Glossaire

In a currency transaction, the value date (VD) is the date at which the trade is settled and one currency is exchanged against another. In a spot market transaction the most common value date is two days after the transaction was agreed If the value date is more than 48 hours away from the day the transaction was agreed, it is called a forward market transaction. It can be weeks, months or, in cases involving very liquid currencies such as USD and EUR, even years after the contract has been signed. In forward markets, the value date is freely agreed between the buyer and the seller. This is not the case with futures markets transactions, where the VD is standardised by the futures exchange.

A vanilla currency option is a financial derivative instrument that gives the buyer the right —but not the obligation— to buy (in a ‘call’ option), or to sell (in a ‘put’ option) the contracted currency at a set price or exchange rate (known as the ‘strike price’), on a predetermined expiration date. The seller of the option must fulfill the contract if the buyer so desires. The term ‘vanilla’ or ‘plain vanilla’ is used to signify that the contract has no other special features that would turn it into an ‘exotic’ option. When hedging regular foreign currency inflows and outflows, forward contracts are more widely used than options. However, vanilla currency options can be an efficient tool when contingent business events are hedged.