Definitions of Foreign Currency Exchange Terms

Note: Words in italic are defined within this page.

A rate proposed to sell a currency.

A rate proposed to purchase a currency.

Business Days
The days when the markets involved in a foreign currency exchange (transaction) are open to conduct business, and the days used to determine the Value Dates when transactions must be consummated. Also called Market Days.

Calls and Puts
(See Options)

Central Banks
National banks of countries that act on behalf of a nation regarding economic issues and monetary policy.

A) Buying or selling a Forward Contract (for when future payments are to be made or received) to mitigate the risk of fluctuation of the exchange rate of a foreign currency or its potential devaluation or revaluation.
B) An arrangement that protects the value of an import or export transaction against exchange rate fluctuation.

Cross Rate
A) The exchange rate between two currencies, especially between other currencies against dollars outside the United States.
B) The ratio between the exchange rates of two currencies compared to a third foreign currency.

Exotic Currencies
Currencies that do not have an active exchange market, such as currencies of "developing nations."

Expiration Date
The date when an Option either must be exercised, or terminated without value.

Fixed Exchange Rate
The official rate for one or more currencies as set by monetary authorities.

Floating Exchange Rate
When supply and demand or other market forces determine the value of a currency.

Foreign Wires and Drafts
Enable you to pay foreign invoices in local currencies, and to redeem payments from foreign companies.

Forward Contract
A formal agreement between two parties to exchange different currencies at a future date.

Buying or selling the currency equivalent of a foreign asset or liability to protect its value in the event of depreciation or devaluation.

The act of a Central Bank operating in an exchange market to stabilize the rates or otherwise influence the external value of a currency.

Legacy Currencies
The 12 national currencies of European nations replaced by the euro on January 1, 2002. (See Common Currency Abbreviations.)

Managed Float
Regular intervention in the market by a Central Bank to stabilize currency rates.

A rate proposed to sell a currency.

A contract that gives the customer the right, without obligation, to buy a currency (call) or sell a currency (put) at a specified price.

When a mature contract is renewed by Swapping it into a forward date.

Settlement Date
The date when a foreign exchange transaction is scheduled to mature.

Spot Transactions
When the Value Date falls two Business Days after the transaction date.

The simultaneous buying and selling of a currency for different maturities.

Transaction Date
The day on which a foreign exchange transaction is entered into.

Transaction Loss or Profit
The profit or loss (real or opportunistic) associated with payables or receivables that are denominated in a currency and need to be converted.

Transaction Profit or Loss
Profit or loss resulting from the revaluation of foreign assets and liabilities on the balance sheet.

Value Date
Maturity date of a Spot or Forward Contract.

Contact Envoy International


Envoy International
1972 Military Road, Niagara Falls, NY 14304
Envoy International Management Ltd.
427 Garrison Road, Fort Erie, Ontario L2A 6E6

Phone (800) 755-5614
Fax (800) 294-1173

