r of an option must indicate
to the seller his intention to the option.
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Deficit
Shortfall in the balance of trade, balance of payments, or
government budgets.
Defection
French term for default.
Deferred months
Distant actively trading contract months, also referred to as back
months.
Deflator
Difference between real and nominal Gross National Product, which is
equivalent to the overall inflation rate.
Del credere risk
Risk that the counterparty is either unable or unwilling to fulfill
his payment obligations.
Delivery date
The date of maturity of the contract, when the exchange of the
currencies is made This date is more commonly known as the value
date in the FX or Money markets.
Delivery month
The calendar month in which a futures contract comes to maturity and
becomes deliverable.
Delivery points
Those locations designated by futures exchanges at which the
currency represented by a futures contract may be delivered in
fulfillment of the contract.
Delivery Risk
A term to describe when a counterparty will not be able to complete
his side of the deal, although willing to do so.
Delivery
The settlement of a futures contract by receipt or tender of a
financial instrument or currency.
Delta
The change in the value of the option premium made fully paid by the
capitalisation of reserves and given relative to the instantaneous
change in the value of the; underlying instrument, expressed as a
coefficient.
Delta hedging
A method used by option writers to hedge risk exposure of written
options by purchase or sale of the underlying instrument in
proportion to the delta.
Delta spread
A ratio spread of options established as a neutral position by using
the deltas of the options concerned to determine the hedge ratio.
Demand pull
Demand led inflation, commonly referred to as too much money chasing
too few goods.
Depo
Deposit.
Deport
French term for discount.
Deposit dealings
Money Market operations.
Deposit money
Bank and other giro credit balances which can be converted at any
time into cash although normally used for cashless payment.
Deposit Swap
A series of transactions whereby a deposit for a particular currency
1, and the proceeds converted via spot currency into currency 2.
Currency 2 is then lent. To cover potential exchange movement a
forward sale of currency 2 against currency 1 is entered into which
will return the converted amount plus interest into the original
currency.
Deposit Book
The net position arising from all deposit and loan transactions in a
given currency.
Depreciation
A fall in the value of a currency due to market forces rather than
due to official action.
Depth of market
A measure of how much a price has to move in order to execute larger
than normal transactions. The smaller the price movement and the
larger the transaction, the deeper the market.
Derivatives
A broad term relating to risk management instruments such as
futures, options, swaps, etc.. The contract value moves in relation
to the underlying instrument or currency. The issue of derivatives
and their control following large losses by banks and corporates has
been subject of much debate.
Desk
Term referring to a group dealing with a specific currency or
currencies.
Details
All the information required to finalize a foreign exchange
transaction, i.e. name, rate, dates, and point of delivery.
Deutsche Terminboerse
German options and futures exchange, a fully computerized system
with integrated trading and clearing.
Devaluation
Deliberate downward adjustment of a currency against its fixed
parities or bands, normally by formal announcement.
Devisen, Devises
Foreign exchange in German and French respectively.
Devisenkassamarkt
German for spot exchange market.
Devisenterminmarkt
German for forward exchange market.
Diagonal (bull or bear)
spread
The purchase of a longer maturity option and the sale of a shorter
maturity, lower exercise price option. The choice of calls or puts
will determine its bear or bull character.
DIBOR
Dublin Inter-bank Offered Rate.
Direct quotation
Quoting in fixed units of foreign currency against variable amounts
of the domestic currency.
Dirty Float
Floating a currency when the rate is controlled by intervention by
the monetary authorities.
Discount
(1) See forward Rate. Forward rate is lower than spot rate (2) an
option that is trading for less than its intrinsic value.
Discount Rate
The rate at which a bill is discounted. Specifically it refers to
the rate at which a central bank is prepared to discount certain
bills for financial institutions as a means of easing their
liquidity, and is more accurately referred to as the official
discount rate.
Disposable Income
Earnings after tax.
Discretionary Income
Net of tax and fixed personal spending commitments.
Divergence indicator
A concept in the EMS to measure divergence from the central parity
of the currency against the ECU. The thresh-hold for intervention
for each currency excludes the currencies weight in the ECU.
DM, DMark
Deutsche Mark.
Domestic Rates
The interest rates applicable to deposits domiciled in the country
of origin. Value and values may vary from Eurodeposits due to
taxation and varying market practices.
Double
An option either to buy or sell an instrument or currency at a
specified price. The exercise of the right to sell causes the right
to buy to expire and vice versa.
Down and Out call
A call option that expires if the asset price falls below a
predetermined level.
Down tick
The sale of a security at a price lower than the previous one.
DTB
abbreviation of Deutsche Terminboerse.
Due from Balance
US term for " nostro account".
Due to Balance
US term for " vostro account".
Dutch Auction
A competitive bidding technique where the lowest price to sell the
entire amount of the offered instrument is the price at which all
instruments are sold. A technique used for some controlled foreign
exchange and sovereign debt.
- E -
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Easing
Modest decline in price.
Economic Indicator
A statistics which indicates current economic growth rates and
trends such as retail sales and employment.
ECU
European Currency Unit.
EDI
Electronic Data Interchange.
Effective Exchange Rate
An attempt to summarize the effects on a country's trade balance of
its currency's changes against other currencies.
EFT
Electronic Fund Transfer.
Either way market
In the Euro Interbank deposit market where both bid and offer rates
for a particular period are the same.
Emu
Name of currency that is to be the vehicle for European monetary
union under the Maastricht Treaty.
EMS
European Monetary System.
End/end
Indicates that both the spot and forward maturity, or two forward
maturities in a swap transaction, fall due on the last business day
of appropriate calendar months.
Entrepot
A term used for international trade where goods are shipped to a
centre for re-export. Hong Kong engages in significant amounts of
this form of trade.
EOE
European Options Exchange.
Epsilon
The change in the price of an option associated with a 1% change in
implied volatility (technically the first derivative of the option
price with respect to volatility). Also referred to as eta, vega,
omega and kappa.
ERM
Exchange Rate Mechanism.
Euro clear
A computerized settlement and depository system for safe custody,
delivery of, and payment for Eurobonds.
Euro Rates
The rates quoted for Euro-currencies.
Eurobonds
A long-term loan issued in a currency other than that of the country
or market in which it is issued. Interest is paid without the
deduction of tax.
Eurocurrency
A currency domiciled outside its country of origin normally held by
non residents.
Eurodollars
US dollars deposited in a bank (US or non US) located outside the
USA.
Eurofranc
Swiss French or Belgian francs traded on the Eurocurrency market.
Normally Swiss Francs are the more common currency.
Euromark
Deutschmarks traded on the Eurocurrency market.
European Monetary System
A system designed to stabilize if not eliminate exchange risk
between member states of the EMS as part of the economic convergence
policy of the EU. It permits currencies to move in a measured
fashion (divergence indicator) within agreed bands (the parity grid)
with respect to the ECU and consequently with each other.
European option
An option that can be exercised only on its expiration date rather
than before that date.
European Union
The group formerly known as the European Community.
Excess Liquidity
The maintenance by banks of a higher level of funds than is normally
desirable, usually arising due to a drop in demand for funds because
of economic conditions or interest rates.
Exchange control
A system of controlling inflows and out flows of foreign exchange,
devices include licensing multiple currencies, quotas, auctions,
limits, levies and surcharges.
Exchange Equalization
Account
An account controlled by the UK Treasury and managed by the Bank of
England. Its assets include the country's gold and foreign exchange
reserves. Its objective is to manage the exchange rate in accordance
with government policy.
Exchange of futures
for cash
A transaction in which the buyer of a cash commodity transfers to
the seller a corresponding amount of long futures contracts, or
receives from the seller a corresponding amount of short futures, at
a price difference mutually agreed upon. In this way, the opposite
hedges in futures of both parties are closed out simultaneously.
Exercise notice
The formal notification that the holder of a call (or put) option
wishes to buy (or sell) the underlying security at the exercise
price.
Exercise limit
A limit on the number of options contracts a holder may exercise
within a specific period.
Exercise price
See Strike price.
Exercise value
For a call option, this is the amount by which the strike price is
below the underlying investment; for a put option, it is the amount
by which the strike price is above the underlying investment.
Exotic
A less broadly traded currency.
Expiration date
(1) Options - the last date after which the option can no longer be
exercised. (2) Bonds-the date on which a bond matures.
Expiration month
The month in which an option expires.
Expiry date
The last date on which an option can be bought or sold.
Exposure
see position and mismatch. Various methods of calculating an
exposure exist (i) Net working capital - The current assets in a
foreign currency minus current liabilities in the currency; (ii) Net
financial method The current assets in a foreign currency minus
current liabilities and long term debt in the currency; (iii)
Monetary/non-monetary method - Monetary assets and liabilities in
the foreign currency are valued at present exchange rates, while
non-monetary items are entered at the relevant historic rates.
Extrinsic value
See Time value.
- F -
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Fair value
An option value derived from a mathematical option valuation model.
Fast market
Rapid movement in a market caused by strong interest by buyers
and/or sellers. In such circumstances price levels may be omitted
and bid and offer quotations may occur too rapidly to be fully
reported.
Fat tail distribution
A graph that predicts a greater probability of a very l