Glossaire

A target redemption forward is a foreign exchange product that allows the holder, usually a corporate, to buy or sell a currency at an enhanced rate for a number of expiry dates, with zero upfront premium. The product automatically expires if the enhanced rate reaches a target level. But if spot moves in the wrong direction, holders can be forced to trade regularly at unfavourable rates for the full life of the product. Target Redemption Forwards are not the most appropriate hedging instrument for a company looking to minimise exchange rate risk. Companies looking for protection themselves against FX risks should opt for more straightforward alternatives like outright forwards or flexible forward contracts.

Le taux mid-market, également appelé taux interbancaire, est le point médian entre le taux de change d’achat et le taux de change de vente de deux devises, c’est-à-dire ce que l’acheteur est disposé à payer et ce que le vendeur est disposé à vendre.

Un taux mid-market véritablement appliqué est considéré comme le taux le change de devises étrangères le plus transparent et précis car il reflète les fluctuations en temps réel sur les marchés des changes.

Les banques et les brokers appliquent généralement une marge au taux mid-market, autrement dit des frais cachés.

Les plates-formes fintech de gestion des devises, qui misent sur la transparence, permettent aux entreprises d’exécuter des transactions au taux mid-market et de supprimer ainsi l’intermédiation.

Exemple de taux mid-market : si le taux d’achat est de 2 et le taux de vente de 1,5, le taux mid-market sera la moyenne des deux soit 1,75.

A trade repository (TR) is defined by the European Securities and Markets Authority (ESMA) as “an entity that centrally collects and maintains records of securities financing transactions”. For the TR, this means validating, storing and matching transaction reports, making those reports available to authorised regulators and aggregating and anonymising the reported data as public information. Trade Repositories play an important role in enhancing the transparency of derivative markets and securities financing markets, and thus of the financial system. For this reason, they are heavily regulated by the government agencies in charge of financial markets supervision.

Trading platforms, also known as electronic trading platforms, are software programs provided by third parties that allow investors and traders to access, monitor and operate in the financial markets in exchange for a fixed fee, at a discount rate or, in some cases, for free.The Internet and financial technology developments have provided investors with the possibility of trading by themselves using a wide choice of online platforms. Some even provide services including information, research and recommendations of specific stocks or mutual funds (groups of stocks) for investment.Rather than trading through a broker or an investment bank, platforms such as Nutmeg are becoming more and more common among market participants. The Foreign exchange market has experienced spectacular growth in recent years as the advent of online forex trading platforms has boosted the volume of retail operations.

Transaction Cost Analysis (TCA) is the study of trade prices to determine whether past trades were arranged at favourable prices—low prices for purchases and high prices for sales. At the heart of TCA is the difference between the cost of the transaction at the time the manager decided to execute it and the actual cost, including all operating charges—spreads, commissions and fees. The resulting differential is called “slippage”. Currency Management Automation solutions aim at both minimising trading costs —by providing connectivity to best-price execution platforms— and providing the necessary data to conduct Transaction Cost Analysis.

Transaction exposure is the degree to which future FX-denominated cash flows from contractually binding transactions are affected by currency fluctuations. Transaction exposure exists whether or not the corresponding receivables/payables have been created. Some elements of transaction exposure are included in the firm’s accounting exposure This is the case of AR/AP receivables/payables) that have been created and appear on the balance sheet. Other elements of transaction exposure, such as contractually binding SO/PO (sales/purchase orders) not appearing on the balance sheet, are part of the firm’s operating exposure). Transaction exposure, because of its significance in terms of profit margins and cash flows, is the most widely hedged FX exposure.

Transaction exposure management is the hedging of future FX-denominated cash flows that result from contractually binding transactions, whether or not the corresponding receivables/payables have been created. In transaction exposure management, currency forwards are booked for SO/POs (sales orders/purchase orders) and/or AR/AP (accounts receivable/accounts payable). Transaction exposure management requires constant vigilance, as new orders keep on arriving. It is best implemented with Currency Management Automation solutions that allow firms to monitor and hedge their FX transaction exposure in any currency pair, whatever the number of transactions and their size.

Transaction risk is the possibility of incurring future gains or losses on foreign currency-denominated existing transactions, as FX rates fluctuate between the moment the transaction is agreed and the moment it is settled. Transaction risk is measured currency by currency. Transactions go through several phases: forecast, firm commitment (sales order/purchase order), balance sheet items (accounts receivable/payable), settlement. Because a firm commitment typically precedes the creation of the corresponding balance sheet item, transaction risk arises before accounting risk. Transaction risk can be hedged in any number of currency pairs and for any number of transactions, however small. This is accomplished with Currency Management Automation solutions in the three phases of the hedging process: pre-trade (exposure collection and monitoring), trade (forward transaction execution), and post-trade (reporting management).

Une transaction spot est une transaction effectuée entre deux parties, l’acheteur et le vendeur, à un prix comptant. Il s’agit de l’opération de change la plus simple car son montant est défini par la valeur du marché à l’instant présent.

Sur le marché des changes, le règlement des transactions spot est effectué normalement deux jours ouvrables après la date de la transaction (T+2) de la paire de devises.

Dans les opérations de change, l’une des deux parties choisit généralement entre une transaction spot ou forward. Si une entreprise négocie périodiquement des sommes similaires dans une devise étrangère, les transactions spot sont l’option la plus courante étant donné que les transactions forward auraient le même résultat, à la différence près qu’elles repousseraient la transaction selon le délai convenu.

Translation risk is the possibility that the translation into a company’s assets, liabilities, revenues, expenses, gains and losses that are denominated in foreign currencies will result in foreign exchange gains and losses. Translation risk is also known as accounting risk. Unlike transaction risk, translation risk reflects paper gains and losses determined by the accounting rules that prevail in each country. It is retrospective because it is based on activities that occurred in the past.

Translation account exposure management refers to the methods used when a firm restates, in the currency in which a company presents its financial statements, of all assets, liabilities, revenues, expenses, gains and losses that are denominated in foreign currencies. This process of foreign currency translation results in accounting FX gains and losses. There are three main translation account exposure management methods available. With the current/noncurrent method, all the foreign exchange denominated current assets and liabilities are translated at the current exchange rate, while non-current assets and liabilities are translated at the historical exchange rate. With the monetary/nonmonetary method, monetary items such as cash, accounts receivable and payable, are translated at the current exchange rate, while nonmonetary items (inventory, fixed assets) are translated at the historical exchange rate. Finally, with the current rate method, all balance sheet and income statement items are translated at the current exchange rate. No matter what translation account exposure management method is used, the resulting FX gains and losses are paper only, and rarely affect cash flows.