Tag Archives: Foreign exchange swap


Factor sensitivity
The impact on a portfolio of assets of movements in the underlying risk parameter of an individual asset.

Factor portfolio
A well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of zero on any other factors.

Sale of a firm’s accounts receivable to a financial institution known as a factor.

Fading a big dog
Buying (selling) when a big dog is selling (buying).

The fair price is usually either the theoretical price an instrument should fetch or the no-arbitrage price.The fair price of a future or forward contract is the price at which arbitrage between the derivative and the underlying asset just breaks even. The fair value of an option is what should be the price of that option in an efficient market with reference to theoretical option models.

Fairway Bond or Note
Another name for Accrual Note, Corridor Note, or Range Note. It accrues interest if and only if the index rate stays within a range (analogous to a golf ball staying on the fairway).

Fannie Mae
Federal National Mortgage Association. The largest player in the secondary mortgage market.

Federal Reserve System
The central bank of the U.S., established in 1913, and governed by the Federal Reserve Board located in Washington, D.C. The system includes 12 Federal Reserve Banks and is authorized to regulate monetary policy in the U.S. as well as to supervise Federal Reserve member banks, bank holding companies, international operations of U.S.banks, and U.S.operations of foreign banks.

Financial engineering
Combining or dividing existing instruments to create new financial products.

Frankfurt Interbank Overnight Average

Fisher effect
A theory that nominal interest rates in two or more countries should be equal to the required real rate of return to investors plus compensation for the expected amount of inflation in each country.

Flat trades
(1) A bond in default trades flat; that is, the price quoted covers both principal and unpaid, accrued interest. (2) Any security that trades without accrued interest or at a price that includes accrued interest is said to trade flat.

Flattening of the yield curve
A change in the yield curve where the spread between the yield on a long-term and short-term Treasury has decreased. Compare steepening of the yield curve and butterfly shift.

Flex Option
An exchange-traded options that does not have the standard terms of listed options. The customer and the market maker can negotiate various terms, such as strike price and expiration date.

A strip of Floorlets.

Floor broker
A local who trades for customer accounts, on commission.

An Interest Rate Option to receive fixed in an FRA. Its payoff is proportional that to that of a Put Option on a floating rate of interest.

An option on a Floor.

Floor trader
A local who trades for his own account, trying to buy low and sell high.

Foreign direct investment (FDI)
The acquisition abroad of physical assets such as plant and equipment, with operating control residing in the parent corporation.

Foreign equity market
That portion of the domestic equity market that represents issues floated by foreign companies.

Foreign exchange
Currency from another country.

Foreign exchange controls
Various forms of controls imposed by a government on the purchase/sale of foreign currencies by residents or on the purchase/sale of local currency by nonresidents.

Foreign exchange dealer
A firm or individual that buys foreign exchange from one party and then sells it to another party. The dealer makes the difference between the buying and selling prices, or spread.

Foreign exchange risk
The risk that a long or short position in a foreign currency might have to be closed out at a loss due to an adverse movement in the currency rates.

Foreign exchange swap
An agreement to exchange stipulated amounts of one currency for another currency at one or more future dates.

Forward Contract
A contract to exchange (buy or sell) an underlying instrument for a fixed forward price at a specific, future delivery date. In certain cases – but not always – the Forward Price exceeds the spot price by the cost of carrying the underlying asset from the spot delivery date to the forward delivery date. The cost of carry is an increasing function of the rate of interest and storage costs, and a decreasing function of the rate of dividends, interest, or other cash flows from the underlying instrument. Cf. Futures Contract.

Forward cover
Purchase or sale of forward foreign currency in order to offset a known future cash flow.

Forward Curve
The Forward Curve at a specific future date, based on today’s Forward Curve.
Forward delivery
A transaction in which the settlement will occur on a specified date in the future at a price agreed upon on the trade date.

Forward differential
Annualized percentage difference between spot and forward rates.

Forward discount
A currency trades at a forward discount when its forward price is lower than its spot price.

Forward exchange rate
Exchange rate fixed today for exchanging currency at some future date.

Forward Fed funds
Fed funds traded for future delivery.

Forward forward contract
In Eurocurrencies, a contract under which a deposit of fixed maturity is agreed to at a fixed price for future delivery.

Forward interest rate
Interest rate fixed today on a loan to be made at some future date.

Forward looking multiple
A truncated expression for a P/E ratio that is based on forward (expected) earnings rather than on trailing earnings.

Forward market
A market in which participants agree to trade some commodity, security, or foreign exchange at a fixed price for future delivery.

Forward premium
A currency trades at a forward premium when its forward price is higher than its spot price.

Forward rate
A projection of future interest rates calculated from either the spot rates or the yield curve.

Forward Curve
The Forward Curve at a specific future date, based on today’s Forward Curve.

Forward Rate Agreement
A contract calling for one counterparty to receive the fixed FRA rate and pay the floating rate (e.g., LIBOR) for a particular accrual period in the future, and for the other counterparty to do the reverse. Settlement is at the beginning of the accrual period, when the markets resolve the uncertainty about the floating rate, mainly because that reduces the credit risk associated with the contract. Cf. Swaplet.

Freddie Mac
Federal Home Loan Mortgage Association. The second largest player in the secondary mortgage market.

Front months
Futures contracts with delivery dates in the nearer future.

Fundamental analysis
Security analysis that seeks to detect misvalued securities by an analysis of the firm’s business prospects. Research analysis often focuses on earnings, dividend prospects, expectations for future interest rates, and risk evaluation of the firm.

Fundamental beta
The product of a statistical model to predict the fundamental risk of a security using not only price data but other market-related and financial data.

Fundamental descriptors
In the model for calculating fundamental beta, ratios in risk indexes other than market variability, which rely on financial data other than price data.

Funded debt
Debt maturing after more than one year.

Funding ratio
The ratio of a pension plan’s assets to its liabilities.

Futures Contract
An exchange-traded contract that on its last trading day settles into a Forward Contract (q.v.). The Futures Price and the corresponding Forward Price differ systematically in a world where interest rates are stochastic, and the difference depends on the correlation between the underlying spot price and the price of the zero coupon bond that matures on the last trading day.

Futures contract multiple
A constant, set by an exchange, which when multiplied by the futures price gives the dollar value of a stock index futures contract.

Futures Option
A listed option that settles into a Futures Contract

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