FX & Treasury Glossary
Plain-English definitions of foreign exchange, hedging, and treasury terminology for international businesses.
A
Accounting Currency
Accounting Currency or Reporting Currency is the currency in which a firm has decided to record all its accounting records of transactions and financial statements. This currency may be different f...
Accounts Payable
Accounts Payable (AP) is money owed by a company to its suppliers for goods or services provided that is shown as a liability on a company's balance sheet.
Accounts Receivable
Accounts Receivable (AR) is money owed to a company to its buyers for goods or services invoiced that is shown as an asset on a company's balance sheet.
Average Rate Forwards and Options
Average Rate Forwards and Options are FX derivative contracts that are similar to cash-settled forwards and options with the main difference being the rate at which the contract is settled. Instea...
B
Balance Sheet Hedging
Balance Sheet hedging is the currency management approach to mitigate risks to the value of your balance sheet items, such as accounts payable and receivable.
Base Currency
Base Currency is the currency that appears first in the currency pair quote format (for instance GBP for Pound Sterling in “GBPUSD”) applied in foreign exchange markets. A traditional way to expre...
Bid-Ask Spread
Bid-Ask Spread is the spread between two price levels at which one can purchase or sell a currency or security to/from a market-maker or another service provider at a given time. Consequently, the ...
C
Cash Flow Hedging
Cash Flow hedging is a practice of managing risks arising from variability in cash flows that is attributable to a particular risk associated with all or a component of an asset or liability on a c...
Close-out Netting
Close-out netting is a definition of a process involving termination of obligations under a contract with a defaulting party and subsequent combining of positive and negative replacement values int...
Collateral
Collateral is used by banks and other financial institutions to reduce the counterparty credit risk arising from derivative transactions. Collateral is usually cash or other assets held by or pledg...
Counterparty
A counterparty is the other party that participates in a bilateral financial transaction. For a financial transaction to take place two sides have to agree to buy and sell assets respectively. A bu...
Counterparty Credit Risk
Counterparty Credit Risk is the risk that the counterparty to a transaction could default before the final settlement of the transaction in cases where the contract has a positive value to the non-...
Cross-border Payments
Cross-border payments are transactions between individuals, companies, or other institutions, where the payee and the transaction recipient are based in separate countries.
Cross-border Trade
Cross-border trade refers to the flow of goods and services across international borders between jurisdictions. Cross-border trade has a higher level of complexity than domestic trade as businesses...
Currency Appreciation
Currency appreciation is the increase in the value of a country's currency with respect to one or more foreign reference currencies, typically in a floating exchange rate system in which no officia...
Currency Codes
Currency codes - the three-letter or (three-digit numeric for ISO 4217) code for each currency. The 3-letter alphabetic currency code is composed of the ISO 3166 two-letter country code plus an ex...
Currency Controls
Currency controls also known as foreign exchange controls are used by some governments to regulate and restrict the purchase or sale of foreign currencies by local residents and companies as well a...
Currency Depreciation
Currency depreciation is the loss of value of a country's currency with respect to one or more foreign reference currencies, typically in a floating exchange rate system in which no official curren...
Currency Devaluation
Currency devaluation is the deliberate reduction in the value of a country's currency relative to a currency (or currencies) of the main trade partners of the country. Devaluations are more common...
Currency Exposure
Currency exposure is a risk term referring to a sensitivity of value of assets and liabilities or cash flows denominated in foreign currencies to fluctuations in exchange rates between the foreign ...
Currency Hedge
A currency hedge or foreign exchange hedge is a financial transaction designed to protect and mitigate risks in one’s financial results such as earnings, cash flows, or value of foreign assets and ...
Currency Hedging
Currency Hedging also known as foreign exchange hedging is risk management method used by companies to eliminate or "hedge" their foreign exchange risks resulting from transactions, assets or liabi...
Currency Options
Currency options also known as forex (FX) options are contracts that give the owner the right and not the obligation to buy one currency against another at a pre-agreed rate on or before a specifie...
Currency Pair
Currency Pair is a traditional way to express the relative value of a currency one country unit against a unit of another currency in foreign exchange markets. A conventional way to express currenc...
Currency Peg
Currency peg is a popular name for a fixed exchange rate - a type of FX regime in which a currency's value is fixed or pegged by a monetary authority against the value of another currency or a bask...
Currency Risk Management
Currency Risk management also known as FX Risk management is a multistep process used by corporates to reduce their currency exposures to levels within their risk tolerances. The steps include:
Currency Risks
Currency Risks are an aggregate of the potential risk of losses from fluctuating foreign exchange rates when a company has currency exposure from its business activities. Currency Risks are often s...
Currency Spot Rate
Currency spot rate or FX spot rate is best thought of as the exchange rate one would have to pay in one currency to buy another at this moment in time. This is the rate most of us think of when tal...
Currency Volatility
Currency volatility is a general term describing often random and unpredictable moves in the currency exchange rates. Greater currency volatility implies less stable and more unpredictable exchang...
D
Delivery Date
Delivery date or settlement date is the actual date when the foreign conversion payments for FX transactions usually take place. Spot FX transactions usually settle two bank business days after the...
Dirty Float
Dirty float is a common name for a managed float regime, which describes an environment in which exchange rates fluctuate from day to day, but central banks attempt to influence their countries' ex...
E
Early Draw
Early draw refers to the ability to convert a portion of the contracted notional amount into foreign currency early – before the forward due date.
EMIR
European Markets Infrastructure Regulation (EMIR) is a set of European legislation regulating over-the-counter derivatives transactions and related obligations by market participants and financial ...
Exchange Rate
Exchange rate is the rate at which one currency will be exchanged for another. A conventional way to express currency exchange rates is to express conversion rates in units of the second currency (...
F
Flexible Forward
Flexible forward is an FX contract that allows the owner to buy or sell one currency against another one at the predefined rate on any day between two set dates. In addition, the owner can exchange...
Floating Exchange Rate
Floating exchange rate is an exchange rate regime when the value of a nation’s currency measured relative to other currencies is allowed to fluctuate in response to foreign exchange market events. ...
Foreign Currency Transaction
Foreign currency transaction is a transaction that requires settlement (payment or receipt) in foreign currency. Companies working with foreign currencies are required to report their transactions ...
Foreign Exchange
Foreign exchange (forex or FX) is the purchase or sale of one currency for another.
Foreign Exchange Accounting
Foreign exchange accounting - is an accounting concept that describes reporting all the company’s transactions in currencies different from their functional currency.
Foreign Exchange Forward
Currency forward or foreign exchange (FX) forward is a bilateral contract in the FX market that locks in the exchange rate for the purchase or sale of a currency on a future date. Currency forwards...
Foreign Exchange Risk
Currency Risk also known as Foreign Exchange (FX) risk is an aggregate of the potential risk of losses from fluctuating foreign exchange rates when a company has currency exposure from its business...
S
SWIFT Code (BIC)
SWIFT code, or Bank Identifier Code (BIC), is one of the most pertinent parts of the SWIFT transfer instructions you need to make your international wire transfer right.
SWIFT Transfer
SWIFT transfer is usually a cross-border transfer that is instructed using the SWIFT (Society for Worldwide Interbank Financial Telecommunication) electronic messaging network. Actual money is then...
Written by the HedgeFlows advisory team — 40+ years of institutional FX and treasury experience. FCA regulated (Firm Reference: 1008699).