purchase yield ×⎟year⎜⎟⎟⎜year⎜ − 1⎟= ⎜×⎟⎟ days held⎜ 1 + sale yield × days from sale to maturity⎟⎜year⎠⎝
Discount instruments quoted on a discount rateAmount paid = face valuedays from settlement to maturity× 1 − discount rate ×yeardiscount rateYield = days to maturity1 − discount rate ×yearyieldDiscount rate = days to maturity1 + yield ×yearYield over holding period⎛⎛ ⎛
⎞⎞days from saleto maturity ⎟⎟⎜discount rate⎜×⎝1 − ⎝ on sale⎠⎠year
⎞
⎟⎜⎜⎟⎟⎜⎟⎜year⎜×= ⎜⎛⎛⎞ ⎞ − 1⎟⎟days from purchase⎟ days held⎜⎟⎜⎜to maturity⎜⎟⎟discountrate⎠⎝⎝1 − ⎝⎠⎠on purchase ×yearBond-equivalent yield for US Treasury billIf there are 182 days or less to maturity:⎛⎞discount rate⎠ × 365daysBond-equivalent yield = ⎝1 − discount rate ×360360
A summary of calculation procedures
277
If there are more than 182 days to maturity:Bond-equivalent yield⎞0.5⎛2 ⎟⎜ daysdays⎟⎜− 0.5+ 2×⎟⎜ 365365⎜ ⎛⎞⎟⎟⎜⎟ − days⎜⎜ ⎜⎟⎟1365⎟⎜× ⎜ − 1⎟⎝ ⎝⎠⎠days1 − discount rate ×360=days− 0.5365If 29 February falls in the 12-month period starting on the purchasedate, replace 365 by 366 in both formulas.Norwegian Treasury billAmount paid = 
face value1 + effective yield
days to maturity365

⎞⎛365days to maturity ⎟⎜ face valueEffective yield = ⎝⎠− 1amount paidSimple yield on 365-day basisdays to maturity365= 1 + effective yield−1 ×
365days to maturity
Forward interest rates, FRAs and futuresFor periods up to one year:Forward-forward rate⎛⎞days in longer periodinterestratefor1+×longer period⎜⎟year − 1⎟=⎜⎝⎠rate for days in shorter period1 + interestshorter period ×yearyear×days difference
278
Foreign exchange and money markets
Theoretical FRA rate⎛ ⎞LIBOR for × days in longer period1 + longerperiod⎜⎟year⎟=⎜−1⎝⎠days in shorter periodLIBORfor1 + shorter period ×yearyear×days differenceFRA settlement amount = notional principal amountdays in FRA period(FRA rate − LIBOR) ×year× days in FRA period1 + LIBOR ×yearFor periods longer than a year but less than 2 years:FRA settlement amount = notional principal amount⎞⎛days of FRA period in ﬁrst year⎟⎜ (FRA rate − LIBOR) ×year⎟⎜ ⎟⎜days of FRA period in ﬁrst year⎟⎜1 + LIBOR ×⎟⎜⎟⎜year⎟⎜⎟⎜⎜ ⎛⎞⎟⎟⎜⎟⎜⎟⎟⎜×⎜⎜ ⎜⎟⎟⎜ ⎜⎟⎟⎜ ⎜ (FRA rate − LIBOR) × days of FRA period in second year ⎟ ⎟⎜ ⎜⎟⎟year⎜ ⎜⎟⎟⎜+⎜⎟⎟⎜ ⎜⎟⎟days of FRA period in ﬁrst year⎜ ⎜⎟⎟1 + LIBOR ×⎜ ⎜⎟⎟year⎜ ⎜  ⎟ ⎟⎝ ⎝⎠⎠days of FRA period in second year× 1 + LIBOR ×year
Short-term interest rate futuresPrice = 100 − implied forward-forward interest rate × 100Proﬁt on a long position in a 3-month contractsale price − purchase price3= contract amount ××10012Value basis = theoretical futures price − actual futures priceBasis = implied cash price − actual futures price
Spot foreign exchangeTo calculate an exchange rate by combining two othersFrom two rates with the same base currency or the same variablecurrency:Divide opposite sides of the exchange rates
A summary of calculation procedures
279
From two rates where the base currency in one is the same as thevariable currency in the other:Multiply the same sides of the exchange ratesGiven two exchange rates A/B and A/C, they can be combinedas follows:B/C = A/C ÷ A/BGiven two exchange rates B/A and C/A, they can be combinedas follows:B/C = B/A ÷ C/AGiven two exchange rates B/A and A/C, they can be combinedas follows:B/C = B/A × A/C andC/B = 1 ÷ (B/A × A/C)When dividing, use opposite sides. When multiplying, use the samesides.
Forward outrights and swapsTheoretical outright and swap:Forward outright = spotdays1 + variable currency interest rate ×variable year×days1 + base currency interest rate ×base yearForward swap⎞⎛days⎜ variable currency interest rate × variable year ⎟⎜ ⎟⎠⎝days− base currency interest rate ×base year= spot × days1 + base currency interest rate ×base yearApproximation:Forward swap ≈ spot × interest rate differential ×
daysyear
280
Foreign exchange and money markets
Combining swaps and spot:Forward outright = spot + forward swap• The currency with higher interest rates (= the currency at adiscount) is worth less in the future. If this is the base currency,the points are negative.• The currency with lower interest rates (= the currency at apremium) is worth more in the future. If this is the base currency,the points are positive.• The bank quoting the price always ‘sells and buys’ the basecurrency on the left and ‘buys and sells’ the base currency onthe right.• If the swap price appears larger on the right than the left, it ispositive.• If the swap price appears larger on the left than the right, it isnegative.For outright forwards later than spot:• The left swap price is added to (or subtracted from) the left spotprice.• The right swap price is added to (or subtracted from) the right spotprice.For outright deals earlier than spot:• Calculate as if the swap price were reversed.Forward-forwards:First, insert ‘−’ signs where necessary. Then:After spot:Left side = (left side of far-date swap)− (right side of near-date swap)Right side = (right side of far-date swap)− (left side of near-date swap)From before spot until after spot:Left side = (left side of far-date swap)+ (left side of T/N or T/N and O/N)Right side = (right side of far-date swap)+ (right side of T/N or T/N and O/N)In general• Of the two prices available, the customer gets the worse one. Thusif the swap price is 3/2 and the customer knows that the points
A summary of calculation procedures
281
are in his favour (the outright will be better than the spot), theprice will be 2. If he knows that the points are against him (theoutright will be worse than the spot), the price will be 3.• The bid–offer spread of the resulting price is the sum of theseparate bid–offer spreads.Cross-ratesCross-rate forward outright:The same calculation as for a spot cross-rate, but using outrightsrather than spot ratesCross-rate forward swap:1 Calculate the spot cross-rate as usual2 Calculate the two individual forward outrights as above3 From (2) calculate the forward outright cross-rate4 Subtract (1) from (3) to give the cross-rate swapTime optionA time option price is the best for the bank/worst for the customerover the time option periodTheoretical long-dated forwardsForward outright(1 + variable interest rate) number of years= spot ×(1 + base interest rate)Forward swap(1 + variable interest rate) number of years−1= spot ×(1 + base interest rate)
SAFE settlement amounts (as an amount of the variable currency)FXA:Settlement amount = ﬁrst amount⎞⎛(outright exchange rate − settlement spot rate)⎟⎜+ (swap price dealt − settlement swap price) ⎟×⎜⎠⎝days in swap period1 + variable currency LIBOR ×variable year− second amount × (outright exchange rate− spot price used for settlement)
282
Foreign exchange and money markets
ERA:Settlement amount = base currency amountswap price dealt − settlement swap price×days in swap period1 + variable currency LIBOR ×variable yearThe settlement amount is paid by the seller to the buyer of the FXAor the ERA (or vice versa if it is a negative amount), where the buyeris the party which ‘buys and sells’ the base currency.
Covered interest arbitrage, creating synthetic FRAsand hedging forward-forwardsCovered interest arbitrageVariable currency interest rate created synthetically ⎞⎛days1+basecurrencyrate×⎟ variable year⎜base year⎟×=⎜⎠⎝exchange rate for far datedays−1×exchange rate for near dateBase currency interest rate created synthetically ⎞⎛days⎟ base year⎜ 1 + variable currency rate × variable year⎟×=⎜⎠⎝exchange rate for near datedays−1×exchange rate for far dateCreating synthetic FRAs and hedging forward-forwardsVariable currency FRA rate created synthetically ⎞⎛days1+basecurrencyFRArate×⎜⎟ variable yearbase year⎟×=⎜⎝⎠exchange rate for far datedays−1×exchange rate for near dateBase currency FRA rate created synthetically⎞⎛days⎜ 1+ variable currency FRA rate × variable year ⎟ base year⎟×=⎜⎠⎝exchange rate for near datedays−1×exchange rate for far date
A summary of calculation procedures
283
Forward-forward swap rate created synthetically⎛  ⎞daysvariable×⎜⎟variable year⎜ currency FRA⎟⎜⎟days⎝⎠− base currency FRA ×base year= outright to near date × daysbase currency1+×FRAbase year
Appendix C
SWIFT currencycodesCountry
Currency
Code
Abu DhabiAfghanistanAjmanAlbaniaAlgeriaAndorraAngolaAnguillaAntiguaArgentinaArmeniaArubaAustraliaAustriaAzerbaijanAzores
UAE dirhamAfghaniUAE dirhamLekDinarEuroKwanzaE Caribbean dollarE Caribbean dollarPesoDramFlorin/guilderDollarEuroManatEuro
AEDAFAAEDALLDZDEURAONXCDXCDARSAMDAWGAUDEURAZMEUR
BahamasBahrainBangladeshBarbadosBelarusBelgiumBelizeBeninBermudaBhutanBolivia
DollarDinarTakaDollarRoubleEuroDollarCFA francDollarNgultrumBoliviano
BSDBHDBDTBBDBYREURBZDXOFBMDBTNBOB
SWIFT currency codes
285
Country
Currency
Code
Bosnia & HerzegovinaBotswanaBrazilBruneiBulgariaBurkina FasoBurundi
MarkPulaRealDollarLevCFA francFranc
BAMBWPBRLBNDBGLXOFBIF
CambodiaCameroonCanadaCanary IslandsCape VerdeCayman IslandsCentral African RepublicChadChannel IslandsChileChinaChristmas IslandCocos IslandsColombiaComorosCongoCongo Democratic RepublicCook IslandsCosta RicaCroatiaCubaCyprusCzech Republic
RielCFA francDollarEuroEscudoDollarCFA francCFA francUK pound sterlingPesoRenmimbi yuanAustralian dollarAustralian dollarPesoFrancCFA francFrancNew Zealand dollarColonKunaPesoPoundKoruna
KHRXAFCADEURCVEKYDXAFXAFGBPCLPCNYAUDAUDCOPKMFXAFCDFNZDCRCHRKCUPCYPCZK
DenmarkDjiboutiDominicaDominican RepublicDubai
KroneFrancE Caribbean dollarPesoUAE dirham
DKKDJFXCDDOPAED
East TimorEcuadorEgyptEl Salvador
US dollarUS dollarPoundColon
USDUSDEGPSVC
286
Foreign exchange and money markets
Country
Currency
Code
Equatorial GuineaEritreaEstoniaEthiopiaEuropean Monetary Union
CFA francNafkaKroonBirrEuro
XAFERNEEKETBEUR
Falkland IslandsFaroe IslandsFijiFinlandFranceFrench Paciﬁc IslandsFujairah
PoundDanish kroneDollarEuroEuroCFP francUAE dirham
FKPDKKFJDEUREURXPFAED
GabonGambiaGeorgiaGermanyGhanaGibraltarGreat BritainGreeceGreenlandGrenadaGuadeloupeGuamGuatemalaGuernseyGuineaGuinea-BissauGuyana
CFA francDalasiLariEuroCediPoundPoundEuroDanish kroneE Caribbean dollarEuroUS dollarQuetzalUK pound sterlingFrancCFA francDollar
XAFGMDGELEURGHCGIPGBPEURDKKXCDEURUSDGTQGBPGNFXOFGYD
HaitiHeard & McDonald IslandsHondurasHong KongHungary
GourdeAustralian dollarLempiraDollarForint
HTGAUDHNLHKDHUF
IcelandIndiaIndonesiaIranIraq
KronaRupeeRupiahRialDinar
ISKINRIDRIRRIQD
SWIFT currency codes
287
Country
Currency
Code
Irish RepublicIsle of ManIsraelItalyIvory Coast
EuroUK pound sterlingShekelEuroCFA franc
EURGBPILSEURXOF
JamaicaJapanJerseyJordan
DollarYenUK pound sterlingDinar
JMDJPYGBPJOD
KazakhstanKenyaKiribatiKorea (North)Korea (South)KuwaitKyrgizstan
TengeShillingAustralian dollarWonWonDinarSom
KZTKESAUDKPWKRWKWDKGS
LaosLatviaLebanonLesothoLiberiaLibyaLiechtensteinLithuaniaLuxembourg
KipLatPoundLotiDollarDinarSwiss francLitasEuro
LAKLVLLBPLSLLRDLYDCHFLTLEUR
MacaoMacedoniaMadagascarMadeiraMalawiMalaysiaMaldivesMaliMaltaMarshall IslandsMartiniqueMauritaniaMauritius
PatacaDenarFrancEuroKwachaRinggitRuﬁyaaCFA francLiraUS dollarEuroOuguiyaRupee
MOPMKDMGFEURMWKMYRMVRXOFMTLUSDEURMROMUR
288
Foreign exchange and money markets
Country
Currency
Code
MayotteMexicoMicronesiaMoldovaMonacoMongoliaMontserratMoroccoMozambiqueMyanmar
EuroPesoUS dollarLeuEuroTugrikE Caribbean dollarDirhamMeticalKyat
EURMXNUSDMDLEURMNTXCDMADMZMMMK
NamibiaNauru IslesNepalNetherlandsNetherlands AntillesNew CaledoniaNew ZealandNicaraguaNigerNigeriaNiueNorfolk IslandNorthern Mariana IslandsNorway
DollarAustralian dollarRupeeEuroGuilderCFP francDollarCordobaCFA francNairaNew Zealand dollarAustralian dollarUS dollarKrone
NADAUDNPREURANGXPFNZDNIOXOFNGNNZDAUDUSDNOK
Oman
Riyal
OMR
PakistanPanamaPapua New GuineaParaguayPeruPhilippinesPitcairnPolandPortugalPuerto Rico
RupeeBalboaKinaGuaraniNuevo solPesoNew Zealand dollarZlotyEuroUS dollar
PKRPABPGKPYGPENPHPNZDPLNEURUSD
Qatar
Riyal
QAR
Ras Al KhaimahReunion Island
UAE dirhamEuro
AEDEUR
SWIFT currency codes
289
Country
Currency
Code
RomaniaRussiaRwanda
LeuRoubleFranc
ROLRUBRWF
San MarinoSao TomeSaudi ArabiaSenegalSeychellesSharjahSierra LeoneSingaporeSlovakiaSloveniaSolomon IslandsSomaliaSouth AfricaSpainSri LankaSt ChristopherSt HelenaSt Kitts & NevisSt LuciaSt Pierre et MiquelonSt VincentSudanSurinamSvalbard & Jan Mayen IslesSwazilandSwedenSwitzerlandSyria
EuroDobraRiyalCFA francRupeeUAE dirhamLeoneDollarKorunaTolarDollarShillingRandEuroRupeeE Caribbean dollarPoundE Caribbean dollarE Caribbean dollarEuroE Caribbean dollarDinarGuilderNorwegian kroneLilangeniKronaFrancPound
EURSTDSARXOFSCRAEDSLLSGDSKKSITSBDSOSZAREURLKRXCDSHPXCDXCDEURXCDSDDSRGNOKSZLSEKCHFSYP
TaiwanTajikistanTanzaniaThailandTogoTokelauTongaTrinidad & TobagoTunisia
DollarSomoniShillingBahtCFA francNew Zealand dollarPa’ angaDollarDinar
TWDTJSTZSTHBXOFNZDTOPTTDTND
290
Foreign exchange and money markets
Country
Currency
Code
TurkeyTurkmenistanTurks & Caicos IslandsTuvalu
LiraManatUS dollarAustralian dollar
TRLTMMUSDAUD
UgandaUkraineUm Al QuwainUnited Arab EmiratesUnited KingdomUruguayUSAUzbekistan
ShillingHryvniaUAE dirhamDirhamPound sterlingPesoDollarSum
UGXUAHAEDAEDGBPUYUUSDUZS
VanuatuVenezuelaVietnamVirgin Islands
VatuBolivarDongDollar
VUVVEBVNDUSD
Wallis & Fortuna IslandsWestern SaharaWestern Samoa
CFP francMoroccan dirhamTala
XPFMADWST
YemenYugoslavia
RiyalDinar
YERYUM
ZambiaZimbabwe
KwachaDollar
ZMKZWD
Glossary30/360(Or 360/360). A day/year count convention assuming 30 days ineach calendar month and a ‘year’ of 360 days; adjusted in Americafor certain periods ending on 31st day of the month.
360/360Same as 30/360.
AcceptorThe person who accepts liability for a bill of exchange.
Accrued couponThe proportion of the next coupon payment on a security earned sofar, from the last coupon date until settlement date.
ACT/360A day/year count convention taking the number of calendar days ina period and a ‘year’ of 360 days.
ACT/365(Or ACT/365 ﬁxed). A day/year count convention taking the numberof calendar days in a period and a ‘year’ of 365 days.
Adjustable pegManagement of a currency at a ﬁxed exchange rate against anothercurrency or basket of currencies, with ad hoc adjustments to thatﬁxed rate. See Crawling peg.
A/PSee Around par.
292
Foreign exchange and money markets
AppreciationAn increase in the market value of a currency in terms of othercurrencies. See Depreciation, Revaluation.
ArbitrageThe simultaneous operation in two different but related markets inorder to take advantage of a discrepancy between them which willlock in a proﬁt. The arbitrage operation itself usually tends to causethe different markets to converge. See Covered interest arbitrage.
Around par(Or A/P). A foreign exchange swap price is around par if the left sideis negative and the right side is positive.
AskSee Offer.
BASee Bankers’ acceptance.
Back ofﬁceThe operational department of the bank.
BacktestingTesting a model, such as a VaR model, against historic data.
Balance sheet exposureSee Translation exposure.
Bankers’ acceptanceOr BA. See Bill of exchange.
Banking bookFor the purposes of capital adequacy, that part of a bank’s business which broadly involves its lending department and long-terminvestments.
Base currencyExchange rates are quoted in terms of the number of units of onecurrency (the variable or counter currency) which corresponds toone unit of the other currency (the base currency)
Glossary
293
BasisThe difference between the futures price which would be implied bythe current cash interest rate, and the actual futures price.
Basis pointsIn interest rate quotations, 0.01%.
Basis riskThe risk that the prices of two instruments will not move exactly inline – for example, the value of an FRA and the value of a futurescontract being used to hedge the FRA.
BasketA basket of currencies is a group of currencies, each weighted differently, against which another currency is measured or managed.
Bear spreadA spread position taken with the expectation of a fall in value in theunderlying.
Bearer securityA security where ownership for the purpose of paying coupons andprincipal is determined by whoever is physically in possession of thesecurity. In order to maintain anonymity, there is no central recordof ownership. See Registered security.
BidIn general, the price at which the dealer quoting a price is preparedto buy or borrow. The bid price of a foreign exchange quotation isthe rate at which the dealer will buy the base currency and sell thevariable currency. The bid rate in a deposit quotation is the interestrate at which the dealer will borrow the currency involved. The bidrate in a repo is the interest rate at which the dealer will borrow thecollateral and lend the cash. See Offer.
Big ﬁgureIn a foreign exchange quotation, the exchange rate omitting the lasttwo decimal places. For example, when USD/CHF is 1.7510/20, thebig ﬁgure is 1.75. See Points.
Bilateral nettingObligation netting between two parties.
294
Foreign exchange and money markets
Bill of exchangeA short-term zero-coupon debt issued by a company to ﬁnancecommercial trading. If it is guaranteed by a bank, it becomes abanker’s acceptance.
BISBank for International Settlements, the central banks’ forum in Basle.
Bond basisAn interest rate is quoted on a bond basis if it is on an ACT/365,30/360 or ACT/ACT basis. See Money-market basis.
Broken date(Or odd date). A maturity date other than the standard ones normallyquoted.
Bull spreadA spread position taken with the expectation of a rise in value in theunderlying.
Buy/sell-backOpposite of sell/buy-back.
CableThe exchange rate for sterling against the US dollar.
CADSee Capital adequacy directives.
Calendar spreadThe simultaneous purchase (or sale) of an FRA or futures contractfor one date and the sale (or purchase) of an FRA or futures contractfor a different date. See Spread.
Capital adequacyThe concept that if some of a bank’s risks are realized, the bankshould still have adequate capital to remain in business.
Capital adequacy directives(Or CAD). The various directives from the EU which together set outthe capital adequacy rules.
Glossary
295
Capital marketLong-term market (generally longer than one year) for ﬁnancial instruments. See Money market.
CashSee Cash market.
Cash marketThe market for trading an underlying ﬁnancial instrument, where thewhole value of the instrument will potentially be settled on the normaldelivery date – as opposed to contracts for differences, futures etc.(where the cash amount to be settled is not intended to be the fullvalue of the underlying) or forwards (where delivery is for a later datethan normal). See Derivative.
CDSee Certiﬁcate of deposit.
Certiﬁcate of deposit(Or CD). A security, generally coupon-bearing, issued by a bank toborrow money.
ChartingSee Technical analysis.
Cherry pickingInsistence by a defaulting organization on consummating proﬁtabledeals with a particular counterparty, while defaulting on unproﬁtableones.
Chicago Mercantile Exchange(Or CME). A futures exchange in Chicago.
ChoiceA choice price is one with a zero spread – i.e. the bid and offer arethe same.
Classic repo(Or repo or US-style repo). Repo is short for ‘sale and repurchaseagreement’ – a simultaneous spot sale and forward purchase ofsomething, equivalent to borrowing money against a loan of collateral. A reverse repo is the opposite. The terminology is usually
296
Foreign exchange and money markets
applied from the perspective of the repo dealer. For example, whena central bank does repos, it is lending cash (the repo dealer isborrowing cash from the central bank).
Clean depositSame as ﬁxed deposit.
Clean priceThe price of a security excluding accrued coupon.
Close-out nettingSee Netting.
CLSSee Continuous linked settlement.
CMESee Chicago Mercantile Exchange.
Collateral(Or security). Something of value, often of good creditworthinesssuch as a government bond, given temporarily to a counterpartyto enhance a party’s creditworthiness. In a repo, the collateral isactually sold temporarily by one party to the other rather than merelylodged with it.
Commercial paperA short-term security issued by a company or bank, generally with azero coupon.
Competitive exposureEconomic exposure which arises speciﬁcally because of a competitor.
Compound interestWhen some interest on an investment is paid before maturity andthe investor can reinvest it to earn interest on interest, the interestis said to be compounded. Compounding often assumes that thereinvestment rate is the same as the original rate. See Simpleinterest.
Continuous linked settlement(Or CLS). A real-time PvP clearing system for settlement of FX transactions, where a payment from Bank A to Bank B is made only if,
Glossary
297
and at the same time as, the corresponding payment from Bank B toBank A is made.
Contract dateThe date on which a transaction is negotiated. See Value date.
Contract for differencesA transaction such as an FRA, NDF or SAFE where only the netdifference between two amounts is settled, and the principal amountinvolved is not transferred.
Convertible currencyA currency that may be freely exchanged for other currencies.
Correlation coefﬁcientA measure of the extent to which two things do, or do not, movetogether.
Counter currencySee Variable currency
Counterparty riskThe risk that a counterparty might default on a contract by failingto pay amounts due or failing to fulﬁll the delivery conditions of thecontract.
CouponThe interest payment(s) made by the issuer of a security to theholders, based on the coupon rate and face value.
CovarianceA measure of the extent to which two things do, or do not, movetogether.
CoverTo cover an exposure is to deal in such a way as to remove therisk – either reversing the position, or hedging it by dealing in aninstrument with a similar but opposite risk proﬁle.
Covered interest arbitrageCreating a loan/deposit in one currency by combining a loan/depositin another currency with a forward foreign exchange swap.
CPSee Commercial paper.
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Foreign exchange and money markets
Crawling pegManagement of a currency at a ﬁxed exchange rate against anothercurrency or basket of currencies, with a regular pre-determinedadjustment to that ﬁxed rate. See Adjustable peg.
Credit riskThe risk that a counterparty defaults on a transaction or that theissuer of a security defaults on coupon or interest payments.
CrossSee Cross-rate.
Cross-rateGenerally an exchange rate between two currencies, neither of whichis the US dollar.
Cumulative probability distributionThe probability that any one of a series of numbers will be no greaterthan a particular number.
Daylight limitThe maximum size of a position which a dealer is allowed to takeduring the day.
Delivery versus payment(Or DvP). A method for the settlement of a securities transaction,whereby a payment from Bank A to Bank B is made only if, andat the same time as, the corresponding security is delivered fromBank B to Bank A.
DepositAn investment of cash in return for interest.
DepreciationA decrease in the market value of a currency in terms of othercurrencies. See Appreciation, Devaluation.
DerivativeStrictly, any ﬁnancial instrument whose value is derived from another,such as a forward foreign exchange outright, a futures contract, anFRA etc. Forward deals to be settled in full are not always calledderivatives, however.
Glossary
299
DevaluationAn ofﬁcial one-off decrease in the value of a currency in terms of othercurrencies. See Revaluation, Depreciation.
DirectAn exchange rate quotation against the US dollar in which the dollaris the variable currency and the other currency is the base currency.
Dirty ﬂoatingA ﬂoating-rate regime with some government intervention.
Dirty priceThe price of a security including accrued coupon.
DiscountThe amount by which a currency is cheaper, in terms of anothercurrency, for future delivery than for spot, is the forward discount (ingeneral