Package Deal

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

Par

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

Parities

The value of one currency in terms of another.

Parity

(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.

Permitted Currency

It means a foreign currency which is freely convertible i.e a currency which is permitted by the rules and regulations of the country concerned to be converted into major reserve currencies and for which a fairly active and liquid market exists for dealing against the major currencies.

Pip

See point. (0.0001 of a unit).

Point

(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.

Political Risk

The potential for losses arising from a change in government policy or due to the risk of expropriation (nationalisation by the government ).

Position

The netted total exposure 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).

PPI

Producer Price Indices. See wholesale price indices.

Premium

(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.

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.

Principal

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

Profit Taking

The unwinding of a position to realize profits.

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 after adjusting for the changes in the price due to the change in exchange rate. Also known as the law of one price.

Put Call Parity

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

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.

Quote

An indicative price. The price quoted for information purposes but not to deal.

Range

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

Rate

Rate
The price of one currency in terms of another. It has the same meaning as the term parities.

Recession

A decline in business activity. Often defined as two consecutive quarters with a real fall in GNP.

Reserve Currency

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

Reserves

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.

Resistance

A price level at which the selling is expected to take place.

Retail Price Index

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

Reuter Dealing

A system for screen based trading that has been in operation since the early 1980s now has a matching optional enhancement known as Dealing 2000-2.

Revaluation

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

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 Premium

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

Risks

There are risks associated with any market. It means variance of the returns and the possibility that the actual return might not be in line with the expected returns. The risks associated with trading foreign currencies are: market, exchange, Interest rate, yield curve, volatility, liquidity, forced sale, counter party, credit, and country risk.

Rolling over

The substituting of a far option for a near option of the same underlying stock at the same strike/exercise price.

Rollover

Where the settlement of a deal is carried forward to another value date based on the interest rate differential of the two currencies example: next day