alternative currency option. A currency option that, if exercised, can be settled in one o several alternative currencies at the choice of the option holder.
basket hedging. The use of a basket of currencies (comprising fewer currencies than the hedged portfolio) to offset the risk of all the nonbase currencies in a portfolio.
break forward. An option that allows the buyer to fully participate in the movement of a currency beyond a specified level without having to pay an explicit option premium.
combined interest rate and currency swap (CIRCUS). A transaction in which two counterparties exchange interest payment streams denominated in two different currencies (i.e., exchanging fixed interest payments in one currency for floating rate interest in another).
contingent hedge with an agreement for rebate at maturity (CHARM). A currency option that (1) is exercisable if a bidding company wins the contract or (2) is void if the company loses the contract, where the issuer of the option rebates a portion of the premium. The value of the payoff depends on (1) the buyer’s ability to obtain business requiring currency protection and (2) the movement of the underlying currency.
convertible option contract. An option to purchase or sell foreign currency that converts to a forward contract if the forward exchange rate falls below a certain price.
covered option securities (COPS). Short-term obligations that give the issuer the option to repay principal and interest in the original, or a mutually acceptable, currency.
covered interest arbitrage. An agreement in which two counterparties exchange currencies at both the spot and forward rates simultaneously.
cross-currency basis swap. A floating interest rate swap in two currencies.
cross-currency cap. An option in which the holder is paid the positive difference between thespread on two different currency base rates and a strike spread.
currency coupon swap. A fixed to floating coupon swap in two different currencies.
currency option. The right but not the obligation to buy or sell another currency at an agreedupon strike price within a specified time period.
currency swap. The initial exchange of two currencies and subsequent reexchange of the same currencies at the end of a certain time period.
basket hedging. The use of a basket of currencies (comprising fewer currencies than the hedged portfolio) to offset the risk of all the nonbase currencies in a portfolio.
break forward. An option that allows the buyer to fully participate in the movement of a currency beyond a specified level without having to pay an explicit option premium.
combined interest rate and currency swap (CIRCUS). A transaction in which two counterparties exchange interest payment streams denominated in two different currencies (i.e., exchanging fixed interest payments in one currency for floating rate interest in another).
contingent hedge with an agreement for rebate at maturity (CHARM). A currency option that (1) is exercisable if a bidding company wins the contract or (2) is void if the company loses the contract, where the issuer of the option rebates a portion of the premium. The value of the payoff depends on (1) the buyer’s ability to obtain business requiring currency protection and (2) the movement of the underlying currency.
convertible option contract. An option to purchase or sell foreign currency that converts to a forward contract if the forward exchange rate falls below a certain price.
covered option securities (COPS). Short-term obligations that give the issuer the option to repay principal and interest in the original, or a mutually acceptable, currency.
covered interest arbitrage. An agreement in which two counterparties exchange currencies at both the spot and forward rates simultaneously.
cross-currency basis swap. A floating interest rate swap in two currencies.
cross-currency cap. An option in which the holder is paid the positive difference between thespread on two different currency base rates and a strike spread.
currency coupon swap. A fixed to floating coupon swap in two different currencies.
currency option. The right but not the obligation to buy or sell another currency at an agreedupon strike price within a specified time period.
currency swap. The initial exchange of two currencies and subsequent reexchange of the same currencies at the end of a certain time period.
currency swap option (swaption). An option to buy or sell a currency swap at a specified exchange rate.
dual option bonds. A bond giving the investor the choice of currencies in which to receive interest and principal repayments.
exchange rate agreement (ERA). A synthetic agreement for forward exchange whose value is correlated with the spread between two forward currency exchange rates.
forward exchange contract. A contractual agreement between two parties to exchange a specified amount of currency for another at a fixed date in the future.
futures contract. An exchange-traded contract calling for delivery of a specified amount of currency at a fixed date in the future.
foreign equity option. The right but not the obligation to buy or sell a foreign equity at a specified price on or before a specified date in the future.
indexed currency option notes (ICONS). Bonds that are denominated and pay interest in one currency with redemption value linked to the exchange rate of another currency.
look-back option. The retroactive right to buy a currency at its low point or sell a currency at its high point within the option period.
principal exchange-rate-linked securities (PERLS). Debt instruments paying interest an principal in U.S. dollars where the principal is pegged to the exchange rate between the dollar and another currency.
range forwards. A forward exchange contract specifying a range of exchange rates at which currencies will be exchanged at maturity.
synthetic position. A combined transaction to produce a security with features that could not be obtained directly (e.g., combining a fixed rate debt with a currency swap).
tailored swap. A currency swap in which the notional principle can be adjusted to meet the changing risk exposure of a business.
dual option bonds. A bond giving the investor the choice of currencies in which to receive interest and principal repayments.
exchange rate agreement (ERA). A synthetic agreement for forward exchange whose value is correlated with the spread between two forward currency exchange rates.
forward exchange contract. A contractual agreement between two parties to exchange a specified amount of currency for another at a fixed date in the future.
futures contract. An exchange-traded contract calling for delivery of a specified amount of currency at a fixed date in the future.
foreign equity option. The right but not the obligation to buy or sell a foreign equity at a specified price on or before a specified date in the future.
indexed currency option notes (ICONS). Bonds that are denominated and pay interest in one currency with redemption value linked to the exchange rate of another currency.
look-back option. The retroactive right to buy a currency at its low point or sell a currency at its high point within the option period.
principal exchange-rate-linked securities (PERLS). Debt instruments paying interest an principal in U.S. dollars where the principal is pegged to the exchange rate between the dollar and another currency.
range forwards. A forward exchange contract specifying a range of exchange rates at which currencies will be exchanged at maturity.
synthetic position. A combined transaction to produce a security with features that could not be obtained directly (e.g., combining a fixed rate debt with a currency swap).
tailored swap. A currency swap in which the notional principle can be adjusted to meet the changing risk exposure of a business.
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