Forex Glossary (B)

Here are some terms that used in FOREX trading with series of B. Back Office: Settlement and related processes.

Back to Back: (1) Transaction where all the obligations and liabilities in one transaction are mirrored in a second transaction. (2) Transaction where a loan is made in one currency in one country against a loan in another country in another currency.

Balance of Payments: A systematic record of the economic transactions during a given period for a country. (1) The term is often used to mean either: (i) balance of payments on "current account"; or (ii) the current account plus certain long term capital movements. (2) The combination of the trade balance, current balance, capital account and invisible balance, which together make up the balance of payments total.

Balance of Trade: The value of exports less imports. Invisibles are normally excluded, and is otherwise referred to as mercantile or physical trade. Figures can be quoted on FoB/ FaS , customs cleared, or FoB export.

Band: The range in which a currency is permitted to move. A system used in the ERM.

Bank Line: Line of credit granted by a bank to a customer, also known as a " line".

Bank Notes: Bank notes are paper issued by the central or issuing bank and are legal tender, but are not usually considered to be part of the FX market. However bank notes can be converted, in some counties, into FX.

Bank Rate: The rate at which a central bank is prepared to lend money to its domestic banking system.

Barrier Option: A family of path dependent options whose pay-off pattern and survival to the expiration date depend not only on the final price of the underlying currency but also on whether or not the underlying currency breaks a predetermined price level at any time during the life of the option. See Down and Out call/put, Down and in call/put, Up and out call/put, Up and in call/put.

Base Currency: The currency in which the operating results of the bank or institution are reported.

Base Rate: A term used in the UK for the rate used by banks to calculate the interest rate to borrowers. Top quality borrowers will pay a small amount over base.

Basis: The difference between the cash price and futures price.

Basis Convergence: The process whereby the basis tends towards zero as the contract expiry approaches.

Basis Point: One per cent of one per cent.

Basis Price: The price expressed in terms of yield maturity or annual rate of return.

Basis Trading: Taking opposite positions in the cash and futures market with the intention of profiting from favorable movements in the basis.

Basket: A group of currencies normally used to manage the exchange rate of a currency. Sometimes referred to as a unit of account.

Bear A person who believes that prices will decline.

Bear Market A market in which prices decline sharply against a background of widespread pessimism (opposite of Bull Market).

Bid Price Bid is the highest price that the seller is offering for the particular currency at the moment; the difference between the ask and the bid price is the spread. Together, the two prices constitute a quotation; the difference between the two is the spread. The bid-ask spread is stated as a percentage cost of transacting in foreign exchange.

Big Figure: Refers normally to the first three digits of an exchange rate that dealers treat as understood in quoting. For example a quote of "30/40" on dollar mark could indicates a price of 1.5530/40BIS: Bank of International Settlement.

Bilateral Clearing: A system used where foreign currency is limited. Payments are usually routed through the central banks, and sometimes require that the trade balance is equaled every year.

Binary Options: A binary "call" (or "step up") is like a standard European call option except that the pay off at expiry is fixed at one unit of the counter currency, if the call expires in the money.

Black-Scholes Model: An option pricing formula initially derived by Fisher Black and Myron Scholes for securities options and later refined by Black for options on futures. It is widely used in the currency markets.

Booked: The recording of a transaction outside the country where the transaction is itself negotiated.

Break Even Point: The price of a financial instrument at which the option buyer recovers the premium, meaning that he makes neither a loss nor a gain. In the case of a call option, the break even point is the exercise price plus the premium.

Break Out: In the options market, undoing a conversion or a reversal to restore the option buyer's original position.

Bretton Woods: The site of the conference which in 1944 led to the establishment of the post war foreign exchange system that remained intact until the early 1970s. The conference resulted in the formation of the IMF. The system fixed currencies in a fixed exchange rate system with 1% fluctuations of the currency to gold or the dollar.

Broker: An agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account. In the foreign exchange market brokers tend to act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties.

Brokerage: Commission charged by a broker.

Bull: A person who believes that prices will rise.

Bull Market: A market characterized by rising prices.

Bulldogs: Sterling bonds issued in the UK by foreign institutions.

Bundesbank: Central Bank of Germany.