Other Investments

• Futures
  • Futures Glossary
  • Advantages
• Unit Investment Trusts
  • Types of UITs
  • Risk Factors
• Foreign Exchange
  • Products
  • List of Currencies
  • Glossary
• Bank Deposit Program
• Structured Investments

Foreign Exchange

Glossary

American-style option
Style of option that may be exercised at any point from the inception of the option up to and including the expiration date.

Call Option
The call option gives the buyer the right to buy a currency on or before a predetermined date (expiry date) at a fixed rate called the strike price. The buyer of a Call may either exercise the option and buy the currency or allow it to expire worthless. The seller of a Call is required to deliver the underlying currency upon exercise by the option holder although the option may never be exercised if the spot rate never equals the strike price.

Conversion
One-off transactions to convert one currency into another currency. The funds for conversion must be in the client account before the transaction is done. Conversions are non-credit sensitive and only require that the FA, branch manager and the operations manager ensure the funds are cleared and the transaction is appropriate.

Derivative Security
A security whose value is determined in part from the value and characteristics of another security.

European-style Option
A style of option that can only be exercised on the expiration date.

Exchange for Physical(EFP)
EFP trades are OTC currency trades done to offset or initiate futures positions. This allows a Client to access the liquidity of the OTC FX market. Quotes are made IMM style and transactions are posted on the IMM exchange for the client's account.

Exchange traded option
The Philadelphia Stock Exchange (PHILX) and the Chicago Mercantile Exchange (IMM) are the commonly used exchanges for FX options. These options have standardized expiry dates, contract sizes and strikes. IMM options are options on the underlying Futures contracts.

FX Forward
A contractual obligation to buy or sell a foreign currency at a specific price for delivery at a future date.

Maturity or Expiry date of option
The predetermined date of the specified time frame on or during which the option may be exercised.

Non-Deliverable Forward (NDF)
A foreign exchange forward contract that is cash settled (mostly in U.S. dollars) upon expiration based on the difference between the contracted forward rate and the prevailing reference rate for the currency at maturity. In an NDF transaction, there is no exchange of physical currencies.

Option
Gives the buyer the right (but not the obligation) to buy or sell a specified amount of currency at a predetermined price (strike) on or before the maturity (expiry date). Options may be traded over-the-counter (OTC) directly through an affiliate.

OTC Market Conventions
Unless specified, OTC options are quoted European style. All options expire at 10AM New York time on the day of expiry. Premiums on options are settled two business days after trade date.

Out Right Forward
Foreign exchange trade for forward settlement - more than two days after the trade date; a.k.a Forward.

Over the Counter Option (OTC)
These are options that are not exchange traded. Instead, they are traded directly with us and allow the flexibility to accommodate any amount, expiry date or strike the customer needs. Minimum principal amount for an OTC option is roughly 1 million USD. Premium: The upfront price that the buyer of the option must pay to the seller (or writer) of the option. OTC option premiums generally settle two days after the trade date.

Put OptionThis option gives the buyer the right to sell a currency on or before the expiry date at the strike price. The buyer of a Put may either exercise the option and sell the currency or allow it to expire worthless. The seller of a Put is required to acquire the underlying currency upon exercise by the option holder.

Spot FX
Foreign exchange trade (buying one currency for another) for immediate delivery (generally two business days after the trade date.)

Strike
The predetermined rate at the inception of the option contract which the Call owner buys the currency or the Put owner sells the currency.

Structured FX Product
A medium term note with the coupon or yield tied to a spot exchange rate.

Swap
Simultaneous buy and sell of a foreign currency amount for two different settlement dates. A swap is done to reschedule foreign currency payments.