Glossary of Foreing Exchange Terms: M - R

- M -

Maintenance margin - The minimum margin which an investor must keep on deposit in a margin account at all times in respect of each open contract.

Make a market - A dealer is said to make a market when he or she quotes bid and offer prices at which he or she stands ready to buy and sell.

Managed float - When the monetary authorities intervene regularly in the market to stabilize the rates or to aim the exchange rate in a required direction.

Margin call - A claim by one's broker or dealer for additional good faith performance monies usually issued when an investor's account suffers adverse price movements.

Margin - The amount of money or collateral that must be, in the first instance, provided or thereafter, maintained, to ensure against losses on open contracts. Initial must be placed before a trade is entered into. Maintenance or Variation margin must be added to initial to maintain against losses on open positions. Sometimes herein the amount that needs to be present to establish or thereafter maintained is sometimes herein referred to as necessary margin.

Mark to market - The daily adjustment of an account to reflect accrued profits and losses often required to calculate variations of margins.

Market maker - A market maker is a person or firm authorized to create and maintain a market in an instrument.

Market order - An order to buy or sell a financial instrument immediately at the best possible price.

Micro economics - The study of economic activity as it applies to individual firms or well defined small groups of individuals or economic sectors.

Mid-price or middle rate - The price half-way between the two prices, or the average of both buying and selling prices offered by the market makers.

Minimum price fluctuation - The smallest increment of market price movement possible in a given futures contract.

Monetary Base - Currency in circulation plus banks' required and excess deposits at the central bank.

Moving Average - A way of smoothing a set of data, widely used in price time series.

- N -

Net Position - The amount of currency bought or sold which have not yet been offset by opposite transactions.

- O -

Odd Lot - A non standard amount for a transaction.

Offer - The price at which a seller is willing to sell. The best offer is the lowest such price available.

Offset - The closing-out or liquidation of a futures position.

Off-shore - The operations of a financial institution which although physically located in a country, has little connection with that country's financial systems. In certain countries a bank is not permitted to do business in the domestic market but only with other foreign banks. This is known as an off shore banking unit.

Overnight limit - Net long or short position in one or more currencies that a dealer can carry over into the next dealing day. Passing the book to other bank dealing rooms in the next trading time zone reduces the need for dealers to maintain these unmonitored exposures.

Overnight - A deal from today until the next business day.

- P -

Parity - (1) Foreign exchange dealer's slang for your price is the correct market price. (2) Official rates in terms of SDR or other pegging currency.

Parities - The value of one currency in terms of another.

Pegged - A system where a currency moves in line with another currency, some pegs are strict while others have bands of movement.

Pip - One unit of price change in the bid/ask price of a currency. For most currencies, it denotes the fourth decimal place in an exchange rate and represents 1/100 of one percent (.01%).

Position - The netted total commitments in a given currency. A position can be either flat or square (no exposure), long, (more currency bought than sold), or short ( more currency sold than bought).

Profit Taking - The unwinding of a position to realize profits.

- Q -

Quote - An indicative price. The price quoted for information purposes but not to deal.

- R -

Rally - A recovery in price after a period of decline.

Range - The difference between the highest and lowest price of a future recorded during a given trading session.

Rate - (1) The price of one currency in terms of another, normally against USD. (2) Assessment of the credit worthiness of an institution.

Reaction - A decline in prices following an advance.

Reciprocal currency - A currency that is normally quoted as dollars per unit of currency rather than the normal quote method of units of currency per dollar. Sterling is the most common example.

Resistance Point or Level - A price recognized by technical analysts as a price which is likely to result in a rebound but if broken through is likely to result in a significant price movement.

Revaluation - Increase in the exchange rate of a currency as a result of official action.

Revaluation rate - The rate for any period or currency which is used to revalue a position or book.

Risk management - The identification and acceptance or offsetting of the risks threatening the profitability or existence of an organisation. With respect to foreign exchange involves among others consideration of market, sovereign, country, transfer, delivery, credit, and counterparty risk.

Risk Position - An asset or liability, which is exposed to fluctuations in value through changes in exchange rates or interest rates.

Rollover - An overnight swap, specifically the next business day against the following business day (also called Tomorrow Next, abbreviated to Tom-Next).

Round trip - Buying and selling of a specified amount of currency.