Under-Valuation

An exchange rate is normally considered to be undervalued when it is below its purchasing power parity.

Value Date

For exchange contracts it is the day on which the two contracting parties exchange the currencies which are being bought or sold. For complete description see the chapter on trading. For a spot transaction it is two business banking days forward in the country of the bank providing quotations which determine the spot value date. The only exception to this general rule is the spot day in the quoting centre coinciding with a banking holiday in the country(ies) of the foreign currency(ies). The value date then moves forward a day. The enquirer is the party who must make sure that his spot day coincides with the one applied by the respondent. The forward months maturity must fall on the corresponding date in the relevant calendar month If the one month date falls on a non-banking day in one of the centers then the operative date would be the next business day that is common. The adjustment of the maturity for a particular month does not effect the other maturities that will continue to fall on the original corresponding date if they meet the open day requirement. If the last spot date falls on the last business day of a month, the forward dates will match this date by also falling due on the last business day. Also referred to as maturity date.

Value Spot

Normally settlement for two working days from the date the contract is entered into. Value Today Transaction executed for same day settlement; sometimes also referred to as “cash transaction”.

Vanilla

A simple option whose terms and conditions do not include any provisions other than exercise style, expiry and strike. To compare with exotic options which have additional terms.

Variation Margin

Funds required to be deposited by a client when a price movement has caused funds to fall below the stipulated percentage of the value of the contract.

Vega

Expresses the price change of an option for a one per cent change in the implied volatility.

Velocity of Money

The speed with which money circulates or turnover in the economy. It is calculated as the annual national income: average money stock in the period.

Volatility

A measure of the amount by which an asset price is expected to fluctuate over a given period. Normally measured by the annual standard deviation of daily price changes (historic). Can be implied from futures pricing, implied volatility.

Vostro Account

A local currency account maintained with a bank by another bank. The term is normally applied to the counterparty’s account from which funds may be paid into or withdrawn, as a result of a transaction.

Wholesale Money

Money borrowed in large amounts from banks and institutions rather than from small investors.

Wholesale Price Index

It measures changes in prices in the manufacturing and distribution sector of the economy and tends to lead the consumer price index by 60 to 90 days. The index is often quoted separately for food and industrial products.

Working day

A day on which the banks in a currency’s principal financial centre are open for business. For FX transactions, a working day only occurs if the bank in both (all relevant currency centers in the case of a cross are open).

World Bank

A bank made up of members of the IMF whose aim is to assist in the development of member states by making loans where private capital is not available.

Writer

The seller of a position. Also known as the grantor of the trade. “Writing an Currency” is to sell it.

Yield Curve

The graph showing changes in yield on instruments depending on time to maturity. A system originally developed in the bond markets is now broadly applied to various financial futures. A positive sloping curve has lower interest rates at the shorter maturities and higher at the longer maturities. A negative sloping curve has higher interest rates at the shorter maturities.

Z-Certificate

Certificate issued by the Bank of England to “discount houses” in lieu of stock certificates to facilitate their dealing in the short dated gilt edge securities.

Zero Coupon Bond

A bond that pays no interest. The bond is initially offered at a discount to its redemption value.