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Financial Glossary

B2B

Business to Business; A strategy of dealing directly with businesses, rather than consumers

BACK OFFICE

Clerical operations that support settlement of trades and related processes

BACK TESTING

Creating a hypothetical performance history by applying current selection criteria to prior time periods

BALANCE OF PAYMENTS

An account of all transactions between one country and all other countries--transactions that are measured in terms of receipts and payments. The three main components of BOP are the current account, the capital account and the balancing account

BALANCE OF TRADE

The value of exports less imports of an economy. There are visible and invisible balance figures. The visible balance represents the physical goods while the invisible represents the service economy

BANK NOTES

Bank notes are paper issued by the central bank and are legal tender

BANK RATE

The rate at which a central bank is prepared to lend money to its domestic banking system

BANK WIRE

A computer message system linking major banks that is used as a mechanism to advise the receiving bank of some action that occurred

BARRIER OPTION

A path dependent option that has a knock-in or knock-out feature that causes the option to become effective or terminate if a specified barrier level is reached

BASE CURRENCY

In Foreign exchange markets, the base currency is the first currency in a currency pair. The second currency is named the quote currency or secondary

BASIS POINT

One hundredth of a percentage point (0.01%)

BEAR MARKET

A substantial drop in prices over a prolonged period of time

BEAR

An investor who believes that prices are going to fall

BENEFICIAL OWNER

Person who enjoys the benefits of ownership even though title is in another name

BETA

The measure of an asset's risk in relation to the market. A security with a beta of 1.5, will move about 1.5 times the market return

BID

The highest price a dealer will pay at any given time to purchase a currency pair or a financial instrument

BIG FIGURE

Refers normally to the first three digits of an exchange rate

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

BOND

Bonds are debt instruments issued by a government or municipality for a period of more than one year. An investor is lending money when buying bonds. The seller of the bond agrees to repay the principal amount of the loan at a specified time plus interest

BOND RATING)

A rating based on the possibility of default by a bond issuer. The ratings range from AAA to D

BREAK EVEN POINT

The price of a financial instrument where total revenue received equals total costs (TR=TC)

BREAK OUT

A technical term used by chartists to denote a break of a support, a resistance level, or any technical formation

BROKER

An agent who executes orders to buy and sell currencies and related instruments either for a commission or a spread

BROKERAGE

The commission charged by a broker

BUBA (BUNDESBANK)

Bundesbank, the Central Bank of Germany

BULL MARKET

A substantial rise in prices over a prolonged period of time

BULL (CALL) SPREAD

A spread designed to exploit rising exchange rates by purchasing a put option with a lower strike price and selling one with a higher strike price

BULL

An investor who believes that prices are going to rise

BULLION

A term for gold bars

BUTTERFLY SPREAD

An option strategy combining a bull and bear spread. It uses three strike prices. The lower two strike prices are used in the bull spread and the higher strike price from the bear spread. Both puts and calls can be used

BUYER/TAKER

The purchaser of a currency pair or an option

BUYING RATE

Rate at which the dealer is willing to buy the currency; or bid price

BUYING THE SPREAD

In an option, buy the nearby contract and simultaneously sell the deferred contract; also referred to as a bull spread

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