Skip to the content

Glossary of Terms

Helping you understand foreign currency, we have put together a glossary of foreign exchange terms

A


ABA/ Routing code

A digital code used by the American Bankers Association to define a bank. This may also be known as Fed wire.

Ask price

The price that currency is offered for sale.

B


Base Currency

Currencies are quoted as a foreign exchange pair, such as pound against dollar. The first currency quoted in the pair is the base currency.

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.

Bear, Bearish, Bear Market

A Bear is a person who believes that the prices in the market will decline. This person would be considered Bearish. A Bear Market is a market that is declining (e.g. if the £ vs US$ rate is falling). If the decline was expected to continue, the market would be Bearish.

Beneficiary Country

The Country where you are sending the money.

Bid price

The price at which a client is willing to pay to buy a given currency.

BIC / SWIFT Code

This is the unique identification code of a particular bank consisting of 8 or 11 alphanumeric characters.

BSB Code

This is the local clearing code for Australian dollar payments and can be used in additions to the SWIFT code as extra reference when effecting payment from outside Australia. This will be 6 numerical characters in length.

Bull, Bullish, Bull Market

A Bull is a person who believes that prices in the market will rise. This person would be considered Bullish. A Bull Market is a market that is rising (e.g. if the £ vs US$ rate moves higher). If the advance is expected to continue, the market would be Bullish.

C


Cable

Foreign Exchange jargon for the UK Pound v US Dollar exchange rate. Alludes to the cable laid under the Atlantic, which linked the tickertape machines in New York and London. Central Bank - A Government institution in control of the nation's monetary policy and the printing of that nation's currency.

Consumer Price Index (CPI)

A measure of the average amount (price) paid for a market basket of goods and services by a typical U.S. consumer in comparison to the average paid for the same basket in an earlier base year.

D


Deficit Spending

A term which refers to the situation wherein the government spends more than it receives in taxes.

E


EMS

A term which refers to the situation wherein the government spends more than it receives in taxes.

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.

Exchange rate

The price that a currency can be bought or sold against another currency.

F


Federal Debt

The current dollar sum of obligations equal to the accumulated past deficits minus surpluses of the United States 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

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.

Fiscal Policy

Government policy regarding taxation and spending. Fiscal policy is made by Congress and the Administration.

Foreign Exchange

The exchange of foreign currency. On the foreign exchange market, foreign currency is bought and sold for immediate (spot) or forward delivery.

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.

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.

FX

An abbreviation of Foreign Exchange.

H


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)

I


IBAN

The International Bank Account Number (IBAN) is an international standard for identifying bank accounts across national borders.

Interbank Rates

The Foreign Exchange rates, at which large international banks quote other large international banks.

L


Limit Order

An order to buy or sell one currency against another when a pre-determined price is reached. It is lodged with a Bank or Broker and floats 24 hrs a day until either cancelled or hit. It is used to try and achieve a very favourable price at the very top or bottom of a range. It is free of charge to use and provides an excellent vehicle for companies to attempt to buy or sell their currencies at the best point in a range (without having to constantly monitor the prices and keep calling a broker/bank for prices).

M


Margin

A cash deposit provided by a client as collateral to cover a forward position.

Maturity

The date when a payment of an obligation or contract is due.

Monetary Policy

The federal government's 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.

O


Offer price

The pricing level at which a seller is prepared to sell a foreign currency.

Order

A client's instruction to buy or sell currency.

P


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. For example, when a currency moves from 1.5720 to 1.5725 it has moved 5 points.

R


Risk on

Describes a positive trading environment in which the market is confident enough to target traditionally riskier financial assets such as equities or higher-yielding currencies such as the AUD, NZD or CAD.

Risk off

Describes the environment is one in which market sentiment is weak and investors channel their funds into safe-haven assets such as US treasuries, the US Dollar and the Swiss Franc.

S


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

A transaction which will come to settlement in two days. The spot market involves buying and selling currencies two days ahead.

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.

Stop-loss

An order that specifies that a trade should be closed at a specific rate.

Swift

Society of Worldwide Interbank Financial Telecommunications. It is a dedicated computer network that is set up to support fund transfer messages between member banks worldwide.

T


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.

V


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.

Y


Your Reference

This will allow the Recipient to easily identify your payment.

 

65x65 Demo Image

FAQ's

Still can't find the answer to your question?

We have compiled a list of common questions in our FAQ section

65x65 Demo Image

Speak to an Expert

Speak to a UK Customer Service team

To discuss our services or to become a Caxton customer contact us.