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A forex rate expressed as the value of one currency against another, e.g., EUR/USD. A currency pair is the quotation of two different currencies, with the value of one expressed in terms of the other, e.g., EUR/USD. This pair’s exchange …
A currency pair that does not include the US dollar. Examples include EUR/JPY or GBP/CHF. Cross currency pairs do not include the US dollar, offering direct exchange rates between two other currencies, like EUR/JPY or GBP/CHF. These pairs are important …
Risks inherent in international transactions. Country risk encompasses the potential financial losses due to political, economic, or social instability in a foreign country. Investors must consider these risks when engaging in international markets or holding foreign assets.
A participant in a financial transaction. A counterparty is the other participant in a financial transaction, whose reliability is crucial for the transaction’s success. In trading, counterparty risk assesses the likelihood of the other party defaulting.
The second currency in a currency pair. The counter or quote currency is the second listed in a currency pair, indicating how much of it is needed to purchase one unit of the base currency. Understanding this helps in interpreting …
The standardized unit of a trade. A contract in trading specifies the terms of a trade, including quantity, price, and delivery date. Standardisation of contracts, particularly in futures, helps in creating liquid markets.
The process of sending delivery instructions to the counterparty to confirm the transaction. Confirmation in trading involves verifying transaction details between parties, ensuring all terms are agreed upon before settlement. This step is crucial for maintaining trust and accuracy in …
An asset used to secure a loan or as a guarantee for performance. Collateral serves as security for a loan or derivative contract, reducing the lender’s or counterparty’s risk. In trading, collateral can be required for margin accounts, affecting liquidity …
The act of taking an equal but opposite position to one’s current holdings to neutralize exposure. Closing a position means executing a trade that offsets an existing one, eliminating market exposure. This action can realize profits or losses and is …
The act of completing a transaction. Clearing is the process of reconciling orders between transacting parties, ensuring both have the necessary funds and securities to complete the transaction. It’s a vital step to reduce risk in financial markets.
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