Skip Headers

Oracle Treasury User Guide
Release 12.1
Part Number E13426-04
Go to Table of Contents
Go to previous page
Go to next page

Treasury Terminology

accretion of discount
Accrual process for a discount received. This process recognizes that as you get closer to the maturity data of the deal you have "earned" a portion of the discount between original cost and face value even if you have not "received" the actual payment in the form of cash settlement.
amortization of premium
Accrual process for a premium paid. This process recognizes that as you get closer to the maturity date of the deal you have "expensed" a portion of the premium between face value and original cast even if you "paid" the entire premium in the form of cash settlement at the time you entered the deal.
forward and arrears
Sets the range of dates for accruals to either all dates prior to the accrual date (Forward), or to all dates up to and including the accrual date (Arrears).
actual/actual bond:
A day count basis convention where the numerator is the actual number of days between two dates. The denominator is the actual number of days in the coupon period times the coupon frequency resulting in values ranging from 362 to 368 for semiannual bonds.
actual/360 bond:
A day count basis convention where the numerator is the actual number of days between two dates. The denominator is 360.
A day count basis convention where the numerator is the actual number of days between two dates. The denominator is 365.
actual/365L bond:
A day count basis convention that is used for some GBP floating rate notes. The numerator is the actual number of days between two dates. If the next coupon payment date falls within a leap year, the denominator is 366. If not, use 365.
A day count basis convention where the numerator is calculated using the following formula: D days= D2 - D1 + 30 (M2 - M1) + 360 (Y2 - Y1) Where M1/D1/Y1 is the first date and M2/D2/Y2 is the second date. If D1 falls on the 31st, change it to 30. If D2 falls on the 31st, change it to 30 only if D1 falls on either the 30th or the 31st. The denominator is 360. There are three different ways to apply the 30/360 rule: 30/360, 30E/360, and 30e+/360.
A day count basis convention where the numerator is calculated using the following formula: D days= D2 - D1 + 30 (M2 - M1) + 360 (Y2 - Y1) If D1 falls on the 31st, change it to 30. If D2 falls on the 31st, change it to 30.
A day count basis convention where the numerator is calculated using the following formula: D days= D2 - D1 + 30 (M2 - M1) + 360 (Y2 - Y1) If D1 falls on the 31st, change it to 30. If D2 falls on the 31st, change it to 1 and increase M2 by 1.
A party that provides legal or accounting services to a company.
american option
An option which may be exercised at any time prior to expiration. See also European option.
The price at which the currency or instrument is offered.
base rate
1) A rate used by banks to calculate the interest rate to borrowers. Premium borrowers pay a small amount over the base rate. 2) The spot rate from which grid points are added or subtracted to produce the forward rate.
The price at which the currency or instrument is bought.
A discounted negotiable instrument that is tradable. Generally for terms less than nine months. Bank Bills are issued by banks, Commercial bills are issued by companies, Treasury bills are issued by governments, Trade bills are issued between companies as part of a sales process to sell goods.
Black-Scholes model
An option pricing formula initially derived by Fisher Black and Myron Scholes for securities options and later refined by Black for options on futures. It is widely used in the currency markets.
Long term tradable instruments that pay a regular coupon (interest), that is normally at a fixed rate. Generally for periods of 5 to 30 years. Normally issued by governments or blue chip companies.
The summary of currency positions held by a dealer, desk, or room. A total of the assets and liabilities. If the average maturity of the book is less than that of the assets, the bank is said to be running a short and open book.
An agent who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not on principals or agents acting on their own account. In the foreign exchange market brokers tend to act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties. There are four or five major global brokers operating through subsidiaries affiliates and partners in many countries.
1) An option that gives the holder the right to buy the underlying instrument at a specified price during a fixed period. 2) A period of trading. 3) The right of a bond issuer to prepay debt and demand the surrender of its bonds.
call money
Overnight funds lent by banks form issued by a commercial bank as evidence of a deposit with that bank which states the maturity value, maturity date, and interest rate payable.
call option
An option granting the right to buy the underlying futures contract. Opposite of a put option.
company limit
The exposure you are willing to risk on a company.
The name in which the treasury department undertakes the transactions in with the bank. Journal entries are created only for those the general ledger of the company.
A memorandum to the other party describing all the relevant details of the transaction.
constant holiday
A holiday that occurs on the same date every year.
correspondent bank
The foreign banks representative who regularly performs services for a bank which has no branch in the relevant center for example to facilitate the transfer of funds.
counterparty group limit
The exposure you are willing to risk on a counterparty group.
counterparty limit
The exposure you are willing to risk on a counterparty.
counterparty risk
The risk that a debtor will not repay.
The other organization or party with whom the deal is being transacted.
country risk
The risk attached to a borrower by virtue of its location in a particular country. This involves examination of economic, political, and geographic factors. Also known as sovereign risk.
coupon value
The annual rate of interest of a bond.
cross rates
Rates between two currencies, neither of which is the USD.
currency limit
The exposure you are willing to risk on a currency.
day count basis
The convention used to count the appropriate number of days between two dates to calculate accrued interest, yield, and odd coupon amounts. For each rule, the numerator indicates the number of days between the dates and determines what happens if one of the dates falls on the 31st of the month. The denominator indicates how many days are considered in a year. The available day count bases are: actual/actual, actual/360, actual/365, actual/365L, actual/actual-bond, 30/360, 30E/360, and 30E+/360.
deal date
The date on which a transaction is agreed upon.
deal number
A number to uniquely identify the deal. In Treasury, deal numbers are system generated.
deal rate tolerance
The acceptable minimum and maximum value for a deal.
dealer limit
The exposure you are willing to risk on a dealer.
A broad term relating to risk management instruments such as futures, options, and swaps. The contract value moves in relation to the underlying instrument or currency.
1) An option that is trading for less than its intrinsic value. 2) A bond which fixed coupon rate is at a lower than the current market rate for that period 3) the difference between the face value and consideration paid when the consideration is less than the face value. This is always the case with a discounted securities deal, since this discount is essentially the interest that you earn by holding the investment.
discounted security
A security that has a market value lower than its face value or its value at maturity.
effective interest method
Accrual method where the premium or discount is recognized such that the implied interest rate during each accounting period stays constant. In simplistic terms, the implied interest rate is the recognized revenue or expense divided by the carrying cost and adjusted for the time period. Each period's accrual adjusts the carrying cost - increasing or decreasing in the case of discounts or premiums, respectively. The period accrual amounts must likewise increase or decrease to maintain a constant implied interest rate.
european option
An option that can be exercised only on its expiration date rather than before that date.
exercise value
For a call option, this is the amount by which the strike price is below the underlying investment; for a put option, it is the amount by which the strike price is above the underlying investment.
expiration date
1)For options, the date after which the option can no longer be exercised. 2) For bonds, the date on which the bond matures.
In Oracle Treasury, any cash flow (either actual or indicative) that is not the result of a Treasury transaction. Exposures are recorded so that all cash flow of the company can be used for the gap analysis (cash flow gaps).
face value
Also called maturity value. The amount the issuer agrees to pay at the deal maturity date.
firm quotation
The price given in response to a request for a rate at which the quoting party is willing to execute a deal for a reasonable amount for spot settlement. Screen quotes are indicative.
fixed exchange rate
Official rate set by monetary authorities. Often the fixed exchange rate permits fluctuation within a band.
fixed income security
A long term tradeable instrument that pays a regular coupon or interest rate.
floating exchange rate
An exchange rate where the value is determined by market forces. Even floating currencies are subject to intervention by the monetary authorities. When such activity is frequent the float is known as a dirty float.
foreign exchange
The purchase or sale of a currency against sale or purchase of another.
A method for accruing financial transactions for accounting purposes. If you choose to use the forward method, then all financial transactions for dates up to but not including the accounting period end date will be accrued.
forward contract
Sometimes used as synonym for "forward deal". A deal with a value date greater than the spot value date.
forward deal
A deal with a value date greater than the spot value date.
forward rate agreement
A forward rate agreement (FRA) is an agreement between two parties that determine the interest rate that will apply to a notional loan or deposit at a future date. The notional amount, term, and rate are set at the time of the contract. On the expiration date of the contract the difference between the current interest rate for the term and the notional interest rate must be settled between the parties.
forward rate
Forward rates are quoted in terms of forward points, which represent the difference between the forward and spot rates. In order to obtain the forward rate from the actual exchange rate the forward points are either added or subtracted from the exchange rate. The decision to subtract or add points is determined by the differential between the deposit rates for both currencies concerned in the transaction. In the forward market, the ledger currency with the higher interest rate, is said to be at a discount to the lower interest rate quoted currency and therefore the forward points are subtracted from the spot rate. Similarly, the lower interest rate base currency is said to be at a premium, and the forward points are added.
futures contract
A contract traded on a futures exchange which requires the delivery of a specified quality and quantity of a commodity, currency or financial instruments on a specified future month. A deposit if between 5 to 10 percent is required to be paid when purchasing a contract. The deposit is held by the Futures Exchange.
Foreign Exchange
A mismatch between maturities and cash flows in a bank or individual dealers position book. Gap exposure is effectively interest rate exposure.
global limit
The exposure you are willing to risk on a deal.
going long
The purchase of a stock or commodity for investment or speculation.
going short
The selling of a currency or instrument not owned by the seller.
inclusion components
Inclusion components are components of fair value that are related to a hedgeable risk. You can identify one or more inclusion components to measure effectiveness for changes in fair value that are related to the risk you are hedging, as long as you are not hedging the entire fair value change of your hedged items.
indicative quote
A market-marketer's price. This price is not firm.
inter-account transfer
A transfer of funds between two accounts that belong to the same company.
inter-company party
A subsidiary of the company with which the treasury department manages cash surpluses or shortfalls.
interest rounding
interest rounding options are as follows: nearest, round up, round down.
interest rate cap
An agreement that provides the buyer of a cap with a maximum interest rate for future borrowing requirements.
interest rate floor
An agreement which provides the buyer of the floor with a minimum interest rate for future lending requirements.
interest rate swaps
An agreement to swap interest rate exposures from floating to fixed or vice versa. If the currency is the same for both sides there is no swap of the principal. It is the interest cash flows that are exchanged.
knock in
A process where a barrier option (European) becomes active as the underlying spot price is in the money. Knock out has a corresponding meaning although the option may permanently cease to exist.
The London Interbank Offered Rate. The rate charged by one bank to another for lending money.
The amount of money or exposure you are willing to risk on a particular party, country, currency, dealer, or group.
limit utilization
The total amount of a limit used by deals.
limit weighting
The percent of a deal that you consider at risk. The limit weighting is used to calculate the utilization of a limit.
The holding of an excess position.
market amount
The minimum amount conventionally dealt for between banks.
maturity date
1) The last trading day of a futures contract. 2) The date on which a bond matures, at which time the face value will be returned to the purchaser.
money market
A market consisting of financial institutions and dealers in money or credit who wish to either borrow or lend.
negotiable securities
An investment that is negotiable in price, such as discounted or fixed income securities.
The method of settling under which the payments and receipts due in the same currency on the same date are summed together and only the differences are settled with the counterparty.
A financial instrument consisting of a promise to pay rather than an order to pay or a certificate of indebtedness, as are the case with bills.
notional cash pool (setoff account)
A bank account that is combined with other bank accounts in a nominal account for the purpose of calculating interest on the combined balance.
one-off holiday
A holiday that occurs only once. For example a holiday to celebrate the coronation of a new king or queen.
A contract conferring the right, but not the obligation to, buy (call) or sell (put) a specified amount of an instrument at a specified price within a predetermined time period.
payment date
The date on which a dividend or bond interest payment is scheduled to be paid.
A high level grouping of deals for accounting, reporting, or trading strategies. In Oracle Treasury, these would be used to separate hedging transactions from speculative transactions.
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).
1) The amount by which a forward rate exceeds a spot rate. 2) The amount by which the market price of a bond exceeds its par value. 3) The price a buyer of an option must pay the seller of the option. 4) The difference between the face value and consideration paid when the consideration is greater than the face value. Premiums do not apply to discounted securities deals. For example, for a bond deal, you pay a premium when the stated coupon rate is greater than the prevailing interest rates in the market for instruments or similar characteristics.
product type
A user-defined type to organize deal types. Many market instruments are the same except for their marketability due to risk factors, for example a commercial bill is the same as a bank bill but carries a higher risk. Product types allow for this distinction.
put option
A put option confers the right but not the obligation to sell currencies instruments or futures at the option exercise price within a predetermined time period.
An indicative price. The price quoted for information purposes but not to deal.
1) The price of one currency in terms of another, normally against USD. 2) Refers to interest rate.
retail term money
A deposit or loan that has regular payments over a period of time.
revaluation rate
The rate for any period or currency which is used to revalue a position or book.
risk position
An asset or liability which is exposed to fluctuations in value through changes in exchange rates or interest rates.
risk premium
Additional sum payable or return to compensate a party for adopting a particular risk.
An overnight swap, specifically the next business day against the following business day (also called Tomorrow Next, abbreviated to Tom-Next).
A piece of paper proving ownership of financial instruments such as stocks or bonds.
selling rate
Rate at which a bank is willing to sell foreign currency.
settlement account
The bank account with which cash settlements is to take place.
settlement date
See: Value date.
settlement price
The official closing price for a future set by the clearing house at the end of each trading day.
settlement risk
Risk associated with the non-settlement of the transaction by the counterparty.
shared bank account
A bank account that is defined in Oracle Cash Management and that is shared between Oracle Treasury and other Oracle applications.
short position
A shortage of assets. See short sale.
short sale
The sale of a currency or money market instrument not owned by the seller at the time of the trade. Short sales are usually made in expectation of a decline in the price.
short term money
Also referred to as call cash is money that a bank lends for a very short period of time. The bank can request payment of short term money with the same day, one day or two days notice.
sovereign limit
The exposure you are willing to risk on a country.
sovereign risk
1) Risk of default on a sovereign loan. 2) Risk of appropriation of assets held in a foreign country.
1) The most common foreign exchange transaction. 2) Spot or Spot date refers to the spot transaction value date that requires settlement within two business days, subject to value date calculation.
spot price/rate
The price at which the currency is currently trading in the spot market.
The difference between the bid and ask price quoted.
Purchase and sales are in balance and thus the dealer has no open position.
straight line method
Accrual method when the premium or discount is recognized evenly over the term of the total premium. For example, if you purchase a 3-month discounted security deal and you receive a discount of $300. If you have monthly accounting, then you would accrue $100 each month. If you perform accounting twice monthly, then you would accrue $50 in each accounting period.
strike price
Also called exercise price. The price at which an options holder can buy or sell the underlying instrument.
A bank account to which a correspondent bank directs foreign currency settlement payments.
An arrangement whereby two parties lend to each other on different terms. A swap deal can be in different currencies or for different interest rates or both.
An option to conduct a swap.
A financial instrument that can use only nominal principal and not physical principal. For example, options, futures, FRAs.
term limit
The maximum time you are willing to hold a deal.
transaction rate
In Oracle Treasury, the rate at which the deal was dealt.
treasury bills
Short term obligations of a Government issued for periods of one year or less. Treasury bills do not carry a rate of interest and are issued at a discount on the par value. Treasury bills are repaid at par on the due date.
treasury bonds
Government obligations with maturities of ten years or more.
treasury notes
Government obligations with maturities more than one year but less than ten years.
treasury only bank account
A bank account that is only defined in Oracle Treasury.
value date
The date of cash flow settlements. For a spot transaction it is two business banking days forward in the country of the bank providing quotations which determine the spot value date. The only exception to this general rule is the spot day in the quoting center coinciding with a banking holiday in the countries of the foreign currency. The value date then moves forward a day.
A party that assesses the value of securities.
A measure of the amount by which an asset price is expected to fluctuate over a given period. Normally measured by the annual standard deviation of daily historic price changes.
wholesale term money
Money borrowed in large amounts from banks and institutions rather than from small investors.
yield curve
The graph showing changes in yield on instruments depending on time to maturity. A system originally developed in the bond markets is now broadly applied to various financial futures. A positive sloping curve has lower interest rates at the shorter maturities and higher at the longer maturities. A negative sloping curve has higher interest rates at the shorter maturities.
zero coupon bond
A bond that pays no interest. The bond is initially offered at a discount to its redemption value.