Forex 2

Front 1

A pair of currencies traded in forex that does not include the U.S.
dollar. One foreign currency is traded for another without having
to first exchange the currencies into American dollars.
Historically, an individual who wished to exchange a sum of money into
a different currency would be required to first convert that money
into U.S dollars, and then convert it into the desired currency; ------------ help individuals and traders bypass this step. The GBP/JPY
cross, for example, was invented to help individuals in England and
Japan who wanted to convert their money directly without having to first
convert it into U.S dollars.

Back 1

Cross Currency

Front 2

The currency exchange rate between two currencies, both of which are
not the official currencies of the country in which the exchange rate
quote is given in. This phrase is also sometimes used to refer to
currency quotes which do not involve the U.S. dollar, regardless of
which country the quote is provided in.
For example, if an exchange rate between the Euro and the Japanese
Yen was quoted in an American newspaper, this would be considered
a ------------ in this context, because neither the euro or the yen is the
standard currency of the United States. However, if the exchange rate
between the euro and the U.S. dollar were quoted in that same
newspaper, it would not be considered a --------- because the quote
involves the U.S. official currency.

Back 2

Cross Rate

Front 3

A generally accepted form of money, including coins and paper
notes, which is issued by a government and circulated within an
economy. Used as a medium of exchange for goods and services,
-------- is the basis for trade.
Generally speaking, each country has its own ---------. For
example, Switzerland's official ----------is the Swiss franc, and Japan's
official ------- is the yen. An exception would be the euro, which is
used as the --------- for several European countries.
Investors often trade ------- on the foreign exchange market, which
is one of the most heavily traded markets in the world.

Back 3

Currency

Front 4

A selected group of currencies whose weighted average is used as a
measure of the value or the amount of an obligation. A -------------- functions as a benchmark for regional currency movements - its
composition and weighting depends on its purpose.
A ------------- is commonly used in contracts as a way of avoiding
(or minimizing) the risk of currency fluctuations. The European
Currency Unit (which was replaced by the euro) and the Asian
Currency Unit are examples of -----------.

Back 4

Currency Basket

Front 5

A currency trade that offers an all-or-nothing payoff based on a given
currency exchange rate when the position reaches its expiration date.
Binaries have a single payoff amount rather than the variable profit
amounts found in traditional options.
Binary trades can be used for either hedging purposes (such as
downside protection for assets held in a specific currency) or as a
speculative bet on the direction a specific exchange rate will move. The
going premium on a currency binary represents the consensus "odds"
that the strike exchange rate will be reached by expiration. An investor
or trader can also sell (short) a currency binary position, reversing the
payoff options and effectively betting that the exchange rate will fall.
--------------- represent a rather young trading strategy, and not all
currency exchange rates are currently being traded. The majority of
positions are for the EUR/USD, GBP/USD and USD/YEN based on
their very liquid forex markets.
For example, assume that the exchanex

Back 5

Currency Binary

Front 6

A strategy in which an investor sells a certain currency with a
relatively low interest rate and uses the funds to purchase a
different currency yielding a higher interest rate. A trader using this
strategy attempts to capture the difference between the rates - which
can often be substantial, depending on the amount of leverage
the investor chooses to use.
Here's an example of a "yen carry trade": a trader borrows 1,000 yen
from a Japanese bank, converts the funds into U.S. dollars and buys a
bond for the equivalent amount. Let's assume that the bond pays 4.5%
and the Japanese interest rate is set at 0%. The trader stands to make
a profit of 4.5% (4.5% - 0%), as long as the exchange rate between the
countries does not change. Many professional traders use this trade
because the gains can become very large when leverage is taken into
consideration. If the trader in our example uses a common leverage
factor of 10:1, then she can stand to make a profit of 45%.
The big risk in a carry trade is the

Back 6

Currency Carry Trade

Front 7

A note that grants the holder the right to convert a specific amount of
one currency to another at a given exchange rate until it expires. A
------------- is a bearer certificate in that there is no registered
owner. -------------- are a useful tool for hedging foreign
exchange risk.
For example, suppose that Company XYZ is based in America but also
has operations in Canada. The company will be receiving Canadian
dollars from sales, but will want them to be exchanged for U.S. dollars.
If the U.S. dollar weakens relative to the Canadian dollar, the company
will lose money.
Each month, Company XYZ forecasts the next month's Canadian
sales. The company could purchase one-month -------------
for the amount of next month's estimated Canadian sales at a foreign
exchange rate specified today. This will protect the company if the
Canadian dollar appreciates relative to the U.S. dollar, because it can
turn in these certificates and convert the currency at the note's
specified rate. If the U.S. dollar

Back 7

Currency Certificate

Front 8

The ease with which a country's currency can be converted into gold or
another currency. Convertibility is extremely important for international
commerce. When a currency in inconvertible, it poses a risk and barrier
to trade with foreigners who have no need for the domestic currency.
Government restrictions can often result in a currency with a low
convertibility. For example, a government with low reserves of hard
foreign currency often restrict ---------------- because the
government would not be in a position to intervene in the foreign
exchange market (i.e. revalue, devalue) to support their own currency if
and when necessary.

Back 8

Currency Convertibility

Front 9

A forward contract in the forex market that locks in the price at which
an entity can buy or sell a currency on a future date. Also known as
"outright forward currency transaction", "forward outright" or "FXforward".
In -------------- contracts, the contract holders are obligated to buy
or sell the currency at a specified price, at a specified quantity and on a
specified future date. These contracts cannot be transferred.

Back 9

Currency Forward

Front 10

A transferable futures contract that specifies the price at which a
specified currency can be bought or sold at a future date.
------------- contracts allow investors to hedge against foreign
exchange risk. Since these contracts are marked-to-market daily,
investors can--by closing out their position--exit from their obligation to
buy or sell the currency prior to the contract's delivery date.­

Back 10

Currency Futures

Front 11

The widespread use of a currency outside the original country in
which it was created for the purposes of conducting transactions
between sovereign states. The level of ------------------ for
a currency is determined by the demand other countries have for that
currency. This depends on the amount of business that is
performed between the countries and/or the perceived value of the
currency as a good store of value.
From the 1970s onward, the currency with the highest amount of
------------------------------- was the U.S. dollar.
Billions (if not trillions) of U.S. dollar reserves are held in Asian
countries (such as Japan or China), which has caused the U.S. dollar
to rise in value in recent years. However, there are concerns as to what
would happen if some other currency (such as the euro) gained higher
rates of ---------------------. Some believe that the resulting
flood of U.S. dollars could dramatically decrease the value of the
dollar and take away America's title as the world's strongest

Back 11

Currency Internationalization

Front 12

A contract that grants the holder the right, but not the obligation, to buy
or sell currency at a specified exchange rate during a specified period
of time. For this right, a premium is paid to the broker, which will vary
depending on the number of contracts purchased. ------------ are
one of the best ways for corporations or individuals to hedge against
adverse movements in exchange rates.
Investors can hedge against foreign currency risk by purchasing a
-------------- put or call. For example, assume that aninvestor believes that the USD/EUR rate is going to increase from 0.80
to 0.90 (meaning that it will become more expensive for a European
investor to buy U.S dollars). In this case, the investor would want to buy
a call option on USD/EUR so that he or she could stand to gain from an
increase in the exchange rate (or the USD rise).

Back 12

Currency Options

Front 13

The outsourcing of currency risk management to a specialist firm,
known as the overlay manager. This is used in international investment
portfolios to separate the management of currency risk from the asset
allocation and security selection decisions of the investor's money
managers.
The overlay manager's hedging is "overlaid" on the portfolios created
by the other money managers, whose activities continue unaffected.

Back 13

Currency Overlay

Front 14

The quotation and pricing structure of the currencies traded in the forex
market: the value of a currency is determined by its comparison to
another currency. The first currency of a ------------- is called the
"base currency", and the second currency is called the "quote
currency". The ------------ shows how much of the quote currency is
needed to purchase one unit of the base currency.
All forex trades involve the simultaneous buying of one currency and
selling of another, but the ------------- itself can be thought of as a
single unit, an instrument that is bought or sold. If you buy a --------------, you buy the base currency and sell the quote currency. The bid
(buy price) represents how much of the quote currency is needed
for you to get one unit of the base currency. Conversely, when you sell
the ------------, you sell the base currency and receive the quote
currency. The ask (sell price) for the --------------- represents how
much you will get in the quote currency for selling one unit o

Back 14

Currency Pair

Front 15

A form of risk that arises from the change in price of one currency
against another. Whenever investors or companies have assets or
business operations across national borders, they face --------------- if
their positions are not hedged.
For example if you are a U.S. investor and you have stocks in Canada,
the return that you will realize is affected by both the change in the
price of the stocks and the change of the Canadian dollar against the
U.S. dollar. Suppose that you realized a return in the stocks of 15% but
if the Canadian dollar depreciated 15% against the U.S. dollar, you
would realize no gain.
Academic studies of ----------- suggest - although, without absolute
certainty - that investors bearing ------------- are not compensated
with higher potential returns, meaning it is essentially a needless risk to
bear.

Back 15

Currency Risk

Front 16

A swap that involves the exchange of principal and interest in one
currency for the same in another currency. It is considered to be a
foreign exchange transaction and is not required by law to be shown on
the balance sheet.
For example, suppose a U.S.-based company needs to acquire Swiss
francs and a Swiss-based company needs to acquire U.S. dollars.
These two companies could arrange to swap currencies by establishing
an interest rate, an agreed upon amount and a common maturity date
for the exchange. ------------ maturities are negotiable for at least
10 years, making them a very flexible method of foreign exchange.
------------ were originally done to get around exchange controls.

Back 16

Currency Swap

Front 17

A line graph that displays the intraday movements of a given security.
This contrasts to longer term charts, such as those that show a
security's movement over a period of days, months or even years.
----------- display all of the price movement for the period and are
typically used by day traders to implement short-term strategies.
Because the forex operates 24 hours a day, there is technically no
stoppage of trading between one trading day and the next as there is in
other markets. As a result, the convention is to consider a forex day to
be from 5pm EST to the same time on the following day, and most daily
charts are displayed this way.

Back 17

Daily Chart

Front 18

In the forex market, a particular point in time specified by a forex dealer
to stand as the end of the current trading day and the beginning of a
new trading day. This is done for primarily administrative and logistical
reasons, because although the forex market trades 24 hours a day, the
market and its intermediaries require a specified beginning and end to
each trading day in order to record trade dates and define settlement
periods.
For example, let's say a forex dealer specified that the daily cut-off was
5pm every day, and a trader placed two forex trades on the evening of
January 1 - one at 4:50pm and another at 5:15pm. Since the ---------------
is 5pm, the first trade would be booked as taking place on January
1, while the second would be recorded as a January 2 trade, since it
took place after the ----------.

Back 18

Daily Cut-Off

Front 19

The maximum gain or loss on a derivative contract, such as options
and futures contracts, that is allowed in any one trading session. The
limits are imposed by the exchanges in order to protect against
extreme volatility or manipulation within the markets.
When -------------- have been reached, it is said to be a "locked
market", and trading will halt for any trades that break the threshold or
trading will close for that particular security.
-------------- can also be in place for currency trading, such as
China's ------------- of 0.5% for the Chinese renminbi against the
U.S. dollar. When a particular commodity or contract has reached the
------------------, it may be considered "limit up" or "limit down",
depending on the direction of the day's move.Trading limits are much more important for derivatives than for stocks
or bonds, for example, because so many investors use massive
amounts of leverage to trade commodities, currencies and futures
contracts.

Back 19

Daily Trading Limit

Front 20

The intraday volatility of an exchange rate (or price of a good or
service), that changes due to imbalances in supply and demand. Price
levels of various goods or services can change very quickly depending
on the current market condition.
Low levels of ------------ illustrate that the market is complacent,
and the existing price is not a major concern for the transacting parties.
On the other hand, a rise in --------------- can be used to signal fear,
or a lack of supply. This degree of volatility generally results in large
price fluctuations, which suggests that the market is in a state of panic
because there may be a larger group of sellers than there are buyers.

Back 20

Dayrate Volatility

Front 21

A market structure that consists of a network of various technical
devices that enable investors to create a marketplace without a
centralized location. In a ------------------, technology provides investors with access to various bids/ask
prices and makes it possible for them to deal directly with other
investors/dealers rather than with a given exchange.
The foreign exchange market is an example of a -------------
because there is no one physical location where investors go to buy or
sell currencies. Forex traders can use the internet to check the quotes
of various currency pairs from different dealers from around the world.

Back 21

Decentralized Market

Front 22

A general decline in prices, often caused by a reduction in the supply of
money or credit. --------- can be caused also by a decrease in
government, personal or investment spending. The opposite of
inflation, ---------- has the side effect of increased unemployment since
there is a lower level of demand in the economy, which can lead to an
economic depression.
Declining prices, if they persist, generally create a vicious spiral of
negatives such as falling profits, closing factories, shrinking
employment and incomes, and increasing defaults on loans by
companies and individuals. To counter deflation, the Federal Reserve
(the Fed) can use monetary policy to increase the money supply and
deliberately induce rising prices, causing inflation. Rising prices provide
an essential lubricant for any sustained recovery because
businesses increase profits and take some of the depressive pressures
off wages and debtors of every kind.

Back 22

Deflation

Front 23

A decrease in the value of a particular currency relative to other
currencies.
Examples of currency ------------- are the infamous Russian ruble
crisis in 1998, which saw the ruble lose 25% of its value in one day.

Back 23

Depreciation

Front 24

A deliberate downward adjustment to a country's official exchange rate
relative to other currencies. In a fixed exchange rate regime, only a
decision by a country's government (i.e. central bank) can alter the
official value of the currency. Contrast to "revaluation".
There are two implications for a currency -------------. First, ----------
makes a country's exports relatively less expensive for foreigners and
second, it makes foreign products relatively more expensive for
domestic consumers, discouraging imports. As a result, this may help
to reduce a country's trade deficit.

Back 24

Devaluation

Front 25

A technical analysis reversal pattern that is used to signal the end of an
uptrend. This relatively uncommon pattern is found by identifying a
period in which the price trend of an asset starts to widen and then
starts to narrow. This pattern is called a diamond because of the
shape it creates on a chart.
Since technical traders use this pattern to predict a reversal of an
uptrend, a short position is taken when the price falls below the lower
ascending trendline. In general, price targets are usually set to be
equal to the entry price minus the distance between the top and the
bottom of the pattern.

Back 25

Diamond Top Formation

Front 26

A foreign exchange rate quoted as the domestic currency per unit of
the foreign currency. In other words, it involves quoting in fixed units of
foreign currency against variable amounts of the domestic currency.
For example, in the U.S., a direct quote for the Canadian dollar would
be US$0.85 = C$1. Conversely, in Canada, a ------------ for U.S.
dollars would be C$1.17 = US$1.d

Back 26

Direct Quote

Front 27

A system of floating exchange rates in which the government or the
country's central bank occasionally intervenes to change the direction
of the value of the country's currency. In most instances, the
intervention aspect of a dirty float system is meant to act as a buffer
against an external economic shock before its effects become truly
disruptive to the domestic economy. Also known as a "managed float".
For example, country X may find that some hedge fund is speculating
that its currency will depreciate substantially, thus the hedge fund is
starting to short massive amounts of country X's currency. Because
country X uses a ----------- system, the government decides to take
swift action and buy back a large amount of its currency in order to limit
the amount of devaluation caused by the hedge fund.
A dirty float system isn't considered to be a true floating exchange
rate because, theoretically, true floating rate systems don't allow for
intervention.

Back 27

Dirty Float

Front 28

A situation that occurs when a country imports more goods and
services from another country than it exports back to the same country.
The net effect of spending more money importing than is received from
exporting causes a net reduction in the importing country's reserves of
the exporting country's currency.
For example, if Canada has exported $500 million worth of goods and
services to the U.S. and has also imported $650 million worth of goods
and services from the U.S., the net effect will be a reduction in
Canada's U.S. dollar reserves.
A dollar drain position should not be maintained indefinitely. As a result
of the laws of supply and demand, importing more than exporting
will likely cause a devaluation of the importing country's
currency. However, this effect will be mitigated if foreign investors pour
their money into the importing country's stocks and bonds, as these
actions will increase the demand for the importing country's currency,
causing it to appreciate in value.

Back 28

Dollar Drain

Front 29

A type of exotic option that gives an investor an agreed upon payout if
the price of the underlying asset does not reach or surpass one of two
predetermined barrier levels. An investor using this type of option pays
a premium to his/her broker and in turn receives the right to choose the
position of the barriers, the time to expiration, and the payout to be
received if the price fails to breach either barrier. With this type of
option, the maximum possible loss is just the cost of setting up the
option.
A -------------------- is the opposite of a --------------------.
This type of option is useful for a trader who believes that the price of
an underlying asset will remain rangebound over a certain period of
time. -------------------- are growing in popularity among traders
in the forex markets.
For example, assume that the current USD/EUR rate is 1.20 and the
trader believes that this rate will not change dramatically over the next
14 days. The trader could use a ------------------with barrier

Back 29

Double No-Touch Option

Front 30

A fixed deposit with variable terms for the currency of payment.
Deposits are made in one currency, but withdrawals at maturity occur
either in the currency of the initial deposit or in another agreed upon
currency.
This is a deposit that creates a foreign exchange rate risk for the
investor. Similar to a currency swap, you can be rewarded or punished
for the risk taken.US$1.

Back 30

Dual Currency Deposit

Front 31

A situation in which there is a fixed official exchange rate and an illegal
market-determined parallel ---------. The different exchange
rates are used in different situations, either in exchanges or
evaluations, as mandated by the government.
Argentina adopted a -------------- following its catastrophic
economic troubles in the beginning of 2002. The illegal marketdetermined
exchange rate would be preferred in a situation such as
a cost-benefit analysis conducted on behalf of the Argentinean
government.

Back 31

Dual Exchange Rate

Front 32

An economic condition that, in its broadest sense, refers to negative
consequences arising from large increases to a country's income.
-------------- is primarily associated with a natural resource discovery,
but it can result from any large increase in foreign currency, including
foreign direct investment, foreign aid or a substantial increase in natural
resource prices.
This condition arises when foreign currency inflows cause an increase
in the affected country's currency. This has two main effects for the
country with ------------:
1. A decrease in the price competitiveness, and thus the exports,
of its manufactured goods

2. An increase in imports
In the long run, both these factors can contribute to manufacturing jobs
being moved to lower-cost countries. The end result is that nonresource
industries are hurt by the increase in wealth generated by the
resource-based industries.
The term ""--------------" originates from a crisis in the Netherlands in
the 1960s that resulted from disco

Back 32

Dutch Disease

Front 33

A currency trading term that describes when the forward ask price is
lower than the spot bid price, resulting in a gain for the trader. A trader
is gaining the points when he or she sells at one price now then agrees
to buy for less in the future. Gaining the point only refers to the
difference between sell and buy prices and does not take the time
value of money into account.
This is the opposite of "losing the points".
If the individual sells at the higher ask price in the spot market,
then buys at a lower bid price in the futures market, he or she is gaining
the points.
For example, suppose that Peter sells the British pound at 2.2055
dollars per British pound in the spot and enters into a forward contract
to buy the pound back at 2.2000 dollars per pound in the future. Peter
is gaining the points, in this case 0.0055 dollars per pound.

Back 33

Earning The Points

Front 34

An exposure to fluctuating exchange rates, which affects a company's
earnings, cash flow and foreign investments. The extent to which a
company is affected by ------------ depends on the specific
characteristics of the company and its industry.
Most large companies attempt to minimize the risk of fluctuating
exchange rates by hedging with positions in the forex market.
Companies that do a lot of business in many countries, such as
import/export companies, are at particular risk for -------------.

Back 34

Economic Exposure

Front 35

A condition that exists in the eurodollar interbank deposit market when
the bid and offer rates for a particular period are equal. Increasing
levels of liquidity can narrow the spread between bid and offer rates
until the two values are identical, resulting in an either-way market.
In an ----------market, banks can go either way between lending or
borrowing at the current rate. The convergence of the bid and offer
rates creates this indifference point.

Back 35

Either-Way Market

Front 36

A put or call option that protects an investor from foreign-exchange risk
for a future sale or purchase of a specified foreign-equity portfolio.
ELF-X options are a combination of a currency option and an equity
forward contract. Should the exchange rate work in the investor's favor
under the option contract, the total payout from the option is dependent
upon the performance of the equities underlying the contract.
Otherwise, the investor does not receive a payout.
For example, if an investor holds an ELF-X call option on USD relative
to CAD, and the Canadian dollar depreciates relative to the American,
the investor would not receive a payout. However, if USD depreciated
relative to CAD, the investor would receive the amount saved from use
of the spot exchange rate in the option contract and the foreign-equity
portfolio value, less the premium paid for the call option. Also known as
a "portfolio currency protection option" or PCPO.

Back 36

Equity Linked Foreign Exchange Option (ELF-X)

Front 37

In currencies, this is the abbreviation for the euro, and when written
numerically, it looks like this:

Back 37

EUR

Front 38

The official currency of the European Union's (EU) member states. The
---- was introduced by the EU in to the financial community in 1999
and physical ---- coins and paper notes were introduced in 2002.
Euros are printed and managed by the European System of Central
Banks (ESCB). The ---- is abbreviated by the symbol "EUR".
The ---- is the national currency of the EU member states who have
adopted it, including Austria, Belgium, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and
Spain. Together, these countries create what is called the Eurozone, a
region where the ---- serves as a common national currency for all of
the separate nations.
This has important benefits, such as removing exchange rate risk from
businesses and financial institutions operating in an increasingly
globalized economy. On the other hand, critics of the ---- system
argue that it produces negative consequences, such as concentrating
the power to set monetary policy in the European

Back 38

Euro

Front 39

London Interbank Offer Rate denominated in euros. This is the interest
rate that banks offer each other for large short-term loans in euros.
The rate is fixed once a day by a small group of large London banks
but fluctuates throughout the day. This market makes it easier for
banks to maintain liquidity requirements because they are able to
quickly borrow from other banks that have surpluses.
The ------------ is based on the average lending rates of 16 banks.
These bank rates are available to the public through the British
Bankers' Association. ---------- exists mainly for continuity purposes
in swap contracts dating back to pre-euro times and is not very
commonly used.

Back 39

Euro LIBOR

Front 40

One of two principal clearing houses for securities traded in the
Euromarket. Euroclear specializes in verifying information supplied by
two brokers in a securities transaction and the settlement of securities.
--------- is market owned and governed, and has previously acquired
London Crest, Necigef Netherlands, Sicovam Paris and CIK Brussels.
---------- is one the oldest settlement systems and was
originally subsidized by Morgan Guaranty. Its computerized settlement
and deposit system helps ensure the safe delivery and payment of
Eurobonds.
The other principal clearing house is Clearstream, formerly the
Centrale de Livraison de Valeurs Mobilières (CEDEL).

Back 40

Euroclear

Front 41

An unsecured, short-term loan issued by a bank or corporation in the
international money market, denominated in a currency that differs from
the corporation's domestic currency.
For example, if a U.S. corporation issues a shortterm
bond denominated in Canadian dollars to finance its inventory
through the international money market, it has issued ------------.

Back 41

Eurocommercial Paper

Front 42

The money market in which Eurocurrency, currency held in banks
outside of the country where it is legal tender, is borrowed and lent by
banks in Europe. The ----------------- allows for more convenient
borrowing, which improves the international flow of capital for trade
between countries and companies.
For example, a Japanese company borrowing U.S. dollars from a bank
in France is using the ------------.

Back 42

Eurocurrency Market

Front 43

The market that includes all of the European Union member countries -
many of which use the same currency, the euro. All tariffs between
----------- member countries have been abolished, and import duties
from all non-meber countries have been fixed for all of the member
countries. The ---------- also has one central bank for all of the
member countries, the European Central Bank (ECB). Also known as
"the common market".
The ----------- is a large single market comprised of all member countries, allowing for more efficient trade and the centralization of
monetary policy through the ECB. The ------------- is considered a
major finance source for international trade, through the money market
or eurocurrency, eurocredit and eurobonds.

Back 43

Euromarket

Front 44

The central bank responsible for the monetary system of the European
Union (EU) and the euro currency. The bank was formed in Germany
in June 1998 and works with the other national banks of each of the EU
members to formulate monetary policy that helps maintain price
stability in the European Union.
The ------------------- has been responsible for the monetary
policy of the European Union since January 1, 1999, when the euro
currency was adopted by the EU members. The responsibilities of
the ECB are to formulate monetary policy, conduct foreign exchange,
hold currency reserves and authorize the issuance of bank notes,
among many other things.

Back 44

European Central Bank (ECB)

Front 45

An indirect quotation in the foreign exchange markets whereby the
value of a foreign currency is stated as a per-unit measure of the U.S.
dollar. This type of quotation shows how much foreign currency it takes
to purchase one U.S. dollar.
For example, a ---------------would be C$1.24 per US$1.
This explains that it will take 1.24 Canadian dollars to purchase a
single unit of U.S. currency. If you wanted to purchase US$1,000 it
would cost C$1,240.

Back 45

European Currency Quotation

Front 46

A 1979 arrangement between several European countries to link their
currencies in an attempt to stabilize the exchange rate. This system
was succeeded by the European Monetary Union (EMU), an institution
of the European Union (EU), which established a common currency
called the euro.
The --------------------- originated in an attempt to stabilize
inflation and stop large exchange-rate fluctuations between European
countries. Then in June 1998, the European Central Bank was
established and, in Jan 1999, a unified currency, the euro, was born
and came to be used by most EU member countries. As of 2005,
Britain, Denmark and Sweden were the only original EU members that
had not adopted the euro.

Back 46

European Monetary System (EMS)

Front 47

A foreign exchange quoting convention where the domestic currency is
quoted in terms of a foreign currency. In other words, it is the amount of
foreign currency that one unit of the domestic currency can buy.
For example, assume there is a bid quote of EUR 1.3446/USD, and an
ask quote of EUR 1.3448/USD. From the United States perspective,
these quotes are given in -------------. Although the bid and ask
quotes given here are in ------------, the bid and ask quotes in
American terms will be reversed.

Back 47

European Terms

Front 48

A group of European countries that participates in the world economy
as one economic unit and operates under one official currency, the
euro. The --'s goal is to create a barrier-free trade zone and to
enhance economic wealth by creating more efficiency within its
marketplace.
The current formalized incarnation of the -------------- was created
in 1993 with 12 initial members. Since then, many additional countries
have since joined. The -- has become one of the largest producers in
the world, in terms of GDP, and the euro has maintained a competitive
value against the U.S. dollar.
-- and non- -- members must agree to many legal requirements in
order to trade with the -- member states.

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European Union (EU)

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Japanese yen-denominated deposits held in banks outside Japan. Also
a term that refers to yen traded in the Eurocurrency market.
An example of -------- would be yen deposits held in U.S. banks.

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Euroyen

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A geographic and economic region that consists of all the European
Union countries that have fully incorporated the euro as their national
currency. Also referred to as "euroland".
The -------- is one of the largest economic regions in the
world and its currency, the euro, is considered one of the most liquid
when compared to others. This region's currency continues to develop
over time and is taking a more prominent position in the reserves
of many central banks.

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Eurozone

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Types of controls that governments put in place to ban or restrict the
amount of foreign currency or local currency that is allowed to be
traded or purchased. Common ----------------- include banning the
use of foreign currency and restricting the amount of domestic currency
that can be exchanged within the country.
Typically, countries that employ ------------- are those with
weaker economies. These controls allow countries a greater degree of
economic stability by limiting the amount of exchange rate volatility due
to currency inflows/outflows.
The International Monetary Fund has a provision called article 14,
which only allows countries with transitional economies to employ
foreign -------------------.

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Exchange Control