Uncovered Interest Arbitrage

• Unsterilized foreign exchange interventions take place when a country’s monetary authorities influence exchange rates and its money supply.

• Countertrade provides a mechanism for countries with limited access to liquidity to exchange goods and services with other countries.

• A currency swap involves the exchange of interest - and sometimes principal - in one currency for the same thing in another currency.

• The term Eurocurrency refers to foreign currency deposits held in banks outside their country of origin.

• A foreign exchange forward contract (FEC) is an agreement between two parties to make a foreign exchange transaction, usually involving a currency pair that is not available on the foreign exchange markets.

• Inflationary hedging can be used to offset an expected fall in the price of a currency.

• Natural hedging is a strategy aimed at reducing risk by investing in assets whose performance is negatively correlated through some internal or natural mechanism.

• Triangular arbitrage is a low-risk form of profit making for currency traders that exploits exchange rate mismatches through algorithmic trades.

• Uncovered interest rate parity (UIP) is a fundamental equation in economics that governs the relationship between foreign and domestic interest rates and currency exchange rates.

WM/Reuters Benchmark rates are spot and forward exchange rates used as standard rates for portfolio evaluation and performance measurement.

• A Convertible Asset Substitution Option Transaction, or ASCOT, is a way of separating the fixed income and equity components from a convertible bond.

• A bearish put spread is an option strategy implemented by a bearish investor who wants to maximize profits with minimal losses.

• A bear spread is a bear option strategy used when an investor expects a moderate decline in the price of the underlying asset.

• The Bermuda option can be exercised early, but only on certain dates before its expiration date.

• Bull Spread Put is an option strategy that is used when an investor expects a moderate increase in the price of the underlying asset.

• A collar is an options strategy that involves buying a put option down and selling a put option up, which is used to protect against large losses but also cap large profits up.

• The condition of covered parity of interest rates suggests that the relationship between interest rates and the spot and forward values of the currencies of the two countries are in balance.

• A currency carry trade is a strategy in which a high-yielding currency finances the trade of a low-yielding currency.

• Currency exchange is a business that allows customers to exchange one currency for another.

• A peg is a policy in which a national government sets a certain fixed exchange rate for its currency against a foreign currency or a basket of currencies.

• The name defines the monetary unit in which assets, securities and transactions are valued.

• Direct quotation is a quotation of a currency pair in which a foreign currency is expressed per unit of national currency.

• The Credit Default Swap Index (CDX) is a benchmark index that tracks a basket of single issuer credit default swaps in the US and emerging markets.

• ECN Brokers facilitate transactions that take place on Electronic Communications Networks (ECNs).

• The Euro is the official currency of the European Union (EU), adopted by 19 of the 27 EU member states.