Glossaire

Plain vanilla is a term used to describe a financial instrument with no unusual features. The simplest forward, options and swap contracts are all examples of plain vanilla financial instruments. Thanks to their simplicity, they are generally cheaper than non-plain vanilla products. Plain vanilla forward contracts, such as Outright Forwards and Open Forwards are the most widely used instrument in Currency Management Automation solutions. This is because, unlike complex financial instruments designed for special situations, plain vanilla currency forwards answer most of the day-to-day FX risk management needs of companies.

Les points forward reflètent les écarts de taux d’intérêt entre deux devises dans un contrat forward (contrat à terme) qui est un accord permettant de compenser le risque de taux de change.

Dans les contrats forward, les points forward sont les points de base qui sont déduits ou ajoutés au taux spot (taux actuel) afin de définir le taux exact de l’opération forward.

Les facteurs ayant une incidence sur le taux forward sont le délai indiqué entre le spot et le forward et les taux d’intérêt. Les points forward sont calculés en fonction de la différence des taux d’intérêt entre les deux devises négociées dans l’opération forward à l’expiration du contrat.

La devise la plus rentable génère des points forward négatifs et la devise la moins rentable génère des points forward positifs.

Pre-transaction risk comprises the firm’s operational and currency risk before a transaction is committed. From the operational point of view, pre-transaction risk starts with the process of collecting and monitoring the firm’s FX exposure. Is the process of collection exposure timely, relevant and accurate? Are currency markets monitored with manual or automated processes? In terms of currency risk, pre-transaction risk, also known as pricing risk, refers to possible exchange rate fluctuations between the moment a company prices a transaction and the moment it is formally agreed. It is especially prevalent in industries that operate with framework contracts like the specialty chemicals industry. Pricing risk, in this case, starts when FX-denominated inventory is purchased and continues until the corresponding sales transaction is agreed.

The presentation currency is the monetary unit used by a firm to record its transactions and to present its financial statements. The presentation currency is also known as the reporting currency or accounting currency. In most cases, the presentation currency is also the firm’s ‘functional currency’, i.e. the currency in which it primarily generates and expends its cash. A company can decide to present its financial statements in a currency different from its functional currency, for example when preparing a consolidated report for its parent in a foreign country. While a company can choose its presentation currency, it cannot change its functional currency.

Product bundling is a marketing practice that involves selling a range of different goods or services as a unique end product.There are different types of product bundling.Closed bundle: the customer has no option but to purchase all the products in one set.Open bundle: the customer has to purchase a minimum quantity of products and can add optional products to the bundle, to obtain additional advantages.Dynamic bundle: the customer can create the bundle or set of products or services they need to receive advantageous conditions.Product bundling is a system that has been used in diverse areas and is common in imperfectly competitive markets, such as telecommunications, software industries or in the insurance and banking sectors, where oligopolies or monopolistic practices are in play.

Quantitative easing (QE) is an unconventional monetary policy tool that consists in a large-scale purchasing of assets by a central bank using money that it has newly created.It is more colloquially referred to as "printing money", though no actual banknotes are printed. Merely, money is electronically "created".QE aims to raise the price of government bonds while simultaneously driving down their yields. This is a method used to push banks to invest in riskier assets and lend more to businesses and individuals.These monetary stimulus measures have a direct impact on the exchange rate, as it causes the depreciation of the currency. In the Eurozone, for instance, only the expectation of a 18-month long QE programme announced by the European Central Bank at the start of 2015 triggered a sharp depreciation in the euro, that reached its lowest level in 9 years against the U.S. dollar.Prices of commodities, including precious metals, and stocks, tend to rise when QE is in action. European stock markets climbed to their highest levels in 7 years in expectation of the ECB QE programme, which involved the purchase of €1.1 trillion of assets.The U.S. stock market experienced sustained highs largely as a result of the 6 year long QE programme implemented by the Federal Reserve, which ran from 2008 to 2014.

The quote currency is the second currency appearing in a currency pair quotation. The quote 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. It means, in this example, that one EUR is worth 1.25 USD. In most quoting conventions, USD is the base currency for emerging market currencies: USD-BRL, USD-TRY, USD-RBL, etc. In futures markets, which are mostly based in the United States, the quote currency is always the U.S. dollar.

In a currency pair, the quote currency interest rate is the interest rate set by the central bank that issues the quote currency.In FX markets, currencies are quoted in relation to other currencies and represented in pairs. In the EUR/USD pair, for instance, the euro is the base currency and the dollar is the quote currency, so in this example, the quote currency interest rate is the rate set by the US Federal Reserve.Interest rates are a fundamental element in currency forward contracts. The differential between the interest rates of the base and quote currencies defines the forward points that are added or subtracted to the exchange rate to determine the forward rate.

Reconciliation is an accounting concept that refers to the process of confirming that a set of two records are in agreement.Payment reconciliation is an important task for accounting teams. It involves comparing an account payable with what has actually been paid or, in the case of an account receivable, with the actual incoming payment, to report any possible discrepancies.This process is generally performed at the close of each financial period and entails a thorough examination of all account balances, which in the case of international businesses working with different currencies, can become complex and time-consuming.To minimise manual reconciliation and free up the accounting department from administrative tasks, software tools like Kantox currency accounts make it possible to automate some steps in the collection and reconciliation processes.Currency accounts and virtual IBANs are a cost-efficient solution for international businesses to design a streamlined collection process, with one IBAN per currency or even per client. This facilitates payment originator identification and simplifies reconciliation.

Reference exchange rates are a set of daily foreign exchange rates published by leading central banks. Reference exchange rates are used by companies and other participants in FX markets. They are based on a regular daily concertation procedure between the central bank and leading commercial banks. Reference exchange rates are published for information, not trading, purposes. They are often used as a valuation tool, or in annual financial statements and tax reports of corporations, as well as in statistical publications and economic analyses.