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balance sheet hedging

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 […]

base currency

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. […]

base currency interest rates

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 […]

bid/ask spread

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 […]

blocked currency

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 […]

break forward

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 […]

budget reference rates

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 […]

business foreign exchange

Business foreign exchange refers to the trading of currencies for purposes of real international trade of goods and services, in contrast to the vast majority of FX trades, which are purely speculative. This activity represents less than 2% of the USD5.3 trillion exchanged daily on the global FX market, while speculative trading accounts for the […]