Glossary

APPRECIATION
An increase in the value of currency. A currency strengthens against another currency.
 
ARBITRAGE
Purchase of securities in one market and the simultaneous sale of the same or equivalent securities in the same or related markets, in order to earn immediate profits from a price differential within a market or between related markets.
 
ASK RATE
The offered (selling) price of a currency, i.e. the price which a buyer would be expected to pay..
 
ASSET BACKED INVESTMENT
An investment secured by specified bundles of assets.
 
AT THE MONEY
An option is at the money when immediate exercise of the option would result in neither a gain nor a loss.
 
AUD
SWIFT currency code for the Australian Dollar
 
AVAILABLE BALANCES
The amount of funds available for withdrawal from an account.
 
ALM
Asset and Liability Management
 
BORROWING COSTS
Interest and other costs incurred by an entity in connection with the borrowing of funds.
 
BID RATE
The buying price of securities or assets.
 
BID/ASK SPREAD
The difference between the prices at which market makers are willing to buy and sell currencies or other traded assets.
 
BACK OFFICE
The part of the treasury organization that administers and supports the trading activities of the treasury front office.
 
 
BACK VALUE DATE
Practice of banks in some jurisdictions where debits/credits to a customer’s statement of account will reflect a date prior to the actual in/outflow of funds.
 
BALANCE OF PAYMENT
A statement prepared for a country summarizing the flow of goods, services and funds, inwards and outwards, between the residents of that country and the residents of the rest of the world during a particular period of time.
 
BLOCKED CURRENCY
A currency that is not freely convertible to other currencies due to exchange controls.
 
BOC
Bank of China.
 
BOJ
Bank of Japan
 
BANK OF ENGLAND (BOE)
The central banking authority in the UK
 
BANK TRANSFER
A remittance process whereby a payer may make a payment at any branch of any bank for the account of a payee at any branch of the same or any other bank.
 
BASE CURRENCY
The base currency in a foreign exchange rate quotation is the currency which is based to compare another currency.
 
BASIS POINT (PIPS)
One hundredth of 1% = 0.01% = 0.0001 as a decimal.
 
BULL MARKET
A market which is on a trend of rising prices.
 
BEAR MARKET
Market, which is on a trend of falling prices.
 
BEP
Break even point.
 
BETA
A measure of market risk.
If beta is greater than 1- the asset is expected to increase/decrease  in value by more than the market when the market is rising/falling.
If beta is less than 1 – the asset is expected to increase and to reduce in value by less than the market.
 
BOND
A marketable longer-term debt instrument usually administered by a trustee and issued by corporate and public sector entities, including central governments.
 
BROKER
An individual or a firm (also called broking house) that acts as an agent for investors by dealing in securities.
 
BIC CODE
An internationally agreed ISO standard, a bank identifier code uniquely identifies a bank’s address.
 
BUNDESBANK
The central bank of the Federal Republic of Germany
 
CASH EQUIVALENTS
Investment/assets that are readily convertible to cash, subject only to an insignificant risk of change in their value.
 
COMPOUND ANNUAL GROWTH RATE (CAGR)
The year-over-year growth rate over a specified period of time.
 
CORRESPONDENT BANK
A bank that acts as an agent for another bank.
 
CORPORATE GOVERNANCE
The way in which corporate entities are managed and organized, ensuring in particular that the interests of stakeholders are given sufficient weight.
 
COUNTRY RISK
The risk that a country or an entity within a country will not be able to honor its financial obligations.
 
CABLE
The sterling/US dollar spot exchange rate
 
CAPITAL ASSET PRICING MODEL (CAPM)
The model links the expected rates of return of an asset with their relative levels of market risk (beta).
 
CASH RATE
An exchange rate at which a transaction could be carried out today.
 
COMPOUND INTEREST
Compound interest is calculated as ‘interest on interest’ as well as interest on the original principal amount.
 
COMMISSION
Income generate by providing services to clients/ customers.
 
CONFIRMATION
Document through which a market participant notifies its counterparties of the details of a trade/deal.
 
COUNTER PARTY
The opposite party to a financial transaction, such as a securities trade or swap agreement.
 
COUNTER PARTY RISK
The risk to each party of a contract that the counterparty will not fulfill its contractual obligations. Usually evaluated using credit/ country ratings.
 
COUNTER PARTY LIMIT
Each bank/financial institution for financial transactions, has it own limits set for their counterparties based on the counter party risk.
 
CONVERSION RATE
The specified price at which a currency converted into another currency.  Converting LKR into USD at a rate of Rs.110.00
 
CROSS RATE
The currency exchange rate between two currencies, both of which are not the official currencies of the country in which the exchange rate quote is given in
 
CALL OPTION
An option which gives the holder the right to buy a specified quantity of an underlying asset at the strike price specified by the option.
 
CALL MONEY
Funds placed with a financial institution without a fixed maturity date
 
COLLATERAL
Form of security to the lender in case the borrower fails to pay back the loan
 
CURRENCY SWAP
Exchange of principal and interest in one currency for the same in another currency
 
CLEAN PRICE
The clean price is a conventional basis of quoting bond prices which excludes accrued interest.
 
COUPON
The fixed amount of periodic interest paid by a coupon bond over its life
 
COUPON BOND
A bond which pays periodic coupons to the holder.
 
COUPON RATE
The nominal annual rate of interest on a security, expressed as a percentage of the principal amount.
 
DEALING SECURITIES
Securities acquired and held with the intention of reselling them in the short-term
 
DERIVATIVES
A financial instrument, the price of which has a strong relationship with an underlying commodity, currency variable or financial instrument.
 
DEALER
A specialist in a bank or company who is authorised to undertake foreign exchange transactions.
 
DEALER’S LIMIT
Limits set by treasury to the number of dealers allowed to carry out trading/transactions
 
DEPRECIATION
Decrease in the value of currency. A currency weakens against another currency.
 
DELIVERY
Settlement of a financial transaction as agreed on the transaction date.
 
DELIVERY VERSUS PAYMENT
A mechanism in an exchange-for-value settlement system that ensures that the final transfer of one asset occurs simultaneously with the final transfer of other asset(s) take(s) place.
In a sale of bond, the delivery of a bond occurs simultaneously with the receipt of funds.
 
DELIVERY FREE SYSTEM
Deliver of a security occurs without the simultaneous transfer of funds.
 
DEVALUATION
A substantial decline in an exchange rate, usually currency devaluation is done by country’s monetary authority.
 
DISCOUNT RATE
The rate used to calculate the present value of the future transaction/ forward price of a currency/financial instruments.
 
DISCOUNTING PERIOD
The period over which the discounting is to be made. i.e today to the original maturity date.
 
DIRECT QUOTE
A foreign exchange rate quotation where the USD is the quoted currency.
For example 1 USD = SGD 1.3025
 
DIRTY PRICE
The dirty price of a bond includes accrued interest and is the total amount payable on the sale and purchase of the bond in between interest payment dates.
 
ECB
European Central Bank; The central banking authority for countries in the Eurozone.
 
EMU
European Economic and Monetary Union
 
EURO
The common currency of the majority of the member states of the European Union. Its currency code is EUR.
 
EURIBOR
The Euro Interbank Offered Rate
 
EFFECTIVE ANNUAL YIELD
Annual Return as a percentage of market value of the investment.
 
EUROCURRENCY
A currency held as a deposit outside its domestic territory
 
FOREIGN EXCHANGE INCOME
The gain recorded when assets or liabilities denominated in foreign currencies are translated into Sri Lankan Rupees on the Balance Sheet date at prevailing rates which differ from those rates in force at inception or on the previous Balance Sheet date.  Foreign exchange income also arises from trading in foreign currencies.
 
FORWARD EXCHANGE CONTRACT
Agreement between two parties to exchange one currency for another at a future date at a rate agreed upon today.
 
FIXED RATE
Interest calculated as a constant percentage of the principal amount as mentioned at the time of investment.
 
FRONT OFFICE
The part of the treasury function that executes transactions for the cash investment, funding foreign exchange and risk hedging requirements of the bank.
 
FOREIGN EXCHANGE RATE
The price of one currency in terms of another
 
FOREIGN CURRENCY OPTION
The right, but not the obligation, to buy or sell a fixed amount of a foreign currency at a pre-agreed price before or on a specific day
 
FORWARD CONTRACT
An agreement to buy or to sell a certain amount of a foreign currency at a predetermined price at a specified time in the future.
 
FORWARDS RATES
The price of a foreign currency which contracts are being struck today for settlement at a pre agreed future date.
 
FORWARD PREMIUM
The premium that has to be paid when a traded currency‘s forward price is greater than its spot price.
 
FACE VALUE
The principal amount evidenced by a security certificate; is the amount repayable at maturity
 
GTC
Good till cancelled order. An order placed with the counter party will be valid till it is cancelled.
 
G7
A group of 7 industrialized countries comprising Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
 
HARD CURRENCY
A currency in which international investors generally have confidence.
For example the euro, US dollar, Japanese yen, Swiss franc or British pound
 
HEDGING
The process whereby a firm uses financial instruments (such as forward contracts, futures contracts or options) or other techniques to reduce the impact of fluctuations in such factors as the market price of credit, foreign exchange rates, or commodity prices on its profits or corporate value.
 
ISIN
International Securities Identification Number. A code that uniquely identifies a specific securities issue.
 
INTERNATIONAL BANK ACCOUNT NUMBER(IBAN)
An international account identifier used internationally to uniquely identify the beneficiary bank account number in cross-border payments.
 
IN THE MONEY
An option is at the money when immediate exercise of the option would result in a gain.
 
INTER BANK RATES
Rates at which different financial institutions including banks lend/borrow funds.
 
INSIDER DEALING
Dealing in company securities with a view to making a profit or avoiding a loss while in possession of information that, if generally known, would affect their price.
 
INFLATION
The rate at which prices are rising over a period of time
 
INTERBANK
Dealing between different financial institutions including banks