

return on a hedged foreign investment will just equal the

domestic interest rate on investments of identical risk.

When the covered interest rate differential between the

two money markets is zero, there is no arbitrage incentive

to move funds from one market to another.

Covered Margin

The interest rate margin between two instruments

denominated in different currencies after taking into

account of the cost of forward cover.

CPI

Consumer Price Index. 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.

CPSS Committee on Payment and Settlement Systems.

Crawling Peg (Adjustable

Peg)

An exchange rate system where a country's exchange rate is

"pegged" (i.e. fixed) in relation to another currency. The

official rate may be changed from time to time.

Credit Lombard See Lombard rate.

Credit Risk

The risk that a debtor will not repay; more specifically the

risk that the counterparty does not have the currency

promised for delivery.

Cross Deal A foreign exchange deal entered into involving two

currencies, neither of which is the base currency.

Cross Hedge

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.

Cross Rate

An exchange rate between two currencies, usually

constructed from the individual exchange rates of the two

currencies, as most currencies are quoted against the

dollar.

Crossed Market The situation which exists when a broker's bid is higher than

the lowest offer of another broker.

Cross-Trade

A cross-trade transaction is a transaction in which either the

buy-broker and the sell-broker are the same, or the buybroker

and the sell-broker belong to the same firm.

Currency

The type of money that a country uses. It can be traded for

other currencies on the foreign exchange market, so each

currency has a value relative to another.

Currency Basket

Various weightings of other currencies grouped together in

relation to a basket currency (e.g. ECU or SDR). Sometimes

used by currencies to fix their rate, often on a trade

weighted basket.

Currency Swaps See swaps.

page 82 of 110

Value Definition

Current Account

The net balance of a country's international payments

arising from exports and imports together with unilateral

transfers such as aid and migrant remittances. It excludes

capital flows.

Current Balance

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 receipts of

interest, profits and dividends from abroad.

Cycle The set of expiration dates applicable to different classes of

options.

 


 

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