Navigate the complex world of currency management with our comprehensive dictionary of financial terms and definitions.
The accounting currency is the monetary unit used by a firm to record its transactions and to present its financial statements. The accounting currency is also known as the reporting currency or presentation currency. In most cases, the accounting currency is also the firm’s ‘functional currency’, i.e. the currency in which it primarily generates and […]
Accounts payable are liabilities arising from the purchase of merchandise, supplies, and services on credit. Accounts payable require the company to make payment in the future. They are typically registered on the balance sheet when the firm receives an invoice. Accounts payable generally do not call for interest payments. Together with accounts receivable, accounts payable […]
The UK Financial Conduct Authority (FCA) defines an authorised payment institution as a person authorised as a payment institution under the Payment Services Regulations and included in the Financial Services register to that effect. The Financial Conduct Authority is the regulator of the more than 50,000 firms offering financial services in the UK, including cross-border […]
Balance sheet hedging is a hedging program designed to protect FX-denominated assets and liabilities from changes in value due to exchange rate fluctuations. Balance sheet hedging is concerned with a firm’s accounting exposure, as managers desire to eliminate accounting FX gains and losses on their financial statements. Because accounting exposure arises later than economic exposure […]
The base currency is the first currency appearing in a currency pair quotation. The second currency quoted expresses the number of units of that currency that are equal to one unit of the base currency. For example, if the EUR-USD is quoted at 1.25, EUR is the base currency, and USD is the quote currency. […]
The base currency interest rate is the short-term or money-market interest rate of the currency that, in a currency pair, is quoted first. For example, if the EUR-USD is quoted at 1.25, EUR is the base currency, and the money-market interest rate on EUR is the base currency interest rate. Alongside the money-market interest rate […]
The bid-ask price is the difference in the price of one currency in terms of the other as shown by banks, brokers and dealers in the foreign exchange market. Banks do not normally charge a commission on their currency transactions, but they profit from the spread between the buying and selling rates on both spot […]
A blocked currency, also known as a non-convertible currency, is the monetary unit of a country where holders of the currency do not have the right to convert it freely at the going exchange rate into any other currency. A currency is considered to be blocked if it fulfills one or more of the following […]
A break forward, also known as cancellable forward, cancellable option or knock-on forward, is an option-like contract used to obtain full participation in a market move in the underlying (for example, a currency) beyond a specified level without payment of an explicit option premium. Break forwards are rarely used when hedging regular foreign currency inflows […]
The Budget Reference Rate, commonly known as the ‘budget rate’, is the foreing exchange rate used by a company in its budget. It can be the current spot rate, the current forward rate, an off-market rate, or a market-consensus rate. Even if a firm does not use an explicit benchmark, its budget necessarily contains at […]
