Glossary

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

An interest rate swap under which a counterparty pays a vanilla floating reference rate, usually three or six month LIBOR, and receives LIBOR plus a significant spread. Interest payments to this counterparty will only accrue on days when rates stay within a certain range dictated by preset upper and lower boundaries.

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 modeled as a function of price levels.

Can vary depending on context, but generally defined as the amount of exposure a customer has to the (potential) movement of spot and forward rates.

Measures the total volume of goods and services produced by a given economy. Generally speaking, an increase in demand should lead to an expansion of aggregate supply in the economy. In the event of a mismatch between aggregate supply and aggregate demand, prices would change (i.e. inflation/deflation) in order to return the economy to equilibrium.

A pre-programmed trading system that relies predominantly on advanced mathematical and statistical formulas, which executes trades on high frequency trading platforms.

A vehicle which effectively enables American investors to own shares in foreign corporations. ADRS trade on exchanges like conventional securities. The sponsoring bank collects dividends, pays local taxes and converts them to dollars for distribution to American shareholders. It should be noted that ADRs are affected both by company performance and by changes in exchange rates.

A (currency) option which may be exercised at any time prior to expiration.

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

The simultaneous purchase and sale of an equivalent security in different markets, with the goal of profiting from pricing inconsistencies. In the context of currency trading, arbitrage applies to a mismatch in paired exchange rates between three currencies (triangular arbitrage) or an inefficiency between identical securities listed in different markets that arises from exchange rate fluctuation.

The price at which specific currency or contract can be purchased. In practice, this can be understood as the number on the right side of the quote, which is usually the higher price. For example, in the quote EUR/USD 1.4122/26, the ask price is 1.4126; meaning you can buy one Euro for 1.4126 US dollars. Opposite to bid price.

The correlation between changes in a single variable over different time periods. If a price is negatively auto-correlated, a move down in one period would suggest a move up in the next, and vice versa. If it were positively auto-correlated, a move down would suggest a move down in the following period as well, and vice versa.

A hedging tool where a series of spot rate fixings during the life of an option are used to calculate an average rate. If the average rate is below the strike price, then the bank must settle the difference with the customer. Otherwise, the option expires worthless with no payment made. Average rate options are generally suited for those who need protection against adverse currency moves that still wish to retain full upside potential. Also known as an Asian Option.

Slang term for the Australian dollar.