Parity
(1) Foreign exchange dealer's slang for your price is the correct market price.
(2) Official rates in terms of SDR or other pegging currency.
Parities
The value of one currency in terms of another.
Pegged
A system where a currency moves in line with another currency, some pegs are strict while others have bands of movement.
Pip
One unit of price change in the bid/ask price of a currency. For most currencies, it denotes the fourth decimal place in an exchange rate and represents 1/100 of one percent (.01%).
Point
0.0001 of a unit; for instance, if the GBP/USD is 1.6220, then 1.6219 is one point lower.
Political Risk
The potential for losses arising from a change in government policy.
Position
The netted total commitments in a given currency. A position can be either flat or square (no exposure), long, (more currency bought than sold), or short ( more currency sold than bought).
Premium
In options, the price of a call or a put, which the buyer initially pays to the option writer (seller).
Price Risk (Market Risk)
The risk of a fall in the market value of a foreign investment (as measured in the domestic currency of the investor) due to an adverse change in the value of the currency of the investment.
Principal
The counterparty that sells and buys currencies for his own account as opposed to a broker who introduces a buyer to a seller and vice versa.
Profit Taking
The unwinding of a position to realize profits.
Purchasing Power Parity
The proposition that over the long term, changes in the exchange rate between two currencies are the result of differences in the relative rate of inflation in the two countries concerned.
Put
In options, the buyer of a put has the right to acquire a short position in the underlying contract at the strike price until the option expires; the seller (writer) of a put obligates himself to take a long position in the contract at the strike price if the buyer exercises his put. |
