Glossary
A | B | C | D | E | F | G | H | I | L | M | N | O | P | R | S | V | W
A
Appreciation
A common foreign exchange term describing the event of a currency strengthening or increasing in value relative to another currency based on market demand. Appreciation is generally used to describe permanent or long-term revaluation of currencies as opposed to daily or short-term market movement. Often the term is an indication of a formal revaluation or intervention by a central bank.
AML
Anti money laundering. Travelex Global Business Payments operates strict controls and is fully compliant with AML legislation.
Ask
The price at which the currency or instrument is offered.
Automated Clearing House (ACH)
A U.S. term for an organization set up by financial institutions agreeing to initiate and receive among themselves electronic transfers of funds authorised by their customers. Typically, payments made via ACH are not time-sensitive.
B
BACS
Bankers automated clearing services.
Bank Notes
A term describing the printed, physical currency of a country as opposed to funds held in accounts, i.e., U.S. dollar bank notes are the $1, $5, $10, $20 bill in your wallet. Bank notes are not traditionally part of the FX market and are typically priced at a premium to the current spot rate for a currency.
Bank Rate
The rate at which a central bank is prepared to lend money to its domestic banking system.
Bid
The price at which a buyer has offered to purchase the currency or instrument.
C
Central Bank
A bank responsible for controlling a country’s monetary policy. It is often the issuing bank and governs bank licensing and any foreign exchange control system.
CHAPS
Clearing House Automated Payment System. London-based GBP currency RTGS payment processing system.
Compliance
A term used to describe conforming to and fulfilling regulations of the Department of Treasury or other regulatory agency regarding financial transactions.
Conversion
The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency.
Convertible
A common foreign exchange term referring to the ability to freely exchange one currency into another currency. Full convertibility indicates no restrictions by a country’s central bank or government. Other “degrees” of convertibility exist for certain currencies.
Cross Rate
A common foreign exchange term describing the value of one foreign currency relative to another foreign currency, ignoring the local currency. An example is the value of the Japanese yen in British Pounds as opposed to the value of the Japanese yen in U.S. dollars.
D
Depreciation
A common foreign exchange term describing the event of one currency weakening or decreasing in value relative to another currency. Depreciation is generally used to describe permanent or long term devaluation of currencies as opposed to daily or short term market movements. Often the term indicates the formal devaluation of the currency or intervention by a central bank.
Direct Debit
A method of settling payments electronically via secure debits from an authorized bank account.
Discount Rate
The interest rate which the Federal Reserve charges to commerical banks and other depository institutions on loans they receive from their regional Federal Reserve Bank’s lending facility. Also referred to as the discount window.
Discounted
A commonly used term in foreign exchange trading describing the process of considering the impact of certain information or events before the information or event occurs, therefore limiting the impact of the event itself.
Draft
A paper payment order issued by a bank.
E
EFT / Electronic Funds Transfer
A term used to describe the transfer of funds electronically from one bank to another.
Exchange Rate
The price of one foreign currency in terms of the local currency. Also known as rate of exchange.
Euro
The Euro, introduced electronically in 1999 and with bank notes in 2002, is the single currency for some members of the European Union. Countries participating in the EURO today include France, Germany, Ireland, Spain, Italy, Portugal, Greece, Austria, Finland, Belgium, the Netherlands, and Luxembourg.
F
Fixed Rate
A common foreign exchange term describing a currency’s exchange rate which is determined by the government or central bank. The rate of exchange does not fluctuate with the market and is only traded at the official rate. Often a country will fix its rate to a strong currency.
Floating Rate
A common foreign exchange term describing a currency’s exchange rate as determined by the foreign exchange market. The rate of exchange is determined by the market’s activity and the currency is allowed to “float” in value against other currencies.
Forward Contract
A foreign exchange instrument where one is able to purchase or to sell a specific amount of foreign currency, for a specific date in the future ranging from one month to one year, at a specific rate of exchange. This protects the buyer against the risk of fluctuating rates.
Forward Points
Percentage point additions or deductions from the spot price of a currency based on interest rate variances between the two countries.
Forward Premium
A condition with a forward contract where the forward rate of exchange is less favorable than the spot price. Generally, in countries with lower interest rates, the forward price will be less favourable than spot and the foreign currency will sell at a premium.
Futures
A foreign exchange instrument where one may contract to purchase or sell a standard amount of foreign currency, at a set price for expiration on a set date, the third Wednesday of January, March, April, June, July, September, October, and December.
G
GlobalPay
Travelex Global Business Payment’s unique payment system that streamlines the payment process.
H
Hard Currency
A common foreign exchange term used to describe a strong currency with long-term stability. These currencies are often used as reserve currencies by central banks. Examples of hard currencies are the U.S. dollar, Japanese yen, Euro, and Swiss franc.
Hedging
A common foreign exchange trading term used to describe the process of eliminating or reducing exchange risk through the use of foreign exchange instruments such as forward contracts, futures, and options.
I
In Home Currency
The expression of a rate of exchange as the cost of one unit of foreign currency in home currency. Example 1 EUR = $1.1702. The in home currency term is the reciprocal of the per home currency term.
Intervention
A common foreign exchange trading term used to describe the process of a central bank, or central banks, participating in the foreign exchange market by buying and selling large blocks of currency in order to strengthen or weaken a particular currency.
L
LIBOR
A term representing the London Interbank Offer Rate. A popular key interest rate in the European financial system, similar to the U.S. Federal Funds rate.
Local Currency
A common foreign exchange rate used to describe a country’s domestic currency, such as the dollar in the United States or the franc in Switzerland.
M
Market
A term used to describe the overall global foreign currency trading between banks, companies, and governments.
N
Non-transferable
A term used in banking to describe a cheque that cannot be signed or transferred to a third party. This means only the beneficiary can deposit the cheque. Travelex Global Business Payments cannot deposit cheques issued to clients that are marked non-transferable.
O
Offer
A foreign exchange term referring to the price at which one will sell to another a particular foreign currency. For example, the offer price on the Retail Rate Sheet is listed as “Sell” meaning this is the price we are selling (or charging the customer) for a particular foreign currency. Also referred to as the ask price.
OPICS
A third party system that manages Travelex Global Business Payments trading portfolios and profit.
Option
A foreign exchange instrument where the buyer has the right, but not the obligation, to buy a standardised amount of foreign currency on a defined day, at a given price, or the strike price.
P
Par Value
A term used to describe an equal exchange rate of one unit of currency for another unit of another currency.
Prime Rate
The interest rate charged by commercial banks for short-term loans to the bank’s best customers. The prime rate is often affected by changes in the Federal Funds rate.
Profit-Taking
The selling of one currency for another to cash in on gains earned on a sharp market rise.
R
Range Trading
A common foreign exchange trading term describing the process of currency movements up and down within a narrow band.
Resistance Level
A foreign exchange trading term used to describe a rate of exchange or market level where political or economic factors may prohibit the currency’s value from rising above a certain level. Resistance levels may change as market conditions warrant. The opposite of a resistance level is a support level.
Risk
A term used to describe the potential monetary loss or gain from fluctuating exchange rates.
RTGS
Real Time Gross Settlement. Fedwire in the U.S. and CHAPS in the U.K. are examples of RTGS payment systems. Value is final when a RTGS payment is executed.
S
SEPA
Single European Payment Area. For more information please visit the SEPA website.
SITS
Strategic Information Technology Services. A student administration system for higher education and further education institutions.
Speculation
A foreign exchange trading term describing the process of purchasing or selling large blocks of foreign currency in an effort to profit from exchange rate movements.
Spot
A foreign exchange trading term describing the process of conducting a transaction for immediate delivery of the funds as opposed to a future date. In trading, the delivery of a spot transaction is generally two business days in the future.
Strike Price
A term used in options trading. The price at which an option can be purchased or sold over a specified period of time. Also known as the Exercise Price.
Strong Home Currency
A term used to describe the relative strength of the home currency versus other currencies. Generally, it is used to describe the daily movement in the market as opposed to long-term value. A strong home currency means each home currency unit purchases more units of foreign currency.
Support Level
A foreign exchange trading term used to describe a rate of exchange or market level under which political or economic factors may prohibit the dollar’s value from falling. Support levels may change as market conditions warrant. The opposite of the support level is the resistance level.
SWIFT
Society for a Worldwide Interbank Financial Telecommunication. For more information, please visit http://www.swift.com/.
V
Value Date
In the foreign exchange market, value date refers to the delivery date of funds traded. Normally it is on spot transactions two days after a transaction is agreed upon and the future date in the case of a forward foreign exchange trade.
W
Weak Home Currency
A weak home currency means each home currency purchases fewer units of foreign currency. Generally, it is used to describe the daily movement in the markets as opposed to long-term value.
Wire Transfer
A term used to describe the transfer of funds electronically from one bank to another. Also known as Electronic Funds Transfer (EFT).
