Forward Rate
The exchange rate used for revaluing a forward foreign exchange contract according to the Rebate or NPV methods.
Discounting Rate
For a currency, these are the rates used in arriving at the Net Present Value of an outstanding foreign exchange contract.
Spot Rate
The exchange rate used for a spot deal, on a given business day.
Netting
Summing of two or more accounting entries passed to an account for the same event, so as to arrive at a net figure for posting.
Split Value Date
The Value Date of either the bought or sold leg for an FX deal. If split value dates are specified, both value dates could be different.
Clean Risk
The limit on total value of deals settled with a counterparty on a given business day.
Total Risk
The limit on total exposure to a counterparty due to all deals done with that counterparty.
Settlement Risk
The risk that one party will fail to deliver the terms of a contract with another party at the time of settlement. Settlement risk can be the risk associated with default at settlement.
Pre-settlement Risk
The risk that one party of a contract will fail to meet the terms of the contract and default before the contract's settlement date, prematurely ending the contract. The risk is equal to the replacement value of the original contract.
Foreign Exchange Swaps
Simultaneous sale and purchase of identical amounts of one currency against another, for different maturities. A swap could be Spot against forward or forward against forward.
Risk-weighted Amounts
Assets which are weighted for credit risk according to formulae usually
specified by the central bank. The Weights are given in the form of percentages
and may vary from 0 to 100.
Internal Swap
Swap transaction between the FX and Money Market desks of a bank where in the FX desk buys or sells the currency from/to the MM desk.
Continuous Linked Settlement
Continuous Linked Settlement (CLS) is an industry initiative to eliminate the settlement risk in foreign exchange transactions. This is achieved by using a 'payment versus payment' method, which provides a simultaneous exchange of currency values through CLS Bank International.
Spot deal
Spot Transaction of Foreign Exchange refers to the foreign exchange transaction settled on usually the second bank working day after the foreign exchange transaction has been concluded.
Forward deal
A foreign exchange deal that is settled beyond the spot days (of entering the deal) is referred to as a forward deal.