The simultaneous or near simultaneous purchase of assets in one market and their sale in another market to take advantage of price differences in the two markets. Such operations take place with respect to currencies or securities.
A time draft not exceeding six months, across the face of which the bank has written the word “accepted” to indicate that the bank will honor the draft upon presentation at maturity.
• Eurobond: A long-term bond marketed internationally in countries other than the country of the currency in which it is denominated. The issue is not subject to national restrictions.
• Zero coupon bonds: These bonds pay no periodic interest (hence their name), so that the total yield is obtained entirely as capital gain on the final maturity date.
• Dual currency bonds: Dual currency bonds are denominated in one currency, but pay interest in another currency at a fixed rate of exchange. Dual currency bonds can also pay redemption proceeds in a different currency from the currency of denomination.
• Floating rate bonds: The most commonly issued instrument, the interest coupons on which are adjusted regularly according to the level of some base interest rate plus a fixed spread.
The amounts owed to a firm by its clients.
A transaction in which two parties exchange specific amounts of two different currencies at the outset and repay, over time, according to a predetermined rule which reflects interest payments and amortization of principal.
A short-term unsecured note issued by a nonbank in the Euromarkets.
A currency held in the form of time deposits in financial institutions outside the home country of the currency.
Dollars held in the form of time deposits in banks outside the United States. These banks can be foreign-owned or overseas branches of US banks.
European Currency Unit (ECU):
A currency basket composed of specific quantities of the currencies of European Monetary System members. The ECU is used as part of the system’s divergence indicator (for measuring relative movements of member currencies) and provides a unit of account used to value members’ exchange reserve assets.
A bond issued by a debtor country to a creditor bank in place of a bank credit that allows the creditor bank to be exempted from future requests for new money and restructuring.
An agreement to exchange at a specified future date different currencies at a specified contractual exchange rate (the forward rate).
The agreement to purchase or sell at a future date at an agreed price a fixed amount of a particular foreign currency in order to insure against the possibility of exchange rate movements having an impact on the domestic currency value of the foreign currency.
Forward exchange market:
This market involves contracts for the purchase or sale of currency at some date in the future.
A highly standardized foreign exchange contract written for a fixed number of foreign currency units and for delivery on a fixed date.
Mainly used in the United Kingdom, to mean all marketable government securities except Treasury bills.
Hedge or hedging:
A method of buying and selling commodities, securities, or currencies to reduce the risk of negative price movements that might reduce a trader’s profits. (See “forward cover,” above.)
Interest rate swap:
A transaction in which two parties exchange interest payment streams of differing character based on an underlying principal amount. The three main types are coupon swaps (fixed rate to floating rate in the same currency), basis swaps (one floating rate index to another floating rate index in the same currency), and cross-currency interest rate swaps (fixed rate in one currency and floating rate in another).
London interbank offered rate (LIBOR):
The interest rate at which prime banks offer deposits to other prime banks in London. This rate is often used as the basis for pricing Eurocurrency loans.
An institution that stands willing to buy or sell an asset at some price, or an institution that deals so frequently and in such volume in an asset that it makes it possible for others to buy or sell that asset at almost any time.
The initiation of a broader range–the “menu”–of financing modalities into the debt-restructuring process.
New money/concerted money:
Equiproportional increase in exposure of a group of banks arranged through a bank advisory committee responsible for negotiating a new loan package for countries that have lost spontaneous access to external financial resources.
Note issuance facility:
A medium-term arrangement enabling borrowers to issue short-term paper, typically of three or six months’ maturity, in their own names. A group of underwriting banks may guarantee the availability of funds to the borrower by purchasing any unsold notes at each rollover date, or by providing a stand by credit.
Prioritization of debt:
Preferred treatment of one or more categories of claims to other claims.
The term is most often used narrowly to mean the process by which traditional bank assets, mainly loans or mortgages, are converted into negotiable securities. More broadly, the term refers to the development of markets for a variety of new negotiable instruments.