Glossary

Abenomics refers to the economic policy introduced by Japanese Prime Minister Shinzo Abe. Combining quantitative easing, stimulus and inflation targets.,Abenomics is an attempt to jumpstart the Japanese economy after several decades of minimal economic growth and deflation.

Used loosely to describe all private and public sector demand for goods and services produced by a given country. In practice, it is interchangeable with Gross Domestic Product (GDP). Academic notions of aggregate demand make a distinction between short-term and long-term, and are modelled as a function of price levels.

Common term used to describe a currency increasing in value, as a result of market forces as opposed to official adjustment.

A systematic record of the economic transactions during a given period for a country. Can refer to either current account (which takes trade into account), capital account, or a combination thereof. Prolonged balance of payment deficits theoretically lead to currency depreciation.

Calculated by subtracting imports from exports. A negative balance of trade (when imports exceed exports) is called a 'deficit', while a positive balance is known as a 'surplus'. The balance of trade is inversely related to the difference between savings and investment.

Financial statement showing a company's assets, liabilities, and shareholders' equity on a given date.

While precise standards vary, refers generally to prolonged period of falling asset prices.

1944 agreement that used the price of gold to fix exchange rates for major currencies. It was replaced in 1971 by a floating exchange rate system that remains in place today.

While precise standards vary, this generally refers to a prolonged period of rising asset prices.

A governmental or quasi-governmental organization that conducts monetary policy and manages the exchange rate for a given economy and its currency. It may also be charged with printing money..

Refers to a central bank buying or selling its own currency on the spot market in order to bring about a desired exchange rate.

A weighted group of currencies purchased together, usually by a Central Bank for the purpose of fixing an exchanging rate.

A situation where a central bank attempts to influence the value of its currency by either selling or buying it on the forex market. 

Stocks or securities that move with the economy, gaining if the economy booms and losing if the economy weakens.

Failure of an issuer to make timely payments of both interest and principal when due.

Describes an excess of liabilities over assets, of losses over profits, or of expenditure over income.

A decrease in the general price level of goods and services, whereby the inflation rate falls below zero percent, resulting in an increase in the real value of money.

Decline in the value of an asset, currency, or security.

Refers to the use of monetary policy to expand the money supply, either by lowering interest rates or through open market operations.

Statistic that represents current economic growth and stability. Economic indicators fall into three categories: leading, lagging and coincident.

Principle that collective investor psychology (or crowd psychology) moves from optimism to pessimism and back again. These swings create patterns, as evidenced in the price movements of a market at every degree of trend, over durations that range from minutes to decades.

Price level/range that seems to represent a balance between demand and supply for a given currency pair.

Rate at which euro interbank term deposits within the eurozone are offered by one prime bank to another prime bank.

Money declared by a government to be legal tender, and not backed by any other commodity, such as gold.

Refers to tax policy, government spending, and other government initiatives directed at optimizing economic performance.

Exchange rate regime in which a currency is pegged by the Central Bank so that it cannot fluctuate against other currencies. Currencies can be pegged to other currencies or commodities, such as gold.

Forum of governments of seven nations of the northern hemisphere: US, Germany, Japan, France, UK, Canada, Italy. Previously known as the G8 until Russia's suspension in 2014, and sometimes expanded to G10 or G20.

A type of exchange rate regime which fixes a currency to the price of gold. Prior to 1973, the value of the US Dollar was fixed to the price of gold, and all other currencies were fixed to the Dollar.

Basic measure of an economy's economic performance, equal to the market value of all final goods and services made within the borders of a nation in one year.

Any 'major' currency that investors have confidence in.

Volatility in the underlying asset price, rate or return over a specific period in the past. It is used to check whether the implied volatility of an option is expensive by historical standards.

Inflation that is very high and difficult to control, whereby prices increase rapidly as a currency loses its value. Definitions vary, but one standard is inflation exceeding 50% in one month, and/or 100% in one year.

Security or currency that is not traded actively.

Refers to a general rise in the price level of goods and services, measured by a price index, which leads to a decrease in the purchasing power of money.

Cost of using/borrowing money, expressed as a rate per period of time.

Refers to the trend of a country's trade balance following a devaluation or depreciation. A higher exchange rate initially means imports are more expensive, making the current account worse (a bigger deficit or smaller surplus).

Generally, a claim on a company's assets. In forex, the obligation to deliver to a counter-party an amount of currency at a specified future date, in connection to a forward or spot transaction.

When there are plenty of lots of a particular currency being bought and sold every day.

Refers to the ability of an asset/currency to be easily converted through an act of buying or selling without causing a significant movement in the price and with minimum loss of value.

An investment strategy driven by macroeconomic considerations.

Theory and observed phenomenon whereby prices and returns eventually move back towards their long-term averages.

Refers to a central bank moving to speed up the velocity of money and increase the money supply, usually by lowering interest rates or buying securities on the open market.

Refers to various tools available to a central bank, that can be employed to influence the money supply, and ultimately to moderate economic growth and price inflation.

Total amount of money available in an economy at a particular point in time. There are three typical classifications. M1 consists of all cash in circulation, plus all of the money held in checking accounts, as well as all the money in travelers checks. M2 consists of M1 plus all of the money held in money market funds, savings accounts, and small time deposits. M3 equals M2 plus large time deposits, institutional money-market funds, short-term repurchase agreements, along with other larger liquid assets. Unlike M1 and M2, M3 is no longer published or revealed to the public by the Fed.

Economic indicator that measures the change in the number of employed people during the last month of all non-farming businesses.

Refers to financing or capital raising activities that does not appear on a given company's balance sheet, such as derivative agreements and investments in certain types of partnerships.

US balance of payments category that sums the movement of dollars in foreign official holdings and US reserves.

The means of implementing monetary policy by which a central bank controls its national money supply by buying and selling government securities, or other financial instruments.

The condition whereby an option's value in the market is the same as its intrinsic value.

Model of exchange rate determination based on the law of one price, which states that the price of a good in one country should equal the price of the same good in another country.

Describes the phenomenon whereby a technical indicator and corresponding price chart don't yield the same peaks or bottoms. It usually indicates trend 'exhaustion'.

Difference between two countries' benchmark interest rates, often used as a basis for forecasting exchange rates.

The percentage of gained or lost on an investment relative to the amount of money invested.

General slowdown in economic activity over a sustained period of time, or a business cycle contraction. Defined by the National Bureau of Economic Research as two consecutive quarters of falling GDP.

Measures inflation based upon the price of a selection of family goods.

Theory and observed phenomenon whereby prices and returns eventually move back towards their long-term averages.

The risk that a government will either default on its obligations or will impose regulations restricting the ability of issuers in that country to meet their obligations, such as foreign currency restrictions.

Financial action that does not promise safety of the initial investment along with the return on the principal sum.

Period of economic recession or low growth combined with high price inflation.

Highest grading that a bank can earn for its financial strength, according to the Bank of International Settlements.

Daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Japan interbank market.

Economic indicator defined as the percentage of those in the labor force who are unemployed.

When a currency is trading below purchasing power parity or other valuation metric.

Measure of the value of the US dollar, weighted according to the currencies of its trading partners.

The interest rate at which US banks will lend to the most creditworthy borrowers.

The process of estimating the value of an asset or currency.

Any economic indicator that seeks to measure changes in the average price for labor.

Known as Texas light sweet, a grade of crude oil.

Slang for one billion.

Return on an investment, usually expressed in percentage terms.

Graph plotting the interest rate of a given issuer (most commonly the US Treasury) for a range of different maturities.

Refers to interest rates (and corresponding monetary policy) that are at or very close to zero percent.