EXCHANGE RATE BASICS
What is the difference between the buy price and sell price of a currency?
Spread
The most conservative FX strategy, used to protect against adverse movements
currency hedging
Customized agreement to exchange currency on a specific future date
forward contract
The ability to buy and sell assets quickly without moving prices dramatically
Liquidity
Bonds sold outside the issuer's home country but in the local currency (e.g., Samurai Bonds)
foreign bonds
In HKD 8 = USD 1, which currency is the base currency (fixed at one unit) ?
US dollar
Paying employees or repatriating profits falls under this operational FX use
currency conversion
Instrument that lets you exchange obligations in different currencies
currency swap
Borrowed money that must be repaid; zero dilution of ownership
debt
How is it called when a US-dollar bond issued in London; avoids government regulation?
Eurobonds
This is the currency expressed in units (like HKD in the example)
quoted currency
Taking directional bets on currency movements.
currency speculation
Gives the right, but not obligation, to exchange at a fixed rate
an option
Money invested for ownership; no guaranteed repayment but dilutes founders
equity
Which bonds can be sold simultaneously across multiple countries in one currency?
global bonds
The golden rule: Direct Quote equals one divided by this.
Indirect Quote
Simultaneously buying and selling currency to capture price differences across exchanges
Currency arbitrage
Standardized, exchange-traded contracts (less flexible but more liquid)
Futures
How we call the Banks, brokers, and exchanges that move capital from surplus to deficit
financial intermediaries
What are Sharia-compliant Islamic bonds structured to avoid interest
Sukuk
American Terms and European Terms are the two types of these.
quoting conventions
Hedging, conversion, speculation, and this fourth strategy sit on the risk spectrum
Arbitrage
The 'Now Track' uses these rates, settling within two business days
spot rates
What are the two things some entities have excess of while others have shortages of
funds (or capital)
These Japanese-issued foreign bonds are named after the country's warrior class.
Samurai bonds