Some important Money Terms:-
● Annualized:- Extrapolates the behavior of an element (such as volatility) from a certain time period to a full year.
● Ask:- The price at which sellers offer currencies to buyers.
● Base currency:- Usually the currency of the home market in which a trader or investor is buying or selling.
● Bid:- The price at which buyers offer to buy currencies from sellers.
● Currency:- A medium of exchange of value to define by reference to the geographical location of the authorities responsible for it. A currency is represented by a three-character ISO code.
● Currency pair:- Exchange rate relationship between two currencies, where one currency is expressed in terms of the other. For example, USD-EUR (US dollar against Euro) is a currency pair.
● Currency chest:- Currency chests are operated by the Reserve Bank of India (RBI) so that they can provide good quality currency notes to the public. However, RBI has appointed commercial banks to open and monitor currency chests on behalf of RBI. The money kept in currency chests in the commercial banks is considered to be kept in RBI.
● Dollar rate:- The exchange rate of a foreign currency as quoted against the US dollar (USD). Some currencies are typically only quoted against the US dollar, such as the Algerian dinar (DZD) and the Andorran franc (ADF). The exchange rate of the Algerian dinar against the Andorran franc is thus computed from DZD-USD and ADF-USD.
● Exchange rate:- The number of one currency needed to buy another.
● Exchange rate risk:- The potential loss that could be incurred from a movement in bid/ask prices, or exchange rates. For traders, risk is measured by the open currency position.
● Exposure:- The risk which an investor accepts when buying and selling in foreign currency-hedged financial instruments.
● Filtering data:- Some data may be bad, stemming from such causes as a market maker incorrectly typing a price, or entering the correct price but in the wrong format. All data used by OANDA is filtered using its own sophisticated algorithms.
● Forecast:- A statistical analysis of the markets whereby a percentage chance is assigned to a given price movement occurring. A forecast of the foreign exchange markets is similar to a weather report in that both assign a probability to the occurence of an identified market or climatic change.
● Forecasting services:- Financial services that provide professional traders and investors with an unbiased second opinion and reliable support throughout the financial decision-making process. Any professional with international business relations can use the forecasting services to reduce there foreign exchange risks due to currency price fluctuations and get up-to-date information anytime.
● Foreign exchange:- Transactions which cause a change in a foreign currency position of a financial institution. Also known as FX or forex.
● Foreign exchange market:- A condition or area where buyers and sellers are in contact to buy and sell foreign currencies. Foreign exchange markets exist wherever and whenever currencies are bought and sold, and are not necessarily confined to cities.
● FX or forex:- An abbreviation for foreign exchange.
● Hedging:- A transaction strategy used by traders and investors in foreign exchange to protect an investment or portfolio against currency price fluctuations. A current sale or purchase is offset by contracting to purchase or sell at a specified future date in order to defer a profit or loss on the current sale or purchase. In this way risk due to currency price fluctuations is effectively reduced.
● Interbank prices:- Currency prices that reflect market rates among financial institutions for transactions typically over US $1 million. Interbank prices are different from retail prices.
● Imperfect Note:- Imperfect banknote means any banknote, which is wholly or partially, obliterated, shrunk, washed, altered or indecipherable but does not include a mutilated banknote. Soiled and Mutilated banknotes can be exchanged for value. All banks are authorized to accept soiled banknotes for full value. They are expected to extend the facility of exchange of soiled notes even to non:- customers. All currency chest branches of commercial banks are authorized to adjudicate mutilated banknotes and pay value for these, in terms of the Reserve Bank of India (Note Refund) Rules, 2009
● Long position:- A market position where a trader has bought a currency she previously did not own. A long position is normally expressed in terms of the base currency.
● Legal tender:- As per provisions of coinage Act 1996, bank notes, currency notes and coins (Re. 1 and above) are legal tender for unlimited amount. The subsidiary coins (below Re. 1) are legal tenders for sum not exceeding Re 1. Issue of 1, 2 and 3 paisa coins discontinued wef Sep 16, 1981.
● Mutilated Note:- Mutilated banknote is a banknote, of which a portion is missing or which is composed of more than two pieces.
● Open position:- Any deal which has not been settled by physical payment or reversed by an equal and opposite deal for the same date.
● Overbought:- Situation where price movement has risen 150% faster or stronger than normal, rising too far in response to net buying. A price movement that becomes overbought is expected to soon make a contrarian move. In other words, the price of the currency pair is expected to soon fall.
● Oversold:- Situation where price movement has fallen 150% faster or stronger than normal, declining too far in response to net selling. A price movement that becomes oversold is expected to soon make a contrarian move. In other words, the price of the currency pair is expected to soon rise.
● Relative strength:- Indicates the forecasted price movements for each of the eight currencies in the Currency Ranking service due to expected medium-term rate fluctuations. The relative strength for each currency is computed from a correlation between a Trading Model-generated forecast and the currency's price history. The strength of each currency can range from a minimum -1.0 to a maximum +1.0. We use Trading Models 40, 60, and 70 to compute relative strengths every hour on the hour, 365 days a year.
● Retail prices:- Currency prices which reflect commissions and special charges that a bank or exchange agency demands to convert currencies for noncorporate customers. These commissions and special charges vary among countries, banks, and exchange agencies. Please inquire at your local bank or travel agency, or consult available travel guides for more information on specific commissions and special charges which may be charged for converting currencies.
● Risk:- The potential loss that an investor accepts when she makes an investment. Risk can also be defined statistically as the annualized standard deviation of returns. See exchange rate risk.
● Short position:- A market position where a trader has sold a currency he does not previously own. A short position is normally expressed in terms of the base currency.
● Small coin depot:- The bank branches are also authorized to establish Small Coin Depots to stock small coins. The Small Coin Depots also distribute small coins to other bank branches in their area of operation.
● Soiled note:- Soiled note means a note which, has become dirty due to usage and also includes a two piece note pasted together wherein both the pieces presented belong to the same note and form the entire note.
● Spread:-The difference between the bid and the ask of a currency price.
● Stop-buy:- A buy order for a currency price that is above the current market, or current price, that becomes a market order when the specified price is reached. Stop-buys are used by traders to establish positions in markets which they perceive to be rising in value.
● Stop-loss:- A price specified by a trader at which he closes his position (buys or sells currencies to exit the market) to ensure that in case of a loss (prices which don't move in the expected direction) he is able to keep his loss in line with his risk profile.
● Trading Model:- A sophisticated software program that provides expert buy/sell recommendations for trading currencies on the foreign exchange markets. A Trading Model, based on its evaluation of historical analyses and forecasts and your trading profile, makes recommendations about currency positions. It makes recommendations by anticipating fluctuations in the foreign exchange markets and capitalizing on these movements.
● Trading Recommendations:- A Trading Recommendation is the latest position of a Trading Model for a given market and one or more currency pairs. Trading Models are constantly reacting to the market as they receive each new price quote from live data suppliers.
● Vendor or supplier:- An financial organization which collects, packages, and distributes up-to-the-minute price quotes from banks and other financial institutions.
● Volatility:- A measure by which an exchange rate is expected to fluctuate or has fluctuated over a given period. Volatility figures are often expressed as a percentage per annum.
