Cash flow hedge
A cash flow hedge is a type of hedge that is used to protect against potential losses or gains on a company's future cash flows. It involves using financial instruments, such as derivatives, to offset the impact of changes in foreign exchange rates, interest rates, or commodity prices on the value of the company's cash flows.
Consumer Price Index (CPI)
Consumer Price Index (CPI) measures the average price level of a basket of goods and services consumed by households. The Consumer Price Index (CPI) is a critical indicator of pricing pressures in an economy and provides a gauge of inflation. Forex traders monitor the CPI, as it can lead to changes in monetary policy by the central bank that will either strengthen or weaken the currency against others in the markets.
In the context of foreign exchange (FX), collateral refers to assets that are pledged as security for a financial obligation, such as a loan or a derivative contract. Collateral is often used in FX transactions to reduce the risk of default by one of the parties. Collateral can be used in other types of FX transactions as well, such as currency forwards, options, and non-deliverable forwards. In these cases, the collateral may be used to cover the potential risk of loss due to changes in exchange rates or other market conditions.
Commodities are raw materials or primary agricultural products that can be bought and sold, such as copper, oil, wheat, gold, etc. Because commodities are standardized products with little differentiation between their qualities, they can be interchanged with other commodities of the same type. They are often produced and traded in large quantities and can be used as inputs for further production or as sources of energy.
A calendar spread, also called a time spread or a horizontal spread, involves simultaneously buying and selling options on the same underlying asset but with different expiration dates. Calendar spreads aim to profit from differences in option time decay.
Call options are financial contracts that give the holder the right, but not the obligation, to buy a specific asset at a predetermined price (the strike price) before or on a certain date (the expiration date). The underlying asset is the asset that the call option gives the holder the right to purchase.
The call spread is an option strategy where one call option is purchased and another call option is simultaneously sold on the same underlying asset. Call options have different strike prices, and the option that is purchased has a lower strike price than the option that is sold. Call spreads are designed to profit from an upward move in the price of the underlying asset while limiting losses.
Caps are financial contracts used to hedge against currency fluctuations, similar to options. By using it, a currency's upside potential is limited while the holder benefits from its potential depreciation. The holder of a cap has the right to buy or sell a currency, but is not obligated to do so, at a specific strike price, on a specific date or period of time. A cap rate is the strike price that determines a currency's maximum rate.
Credit Default Swap (CDS)
Credit default swaps (CDS) are financial derivatives that are used to transfer credit risk from one party to another. A CDS provides protection against the risk of debt default by the issuer.
In the context of foreign exchange (FX), a cross rate is the exchange rate between two currencies, both of which are not the official currency of the country in which the exchange rate quote is given. It is calculated by using the exchange rates of the two currencies relative to a third currency, which is typically a more widely traded currency such as the US dollar.
Cross border payment
A cross border payment is a financial transaction that involves the transfer of money between countries, typically in different currencies. Cross border payments can be made for a variety of purposes, such as to pay for goods or services, to transfer money to or from foreign bank accounts, or to make international wire transfers. There are a number of factors to consider when making a cross border payment, such as exchange rates, fees, and regulatory requirements.
Convertible bonds are bonds that can be converted into shares of the issuer's stock or another security at the holder's discretion. Convertible bonds are a hybrid security that combine the features of both bonds and stocks. They offer the stability and regular income of a bond, as well as the opportunity to participate in the company's potential growth.
Corporate bonds are debt securities issued by corporations to raise capital. There are a variety of maturities available for corporate bonds, ranging from a few months to more than 30 years. The bondholder receives periodic interest, known as a coupon, and the principal is returned at maturity.
Currency forward (FX forward)
A currency forward is a financial contract that involves the exchange of two currencies at a predetermined exchange rate on a future date. It is a type of derivative instrument that is used to hedge against the risk of fluctuations in exchange rates.
Currency hedging is the practice of using financial instruments or strategies to reduce the risk of losses due to fluctuations in foreign exchange rates. It is a common risk management strategy for companies and investors with international operations or exposures, as it can help to protect against the impact of currency fluctuations on the value of their assets, liabilities, and cash flows.
Currency volatility refers to the fluctuations in the value of a currency relative to other currencies. It is a measure of the risk associated with holding or trading assets in a particular currency, and is an important consideration for companies and investors with international operations or exposures.
Currency exposure refers to the potential impact of changes in foreign exchange rates on the value of a company's assets, liabilities, and cash flows. It is a measure of the extent to which a company is exposed to risk from movements in foreign exchange rates. A company with significant foreign currency exposure may be at risk of losses due to changes in exchange rates, which can impact the value of its assets and liabilities, as well as the cash flows from its international operations.