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Forex Glossary: J – R

Forex Glossary: J – R

Week 3 of our Forex Glossary covers J through R: J Curve -A term describing the expected effect of a devaluation on a country's trade balance. It is anticipated that import bills rise before export orders and receipts increase. Jawbone – Announcements and statements by politicians or monetary authorities to influence decisions by business, consumer, or trade union sectors, often associated with forecasts and policy implications. Read on for more …

J Curve
A term describing the expected effect of a devaluation on a country's trade balance. It is anticipated that import bills rise before export orders and receipts increase.

Announcements and statements by politicians or monetary authorities to influence decisions by business, consumer, or trade union sectors, often associated with forecasts and policy implications.

Jurisdiction Risk
(1) The risk inherent in placing funds in the Centre where they will be under the jurisdiction of a foreign legal authority.
(2) The risk in making a loan subject to the laws of another country.

A measure of the sensitivity of the price of an option to a change in its implied volatility.

Key currency
Small countries, which are highly dependent on exports, orientates their currencies to their major trading partners, the constituents of a currency basket.

Slang for the New Zealand dollar.

Knock In
A process where a barrier option (European) becomes active as the underlying spot price is in the money. Knock out has a corresponding meaning although the option may permanently cease to exist.

Dealers analysis of the forward book or deposit book showing every existing deal by maturity date, and the net position at each future date arising.

Lagging Indicator
A measure of economic activity which tends to change after change has occurred in the overall economy e.g. CPI.

Lapsed Rights
Rights for which call payments have not been made by the acceptance date.

Last Trading Day
The day on which trading ceases for an expiring contract.

Lay Off
To carry out a transaction in the market to offset a previous transaction and return to a square position.

Leading Indicators
Statistic that are considered to precede changes in economic growth rates and total business activity, e.g. factory orders.

Leads and Lags
The effect on foreign trade payments of an anticipated move in the exchange rate, normally a devaluation. Then payment of imports is faster and export receipts are slowed down.

Left-hand Side
Taking the left hand side of a two way quote i.e. selling the quoted currency. See Right-hand Side.

In options terminology, this expresses the disproportionately large change in the premium in terms of the relative price movement of the underlying instrument.

In terms of foreign exchange , the obligation to deliver to a counterparty an amount of currency either in respect of a balance sheet holding at a specified future date or in respect of an un-matured forward or spot transaction.

The London Interbank Offered Rate, the rate charged by one bank to another for lending money.

Life of Contract
The period between the beginning of trading in a particular future and the expiration of trading.

London International Financial Futures Exchange

Limit Down
The maximum price decline from the previous trading day's settlement price permitted in one trading session.

Limit Move
A price that has advanced or declined the permissible limit permitted during one trading session.

Limit Order
An order to buy or sell a specified amount of a security at a specified price or better.

Limit Up
The maximum price advance from the previous trading day's settlement price permitted in one trading session.

(1) The maximum price fluctuation permitted by an exchange from the previous session's settlement price for a given contract.
(2) In international banking, the limit a bank is willing to lend in a country.
(3) The amount that one bank is prepared to trade with another.
(4) The amount that a dealer is permitted to trade in a given currency.

Limited Convertibility
When residents of a country are prohibited from buying other currencies even though non-residents may be completely free to buy or sell the national currency.

Cash in circulation plus demand deposits at commercial banks. There are variations between the precise definitions used by national financial authorities.

Includes demand deposits time deposits and money market mutual funds excluding large CDs.

In the UK it is M1 plus public and private sector time deposits and sight deposits held by the public sector.

In the US it is M2 plus negotiable CDs.

Maintenance Margin
The minimum margin which an investor must keep on deposit in a margin account at all times in respect of each open contract.

Make a Market
A dealer is said to make a market when he or she quotes bid and offer prices at which he or she stands ready to buy and sell.

Managed Float
When the monetary authorities intervene regularly in the market to stabilise the rates or to aim the exchange rate in a required direction.

(1) Difference between the buying and selling rates, also used to indicate the discount or premium between spot or forward.
(2) For options the sum required as collateral from the writer of an option.
(3) For futures a deposit made to the clearing house on establishing a futures position account.
(4) The percentage reserve required by the US Federal Reserve to make an initial credit transaction.

Margin Call
A demand for additional funds to be deposited in a margin account to meet margin requirements because of adverse future price movements.

Marginal Risk
The risk that a customer goes bankrupt after entering into a forward contract. In such an event the issuer must close the commitment running the risk of having to pay the marginal movement on the contract.

Mark to Market
The daily adjustment of an account to reflect accrued profits and losses often required to calculate variations of margins.


Market Amount
The minimum amount conventionally dealt for between banks.

Market Maker
A market maker is a person or firm authorised to create and maintain a market in an instrument.

Market Order
An order to buy or sell a financial instrument immediately at the best possible price.

Marshall – Lerner
A model that states that if the sum of the elasticity's of demand for a country's and that of the imports exceed one, then devaluation will have a positive effect upon the trade balance.

Where a dealer is able to match two customer deals which off set one another.

Matched Book
If the distribution of the maturities of a banks liabilities equal that of its assets , it is said to be running a matched book.

The process of ensuring that purchases and sales in each currency and deposits given and taken in each currency are in balance, by amount and maturity.

Matching Systems
Electronic Systems duplicating the traditional brokers market. A price shown by a bank is available to all trades.

Maturity Date
(1) The last trading day of a futures contract.
(2) Date on which a bond matures, at which time the face value will be returned to the purchaser. Sometimes the maturity date is not one specified date but a range of dates during which the bond may be repaid.

Mid-price or Middle Rate
The price half-way between the two prices, or the average of both buying and selling prices offered by the market makers.

Minimum Price Fluctuation
The smallest increment of market price movement possible in a given futures contract.

Minimum Reserve
Reserves required to be deposited at central banks by commercial banks and other financial institutions. Sometimes referred to as Registered Reserves.

(1) A mismatch between the interest rate maturities of a banks assets and liabilities.
(2) Forward purchases differ in the value date from the forward sales in a given currency.

Japanese ministry of International Trade & Industry.

Money Markets.

A school of economics which believes that strict control of money supply is the principal tool for implementing monetary policy, especially against inflation. Policies include cuts in public spending and high interest rates.

Monetary Base
Currency in circulation plus banks' required and excess deposits at the central bank.

Monetary Easing
A modest loosening of monetary constraint by changing interest rate, money supply, deposit ratios.

Monetary Policy
A central bank's management of a country's money supply. Economic theory underlying monetary policy suggests that controlling the growth of the amount of money in the economy is the key to controlling prices and therefore inflation. However, central banks' monetary capability is severely limited by global money movements. This forces them to use the indirect tool of exchange rate manipulation.

Monetary Union
An agreement between countries to maintain a fixed exchange rate between their currencies. A process which the EMS is intended to lead to, especially after the Maastricht Treaty.

Money Market
A market consisting of financial institutions and dealers in money or credit who wish to either borrow or lend.

Money Market Operations
Comprises the acceptance and re-lending of deposits on the money market.

Money Supply
The amount of money in the economy, which can be measured in a number of ways. See definitions of M0-M4.

Most Favoured Nation (MFN)
An undertaking to give the rate of tariff concession offered to members of the GATT. More concessionaire rates can exist.

Moving Average
A way of smoothing a set of data, widely used in price time series.

Naked Intervention
A central bank type of intervention in the foreign exchange market which consist solely of the foreign exchange activity. This type of intervention has a monetary effect on the money supply and a long term effect on foreign exchange.

Narrow Money
Limited definition of money to include cash or near cash, i.e. M1 or M0.

Nearby Contracts
The closest active futures contracts, i.e. those that expire the soonest.

Negative Sloping Yield Curve
A yield curve where interest rates in the shorter dates are above those in the longer dates.

A process which enables institutions to settle only the net positions with one another at the end of the day, in a single transaction, not trade by trade.

Net Position
The number of futures contracts bought or sold which have not yet been offset by opposite transactions.

Next Best Price Stop-loss Order
A stop-loss order which must be executed after the request level was reached.

Nominal Quotation
Used in Futures markets to refer to the estimated price for a future month or date for which there is no bid, ask or trade price.

Nominee Name
Name in which a security is registered and held in trust on behalf of the beneficial owner.

Nostro Account
A foreign currency current account maintained with another bank. The account is used to receive and pay currency assets and liabilities denominated in the currency of the country in which the bank is resident.

A financial instrument consisting of a promise to pay rather than an order to pay or a certificate of indebtedness.

Notice Day
Any day on which notices of intent to deliver on futures contracts may be issued.

Odd Lot
A non standard amount for a transaction.

Organisation of Economic Co-operation and Development. Membership is the more than developed countries.

The price at which a seller is willing to sell. The best offer is the lowest such price available.

Offered Market
Temporary situation where offers exceed bid.

The closing-out or liquidation of a futures position. Official Settlements Account
A U.S. balance of payments measure based on movement of dollars in foreign official holdings and US reserves. Also referred to as reserve transaction account.

Old Lady
Old Lady of Threadneedle Street, a term for the Bank of England.

Omnibus Account
An account maintained by one broker with another in which all of the accounts of the former are combined and carried only in its name, rather than designated separately.

Open Interest
The total number of outstanding option or futures contracts that have not been closed out by offset or fulfilled by delivery.

Open Outcry
A public auction method of trading conducted by calling out bids and offers across a trading ring or pit and having them accepted.

Open Market Operations
Central Bank operations in the markets to influence exchange and interest rates.

Open position
The difference between assets and liabilities in a particular currency. This may be measured on a per currency basis or the position of all currencies when calculated in base currency.

A contract conferring the right but not the obligation to buy (call) or to sell (put) a specified amount of an instrument at a specified price within a predetermined time period.

Option Class
All options of the same type – calls or puts -listed on the same underlying instrument.

Option Series
All options of the same class having the same exercise/strike price and expiration date.

Original Margin
See Initial Margin.

A market conducted directly between dealers and principals via a telephone and computer network rather than a regulated exchange trading floor. These markets have not been very popular. They were never part of the Stock Exchange since they were seen as "unofficial". Each OTC firm operates a market in the shares of a restricted list of (generally small and little-known) companies. Sometimes the dealer simply puts would-be buyers and sellers together but does not take a position in the shares themselves. These days OTC trading is seen as "consumer-friendly," meaning that it is interested in getting the buyer and seller the best possible price. Some see this as what share-trading is all about. However, market makers, many of whom create market movements purposefully, feel they are being elbowed out by OTC, and that speculation, arbitrage and "smart-trading" are undermined by the new market.

A put option is out-of-the-money if the exercise/strike price is below the price of the underlying instrument. A call option is out-of-the money if the exercise/strike price is higher than the price of the underlying instrument.

Outright Deal
A forward deal that is not part of a swap operation.

A holding of foreign exchange that is temporarily unable to be converted from the reserve currency into other reserve assets.

Overheated (Economy)
Is an economy where high-growth rates placing pressure on production capacity resulting in increased inflationary pressures and higher interest rates.

Overnight Limit
Net long or short position in one or more currencies that a dealer can carry over into the next dealing day. Passing the book to other bank dealing rooms in the next trading time zone reduces the need for dealers to maintain these unmonitored exposures.

A deal from today until the next business day.

Over the Counter
See OTC.

Quantitative methods designed to provide signals regarding the overbought and oversold conditions.

Package deal
When a number of exchange and /or deposit orders have to be fulfilled simultaneously.

(1) The nominal value of a security or instrument.
(2) The official value of a currency.

A term for USD FRF Spot Rate.

(1) Foreign exchange dealer's slang for your price is the correct market price.
(2) Official rates in terms of SDR or other pegging currency.

The value of one currency in terms of another.

Parity Grid
A term used in the context of the European Monetary System which consists of the upper, central and lower intervention points between member currencies.

The date on which a dividend or bond interest payment is scheduled to be paid.

Payment Date
A system where a currency moves in line with another currency, some pegs are strict while others have bands of movement.

Foreign exchange reserves of oil producing nations arising from oil sales.

Philadelphia Stock Exchange (PHLX)
The oldest U.S. securities exchange which offers currency futures and options on currency futures.

See point (below).

(1) 100th part of a per cent, normally 10,000 of any spot rate. Movement of exchange rates are usually in terms of points.
(2) One percent on an interest rate e.g. from 8% -9%.
(3) Minimum fluctuation or smallest increment of price movement.

Portfolio Insurance
An option hedging strategy to protect long cash market positions.

The netted total commitments in a given currency. A position can be either flat or square (no exposure), long, (more currency bought than sold), or short (more currency sold than bought).

Position Clerk
A clerk who assist the dealer in recording a dealers position and ensures that all deal tickets are completed and transferred to the back office or input into the books in a position keeping system.

Position Limit
The maximum position, either net long or net short, in one future or in all futures of one currency or instrument combined which may be held or controlled by one person.

Pre-Spot Dates
Quoted standard periods that fall between the transaction date and the current spot value date.

(1) The amount by which a forward rate exceeds a spot rate.
(2) The amount by which the market price of a bond exceeds its par value.
(3) Options, the price a put or call buyer must pay to a put or call seller for an option contract.
(4) The margin paid above the normal price level.

Primary Reserves
Gold related monetary reserves, being gold, SDR, etc.

Prime Rate
(1) The rate from which lending rates by banks are calculated in the US.
(2) The rate of discount of prime bank bills in the UK.

A dealer who buys or sells stock for his/her own account.

Producer Price Index
An economic indicator which gauges the average changes on prices received by domestic producers for their output at all stages of processing.

Profit Graph
A graphical representation of the profits to a given options strategy for different underlying asset prices.

Profit Taking
The unwinding of a position to realise profits.

Proxy Hedge
A term to describe when it is necessary to hedge against a currency where there is no market but it follows a major currency, the hedge is entered against the major currency.

Purchasing Power Parity
Model of exchange rate determination stating that the price of a good in one country should equal the price of the same good in another country, exchanged at the current rate. Also known as the law of one price.

Put Option
A put option confers the right but not the obligation to sell currencies, instruments or futures at the option exercise price within a predetermined time period.

Put Call Parity
The equilibrium relationship between premiums of call and put options of the same strike and expiry.

The use of cash generated by positive variation margins on a futures position to increase the size of the position, each reinvestment in successively smaller increments.

(1) A limit on imports or exports.
(2) A country's subscription to the IMF.

{mosbanner right}Quote
An indicative price. The price quoted for information purposes but not to deal.

Random Walk Theory
An efficient market hypothesis, stating that prices move randomly versus their intrinsic value. Therefore, no one can forecast market activity based on the available information.

A recovery in price after a period of decline.

The difference between the highest and lowest price of a future recorded during a given trading session.

(1) The price of one currency in terms of another, normally against USD
(2) Assessment of the credit worthiness of an institution.

Ratio Spread
Buying a specific quantity of options and selling a larger quantity of out of the money options.

Ratio Calendar Spread
Selling more near-term options than longer maturity options at the same strike price.

A decline in prices following an advance.

A price, interest rate or statistic that has been adjusted to eliminate the effect of inflation.

Simultaneous and mutually co-ordinated re- and devaluation of the currencies of several countries. An activity that mostly refers to EMS activity.

Reciprocal Currency
A currency that is normally quoted as dollars per unit of currency rather than the normal quote method of units of currency per dollar. Sterling is the most common example.

Reinvestment Rate
The rate at which interest earned on a loan can be reinvested. The rate may not attract the same level of interest as the principal amount.

French term for premium.

Reporting Dealer
Term for U.S. Primary Dealers.

Repo Rate
See Repurchase Agreement.

Repurchase Agreement
Agreements by a borrower where they sell securities with a commitment to repurchase them at the same rate with a specified interest rate.

Reserve Currency
A currency held by a central bank on a permanent basis as a store of international liquidity, these are normally Dollar, Euro, and sterling.

Funds held against future contingencies., normally a combination of convertible foreign currency, gold, and SDRs. Official reserves are to ensure that a government can meet near term obligations. They are an asset in the balance of payments.

Reserve Requirement
The ratio of reserves to deposits, expressed as a fraction prescribed by national banking authorities, including the United States.

Reserve Tranche
The 25% of its quota to which a member of the IMF has unconditional access, and for which there is no obligation to repay.

Resistance Point or Level
A price recognised by technical analysts as a price which is likely to result in a rebound but if broken through is likely to result in a significant price movement.

The renegotiation of the terms of existing debts. The term is usually used with reference to LDC debt. The term rescheduling is considered to be refinancing to avoid any implication of default. Major sovereign debt rescheduling for Brazil, and Mexico have been undertaken in recent years.

Retail Price Index
Measurement of the monthly change in the average level of prices at retail, normally of a defined group of goods.

Process of changing a call into a put.

Reversal patterns that occur at the end of the trend, signalling the trend change.

Increase in the exchange rate of a currency as a result of official action.

Revaluation Rate
The rate for any period or currency which is used to revalue a position or book.

Revaluation Rate
Revolving credit Upon repayment by the borrower the credit becomes automatically available.

Right-hand Side
To do a deal on the right hand side of a two way quote, normally to buy the currency and sell dollars. See Left-hand Side.

An area on a trading floor where futures or equities are traded.

The degree of uncertainty associated with an investment. The main elements that contribute to the riskiness of an investment are volatility, liquidity and leverage. All things being equal, a high degree of volatility and leverage makes an investment more risky. An illiquid market, where buyers are not always matched by sellers, also increases risk & investors can be left holding an asset that is falling in price.

The relationship between the risk and return on an investment. Usually, the more risk you are prepared to take, the higher the return you can expect. Depositing your money in a bank is safe and therefore a low return is regarded as sufficient. Investing in stock market exposes you to more risk (from capital losses) and so investors will expect a higher return.

Risk Factor
The risk factor (delta) indicates the risk of an option position relative to that of the related futures contract.

Risk Management
The identification and acceptance or offsetting of the risks threatening the profitability or existence of an organisation. With respect to foreign exchange involves among others consideration of market, sovereign, country, transfer, delivery, credit, and counterparty risk.

Risk Position
An asset or liability, which is exposed to fluctuations in value through changes in exchange rates or interest rates.

Risk Premium
Additional sum payable or return to compensate a party for adopting a particular risk.

Risk Reversal
A combination of purchasing put options with the sale of call options.

Risk Reversal
The put limits downside, while the call limits the upside.

An overnight swap, specifically the next business day against the following business day (also called Tomorrow Next, abbreviated to Tom-Next).

Rollover Credit
Medium term credit with a variable interest rate, which is governed by the currently prevailing rates on the Euromarket.

Round Trip
Buying and selling of a futures or options contract.

Running a Position
Keeping open positions in the hope of a speculative gain.

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Forex Glossary A – C 

Forex Glossary D – I