Commonly Used Terms In Foreign Exchange Transactions

Commonly Used Terms In Foreign Exchange Transactions

·          refers to simultaneous buying and selling of foreign exchange. The profits are made from the difference between foreign exchanges prevailing in the different centres at the same time or in different currencies.

·         refers to the exchange rtaes on which foreign exchange dealers are prepared to buy in the market.

·         it means that covering is either open long or short positions by means of a spot operation. Sometimes it is by means of forward operations.

·          refers to ratio between the exchange rates of two foreign currencies in terms of a third currency

·         a transaction in which two counterparties exchange specific amounts of two different currencies at the outset and repay over time according to a predetermined rule which reflects interest payments and possibly amortization of principal.

·         it means that documents are issued by foreign exchange dealers or brokers to both parties to confirm a foreign exchange transaction.

·         refers to a system having no parities, and exchange rate fluctuate freely.

·         it means that bills of exchange drawn on a foreign centre in term of a foreign currency.

·         it refers to the operation of foreign exchange for future delivery.

·         the actual rates on whcih foreign exchanges for future delivery are quoted

·         an agreement between two parties wishing to protect themselves against a future movement in interest rates. The two parties agree on an interest rate for a specified period from a specified future settlement date based on an agreed principal amount. No committment is made by either party to lend or borrow the principal amount. Their exposure is only the interest difference between the agreed and actual rates at settlement.

Hedge

·         to reduce risk by taking a position which offsets existing or anticipating exposure to a change in market rates.

Long Position:

·         refers to an excess of short term balances

·         it means that current accounts of a bank with its correspondents in overseas in the latter’s currencies.

·         the differences between long positions and short positions in a particular foreign currencies. It may be the grand total of long and short positions in all foreign currencies.

·         this is a forward exchange transaction where one of the parties has the choice on various delivery dates.

·         refers to foreign exchange bought and sold and that it has no connection with the simultaneous sale or purchase of spot exchanges.

·         it means that exchange rate on which dealers are willing to sell foreign currencies in the market.

·         this is a relative term used for maturities under one month

·         this is an excess of short term liabilities over short term assets to be claimed in a foreign currency

·          it means that foreign exchanges are bought and sold for immediate delivery

·         it refers to a discrepancy between buying and selling rates

·         similar to forward rate

·         it means that a bank quotes simultaneous quotation of buying and selling rates and indicates its willingness to deal in either way.

·          it refers to the date on which foreign exchanges are bought and sold to be delivered and to be paid in local currency

·         this means that arrangement for spot exchanges has to be delivered and paid for on the same day instead of two clear days after.

·          it refers to the current accounts of a foreign bank with its correspondents in the latter’s currency