Delivery against collateral  -  receipt against payment.  Same as DVP.

The maximum size of a position which a dealer is allowed to take during the day.

Same as open repo.

Delivery by value, a mechanism for overnight repo against gilt collateral.

One of the bonds which is eligible to be delivered by the seller of a bond futures contract at the contract's maturity, according to the specifications of that particular contract.

A repo in which the collateral is delivered  -  that is, a bilateral repo.

(Or DvP). A method for the settlement of a securities transaction, whereby a payment from Bank A to Bank B is made only if, and at the same time as, the corresponding security is delivered from Bank B to Bank A.

The change in an option's value relative to a change in the underlying's value.

An investment of cash in return for interest.

A decrease in the market value of a currency in terms of other currencies.  See appreciation, devaluation.

Strictly, any financial instrument whose value is derived from another, such as a forward foreign exchange rate, a futures contract, an option, an interest rate swap etc.  Forward deals to be settled in full are not always called derivatives, however.

An official one-off decrease in the value of a currency in terms of other currencies.  See revaluation, depreciation.

An exchange rate quotation against the US dollar in which the dollar is the variable currency and the other currency is the base currency.

A floating-rate régime with some government intervention.

The price of a security including accrued coupon.  See clean price.

The amount by which a currency is cheaper, in terms of another currency, for future delivery than for spot, is the forward discount (in general, a reflection of interest rate differentials between two currencies).  If an exchange rate is 'at a discount' (without specifying to which of the two currencies this refers), this generally means that the variable currency is at a discount.  See premium.

To discount a future cashflow means to calculate its present value.

An instrument which pays no coupon and is therefore always worth less than its face value unless interest rates are negative.

The method of market quotation for certain securities (US and UK treasury bills for example), expressing the return on the security as a proportion of the face value of the security received at maturity  -  as opposed to a yield which expresses the return as a proportion of the original investment.

A repo in which the buyer may return at maturity a security which is different, within agreed limits, from the original collateral.

Buy/sell-back (in the US)

The illegal practice of a repo seller using the same security to collateralise two separate repos in a HIC repo (not possible where the collateral has to be delivered).

The person to whom a bill of exchange is addressed, and who owes the money.

The originator of a bill of exchange.

A system of two or more exchange rates for a currency, each used for a different type of transaction.

Same as hold-in-custody repo

(Or Macaulay duration).  A measure of the weighted average life of a bond or other series of cashflows, using the present values of the cashflows as the weights.  See modified duration.

Delivery versus payment, in which the settlement mechanics of a sale or loan of securities against cash, is such that the securities and cash are exchanged against each other simultaneously through the same clearing mechanism and neither can be transferred unless the other is.

A company’s exposure to currency movements other than transaction exposure and translation exposure.

The European Central Bank, the central bank for the zone of countries using the euro as their curency.  (See www.ECB.int).

The start date of the forward period to which an FRA relates.

An index of a currency’s value against a basket of other currencies, weighted by trade importance to the country.

(Or annual equivalent rate).  An effective interest rate is the rate which, earned as simple interest over one year, gives the same return as interest paid more frequently than once per year and then compounded.  See nominal rate.

See exchange for physical

A bankers’ acceptance which the Bank of England is willing to purchase because it has been accepted by an eligible bank.

A money-market deal commencing on the last working day of a month and lasting for a whole number of months, maturing on the last working day of the corresponding month (this is the standard interbank convention).

The benchmark weighted average overnight interest rate for the euro published by the ECB.

Same as vega.

The rate of interest which would be equivalent to the nominal rate quoted, after compounding at a different frequency of interest payment.

The normal arrangement in a repo, whereby the securities to be returned to the seller at maturity of a repo are required to be exactly the same issue as the securities delivered at the beginning, but not necessarily exactly the same numbered holding.

See exchange rate agreement.

Same as vega.

European Union.

The benchmark money market interest rate for the euro published by the European Banking federation and ACI – The Financial Markets Asoociation.  (See www.euribor.org).

A Eurocurrency is a currency owned by a non-resident of the country in which the currency is legal tender.  Not to be confused with euro.

The international market in which Eurocurrencies are traded.

The benchmark weighted average overnight interest rate for the euro published in London. See EONIA.

A European option is one that may be exercised only on expiry date.  See American.

Regulations restricting the free convertibility of a currency into other currencies.

(Or EFP) An exchange of opposite futures positions plus an offsetting physical transaction, both agreed simultaneously with the same counterparty off-market.

(Or ERA).  A contract for differences based on the movement in a forward-forward foreign exchange swap price.  Does not take account of the effect of spot rate changes as an FXA does.  See SAFE.

Futures contracts are traded on a futures exchange, as opposed to forward deals which are OTC.  Some option contracts are similarly exchange-traded rather than OTC.

When the next coupon or other payment due on a security is paid to the seller of a security after he has sold it, rather than to the buyer, generally because the transaction is settled after the record date.  See cum-dividend.

To exercise an option (by the holder) is to require the other party (the writer) to fulfil the underlying transaction.  Exercise price is the same as strike price.

An option's expiry is the time after which it can no longer be exercised.

Risk.

The process of estimating a price or rate for a particular value date, from other known prices, when the value date required lies outside the period covered by the known prices.  See interpolation.

(Or nominal value).  The principal amount of a security, generally repaid ('redeemed') all at maturity, but sometimes repaid in stages, on which the coupon amounts are calculated.

When the US Federal Reserve ('Fed') initiates a repo or a reverse repo with the market, the terminology is viewed from the market's viewpoint and not from the Fed's.  Thus a repo is when the Fed is lending money to the market against collateral and a reverse is the opposite.

(Or matched sale-purchase)  Opposite of a Fed repo.

See fundamental equilibrium exchange rate.

Same as collar.

When the last two digits in a foreign exchange price are zero.  For example a price of 1.7895 / 00 would be “One seventy-eight ninety-five, figure”.

An ounce of  pure gold.

The weight of pure gold contained in a bar of gold.

The proportion of pure gold contained in a particular bar of gold, expressed in parts per thousand.

(Or time deposit or term deposit or clean deposit).  A non-negotiable deposit for a specific term.

Management of a currency at a fixed exchange rate against another currency or basket of currencies.

A yield curve where rates are similar for all maturities.

In interest rates, an instrument paying a floating rate is one where the rate of interest is re-fixed in line with market conditions at regular intervals such as every three or six months.

In the currency market, an exchange rate determined by market forces with no government intervention.

(Or FRCD).  CD on which the rate of interest payable is re-fixed in line with market conditions at regular intervals (typically six months)

(Or FRN).  Capital market instrument on which the rate of interest payable is re-fixed in line with market conditions at regular intervals (typically six months).

Allowing a currency to find its own free-market level against other currencies, with no government intervention.

Effectively equivalent to a series of lender's IRGs, designed to protect an investor against falling interest rates on each of a series of dates.

In general, a deal for value later than the normal value date for that particular commodity or instrument.  In the foreign exchange market, a forward price typically means the price quoted for the purchase or sale of one currency against another where the value date is at least one month after the spot date  -  although sometimes it is used to refer to any date later than spot.  See short date.

(Or FXA).  A contract for differences designed to create exactly the same economic result as a foreign exchange cash forward-forward deal.  See ERA, SAFE.

(Or FRA).  A contract for differences based on a forward-forward interest rate.

An FX swap, loan or other interest-rate agreement referring to a period starting on one forward date and ending on another.

A repo where the start date is for value later than the normal settlement date for the security concerned.

See forward rate agreement.

Standard BBA documentation for dealing an FRA.

See floating rate CD

See floating rate note.

The trading department of the bank.

(Or judgmental analysis).  An approach to forecasting based on external factors such as economics, government policy and political events.  See technical analysis.

(Or FEER).  The exchange rate necessary to achieve a sustainable balance in the country’s external current account.  See purchasing power parity.

The USD/CAD exchange rate for value on the next business day (standard practice for USD/CAD in preference to spot).

Able to be combined indistinguishably with an existing position in the same instrument.

The amount of money achieved in the future, including interest, by investing a given amount of money now.  See time value of money, present value.

A deal to buy or sell some financial instrument or commodity for value on a future date.  Unlike a forward deal, futures contracts are traded only on an exchange (rather than OTC), have standardised contract sizes and value dates, and are often only contracts for differences rather than deliverable.

Foreign exchange.

See forward exchange agreement.

The change in an option's delta relative to a change in the underlying's value.

Analysis of the difference in exposures to interest rates in different periods.

Abbreviation for general collateral

A repo dealt for general collateral can be secured by any acceptable collateral  -  see special collateral.

In measuring position risk for capital adequacy purposes, the risk arising from the market position held by the bank.  See specific risk.

A repo in the domestic Japanese market

(Or Gilt-edged security)  A UK government bond.

Global Master Repo Agreement, the SIFMA / ICMA agreement for repos and buy / sell-backs.

Global Master Securities Lending Agreement.

The rate at which dealers lend gold against USD.

See GOFO.

The same as yield to maturity;  'gross' because it does not take tax effects into account.

Securities where coupons are paid without deduction of withholding tax.  See net-paying securities.

See gross redemption yield.

Initial margin.

The ratio of the size of the position it is necessary to take in a particular instrument as a hedge against another, to the size of the position being hedged.

Protecting against the risks arising from potential market movements in exchange rates, interest rates or other variables.  See cover, arbitrage, speculation.

The same as settlement risk in foreign exchange.

See hold-in-custody.

A forward swap in FX where the settlement exchange rate for the near date is based on a historic off-market rate rather than the current market rate. This is discouraged or prohibited by many bank regulators.

A method of calculating VaR by applying historic price movements to the current portfolio of instruments.  See Monte Carlo simulation, variance / covariance.

The actual volatility recorded in market prices over a particular period.

To hit a bid is to deal on the bid price quoted by someone.

The holder of a security is the owner of the security.  The holder of an option is the party that has purchased it.

Repo in which the security continues to be held by the seller on the buyer's behalf, in order to avoid settlement costs and facilitate substitution.

A security in general demand in the market.