Forex Glossary (C)

Commonly used forex terms and their definitions.

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Cable - A term used in the foreign exchange market for the GBP/USD rate.

Call Rate - The overnight inter-bank interest rate.

Candlestick Chart - A form of Japanese charting that has become popular in the West. A narrow line shows the day's price range. A wider body marks the area between the open and the close. If the close is above the open, the body is green or blue; if the close is below the open, the body is red.

Capital Risk - The risk arising from a bank having to pay to the counter party with out knowing whether the other party will or is able to meet its side of the bargain.

Carry - The interest cost of financing securities or other financial instruments held.

Cash - (Value same day) normally refers to an exchange transaction contracted for settlement on the day the deal is struck. This term is mainly used in the North American markets.

Cash Delivery - Same day settlement.

Carry Trade - Is the strategy of buying high interest currencies against low interest currencies for a long period of time, with the intention of closing the trade at spot at a future date and taking a profit. As long as the higher interest rate currency does not depreciate against the lower interest rate currency by the i/r differential, then a profit will be made.

Cash Market - The market for the purchase and sale of physical currencies.

Cash Settlement - A procedure for settling futures contract where the cash difference between the future and the market price is paid instead of physical delivery.

Central Bank - A nation's main regulatory bank; traditionally, its primary responsibility is development and implementation of monetary policy.

Central Rate - Exchange rates against the ECU adopted for each currency within the EMS. Currencies have limited movement from the central rate according to the relevant band.

Chartist - An individual who studies graphs and charts of historic data to find trends and predict trend reversals which include the observance of certain patterns and characteristics of the charts to derive resistance levels, head and shoulders patterns, and double bottom or double top patterns which are thought to indicate trend reversals.

Clean Float - An exchange rate that is not materially affected by official intervention.

Closed Position - An original position that has since had an equal but opposite transaction entered against it. This transaction has a closed profit or loss.

Commission - The fee that a broker may charge clients for a service or trade that is performed.

Confirmation - A memo sent from the bank or broker to its client describing all the necessary details of the transaction performed.

Contract - An agreement to buy or sell a specified amount of a particular currency or option for a specified month in the future (See Futures contract).

Conversion - The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency.

Convertible Currency - Currency which can be freely exchanged for other currencies or gold without special authorization from the appropriate central bank.

Copey - Trading slang for the Danish krone.

Correspondent Bank - The foreign banks representative who regularly performs services for a bank which has no branch in the relevant centre, e.g. to facilitate the transfer of funds.

Counter Parties - The other organization or party with whom the exchange deal is being transacted.

Country Risk - The risk attached to a borrower by virtue of its location in a particular country. This involves examination of economic, political and geographical factors.

Cover - To hedge or close an existing trade.

Crawling Peg - A method of exchange rate adjustment; the rate is fixed/ pegged, but adjusted at certain intervals in line with certain economic or market indicators.

Credit Risk - Risk of loss that may arise on open positions should a counter party default on its obligations.

Cross Rate - An exchange rate between two currencies, usually constructed from the individual exchange rates of the two currencies, measured against the USD.

Currency Option - (European) Option contract which gives the right to buy or sell a currency against another currency at a specified exchange rate at a specified period.

Currency Pair - The two currencies that make up a foreign exchange rate. For example, EUR/USD is a currency pair.

Currency Risk - The risk of incurring losses resulting from an adverse change in exchange rates.

Currency Swap - Contract which commits two counter-parties to exchange streams of interest payments in different currencies for an agreed period of time and to exchange principal amounts in different currencies at a pre-agreed exchange rate at maturity.

Currency Swaption - OTC Option to enter into a currency swap contract.

Currency Warrant - OTC Option; long-dated (more than one year) currency option.

Current Account - The net balance of a country's international payment arising from exports and imports together with unilateral transfers such as aid and migrant remittances, it excludes capital flows.


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