tags:Households survey Households survey ,Hoshi (star),Hedging,High-low band,Head-and-shoulders,Harami bar,Gross National Product Implicit Deflator,Gross National Product,Golden cross,GLOBEX,Genetic algorithms,Gamma,Fuzzy logic,Fractal geometry,Forward outright,Foreign exchange exposure,Foreign exchange brokers,Floor traders (locals),Floor brokers,FINEX,Fence,Economic exposure,Envelope model ,Fibonacci ratio,Fedwire,Federal Reserve Board,Federal funds,Expanding ,European Payment Union
E
Economic exposure Reflects the impact of foreign exchange changes
on the future competitive position of a company.
Elliott Wave Principle A system of empirically derived rules for
interpreting action in the markets. It refers to a five-wave/threewave
pattern that forms one complete bull market/bear market cycle
of eight waves.
Envelope model A band created by two winding parallel lines above
and below a short-term moving average that borders most price
fluctuations. When the upper band is penetrated, a selling signal
occurs; when the lower band is penetrated, a buying signal is
generated. Because the signals generated by the envelope model are
very short-term and occur many times against the ongoing direction
of the market, speed of execution is paramount.
Eurocurrency Currency deposit outside the country of origin.
Eurodollars U.S. dollar deposits placed in commercial banks outside the
United States.
European Coal and Steel Community European entity established in 1951
by the Treaty of Paris, with the purpose of promoting inter-European
trade in general, and eliminating restrictions on the trade of coal and
raw steel in particular. West Germany, France, Italy, the Netherlands,
Belgium, Luxembourg, and Great Britain formed this community.
European Commission The executive body of the European Economic
Community in charge of making and observing the enforcement of
policy. It consists of 23 departments, such as foreign affairs,
competition policy and agriculture. Each country selects its own
representatives for four-year terms, but the commissioners may only
act for the benefit of the community. The commission is based in
Brussels and consists of 17 members.
European Court of Justice The European Economic Community body in
charge of settling disputes between the EC and member nations. It
consists of 13 members and is based in Luxembourg.
European currency unit A basket of the member currencies. As a
composite unit, the ECU consists of all the European Community
currencies, which are individually weighted. It was created by the
European Monetary System with the eventual goal of replacing the
individual European member currencies.
European Economic Community A community established by the
Treaty of Rome in 1951, with the goal of eliminating customs duties
and any barriers against the transit of capital, services, and people
among the member nations. The signatories were West Germany,
France, Italy, the Netherlands, Belgium, and Luxembourg.
European Joint Float Agreement European monetary system
established in April 1972 by the EC members: West Germany,
France, Italy, the Netherlands, Belgium, and Luxembourg. Great
Britain, Ireland, and Denmark were admitted by January 1973. The
agreement allowed the member currencies to move within a 2.25
percent fluctuation band (nicknamed the snake). As a joint group,
the agreement allowed these currencies to gyrate within a 4.5
percent band (nicknamed the tunnel). The entire agreement was
known as the snake in the tunnel.
European Monetary Cooperation Fund EMS fund established to
manage the EMS credit arrangements.
European Monetary Institute (EMI) The new European Central
Bank created to govern the EMS. As of March 1994, it did not have
any power over inter-EMS monetary policy.
European Monetary System European monetary system established in
March 1979 by seven full members: West Germany, France, the
Netherlands, Belgium, Luxembourg, Denmark, and Ireland. Great
Britain did not participate in all of the arrangements and Italy joined
under special conditions. New members: Greece in 1981, Spain and
Portugal in 1986. Great Britain joined the Exchange Rate Mechanism
in 1990. Also in 1990, West Germany became Germany as a result of
its political unification with East Germany.
European Parliament The European Economic Community body in
charge of reviewing and amending legislative proposals. It has the
power to reject the budget proposals. It consists of 518 members
who are elected. It is based in Luxembourg, but the sessions take
place in Strasbourg or Brussels.
European Payment Union European entity instituted in 1950 to
facilitate the inter-European settlements of international trade
transactions.
European-style currency option An option that may only be exercised on
the expiration date.
European Union Treaty Treaty signed by the 12 EMS members in
February 1992 in the Dutch city of Maastricht, with the stated goal of
forming a "closer union among the peoples of Europe."
Exchange for physical (EFP) Consists of deals executed in the cash
market, outside the exchanges, for amounts equivalent to the
currency futures amount, on forward outright prices valued for the
futures' expiration. EFPs are generally quoted by commercial and
investment banks, even during regular trading hours.
Exchange rate risk (1) Foreign exchange risk that is the effect of
the continuous shift in the worldwide market supply and demand
balance on an outstanding foreign exchange position. (2) Trading
risk pertinent to market fluctuation.
Exercise (strike) price The price at which the underlying currency will
be delivered upon exercise.
Exhaustion gap Price gap that occurs at the top or the bottom of a Vreversal
formation. The trend changes direction in a rather
uncharacteristically quick manner.
Expanding (broadening) triangle A triangle continuation formation
that looks like a horizontal mirror image of a triangle; the tip of the
triangle is next to the original trend, rather than its base. (See
Triangle.)
Expiration date The delivery date.
Exponentially smoothed moving average A moving average that also
takes into account the previous price information of the underlying
currency.
F
Factory Orders An economic indicator that refers to total orders for
durable and nondurable goods. The nondurable goods orders consist
of food, clothing, light industrial products, and products designed for
the maintenance of the durable goods.
FASB # 8 (Financial Accounting Standards Board's Statement Number 8)
The original accounting rules regarding foreign exchange were
standardized in 1975, which set the procedures for foreign currency
translations into U.S. dollars in the consolidated balance sheets of
U.S. multinational corporations.
FASB # 52 (Financial Accounting Standards Board's Statement Number 52)
A complex set of rules designed in 1981, whose main objective is to
move the foreign exchange P&L from current income into
shareholders' equity.
Federal funds (Fed funds) Immediately available reserve balances at
the federal reserves. The Fed funds are widely used by commercial
banks or large corporations to lend to each other on an overnight
basis. Although their level is established by the Fed, the prices
fluctuate because they are traded in the market.
Federal Open Market Committee (FOMC) A committee established in
1935, through the Banking Act, to replace the Open Market Policy
Conference (OMPC.) Currently active.
Federal Reserve The central bank of the United States. It was
established in 1913 when Congress passed the Federal Reserve Act.
The Act held that role of the Federal Reserve was "to furnish an
elastic currency, to afford the means of rediscounting commercial
paper, to establish a more effective supervision of banking in the
United States, and for other purposes."
Federal Reserve Board The board consists of a Governor and four other
regular members. The Secretary of the Treasury and the Comptroller
of the Currency are closely consulted. The 12 regional Federal
Reserve Banks around the country have sufficient autonomy to
manage financial conditions in their districts. They are also managed
by governors.
Fedwire An automated communications and settlement system
linking the Federal Reserve banks with other banks and with
depository institutions.
Fence A compound option strategy that consists of either a long
currency position—a long out-of-money put and a short out-of-themoney
call, where the options have the same expiration date (risk
conversion); or a short currency position—a short out-of-the-money
put and a long out-of-the-money call, where the options have the
same expiration date (risk reversal).
Fibonacci percentage retracements Price retracements of 0.382
and 0.618, or approximately 38 percent and 62 percent.
Fibonacci ratio 0.618 and 0.312.
Fibonacci sequence Takes a sequence of numbers that begins with 1
and adds 1 to it, then takes the sum of this operation (2) and adds it
to the previous term in the sequence (1). Next it takes the sum of
the second operation (3) and adds it to the previous term in the
sequence (the sum of the first operation, i.e., 2). The Fibonacci
sequence continues iterating in this manner, adding the most recent
sum to the previous term, which is itself the sum of the two previous
terms, etc. This yields the following series of numbers: 1 1 2 3 5 8 13
21 34 55 89 144 233 377 610 987 1597 2584 4181 (etc.).
FINEX A currency market that is part of the New York Cotton
Exchange (NYCE), the oldest futures exchange in New York. The
exchange lists futures on the European Currency Unit and the USDX,
a basket of ten currencies: deutsche mark, Japanese yen, French
franc, British pound, Canadian dollar, Italian lira, Dutch guilder,
Belgian franc, Swedish krona, and Swiss franc.
Fisher effect A theory holding that die nominal interest rate consists
of the real interest rate plus the expected rate of inflation.
Flag A continuation formation that resembles the outline of a
flag. It consists of a brief consolidation period within a solid and
steep upward trend or downward trend. The consolidation itself
tends to be sloped in the opposite direction from the slope of the
original trend, or simply flat. The consolidation is bordered by a
support line and a resistance line, which are parallel to each other or
very mildly converging, making it look like a flag (parallelogram). The
previous sharp trend is known as the flagpole. When the currency
resumes its original trend by breaking out of the consolidation, the
price objective is the total length of the flagpole, measured from the
breakout price level.
Floor brokers Any individuals on the exchange floor engaged in
executing orders for another person. They may also trade for their
own accounts, with the primary responsibility of executing the
customers' orders first. Brokers are licensed by the federal
government.
Floor traders (locals) Exchange members who execute their own
trades by being physically present in the pit, or place for futures
trading.
Foreign exchange The mechanism that values foreign currencies in
terms of another currency.
Foreign exchange brokers Intermediaries among banks who bring
together buyers and sellers to the market, optimize the prices they
show to their customers, and do not take positions for themselves.
Foreign exchange exposure The potential effect of currency
fluctuations on shareholders' equity.
Foreign exchange rate The price of one currency in terms of another.
Forward outright Foreign exchange deal that matures at a day past the spot
delivery date (generally two business days).
Forward spread (forward points or forward pips) Forward price used to
adjust a spot price to calculate a forward price. It is based on the
current spot exchange rate, the interest rate differential, and the
number of days to delivery.
Fractal geometry Geometry theory that refers to the fact that certain
irregular objects have a fractal number of dimensions. In other
words, an object cannot fill an integer number of dimensions.
French-West German Treaty of Cooperation A treaty signed in 1963
by President Charles de Gaulle and Chancellor Konrad Adenauer,
which established that West Germany would lead economically
through the cold war and France, the former diplomatic powerhouse,
would provide the political leadership.
Fuzzy logic Method that attempts to weigh the quality of the patterns
recognized by neural networks. Because not all patterns have equal
financial significance for foreign currency forecasting, this method
qualifies the degree of certainty of the results.
G
Gamma The rate of change of an option's delta, or the sensitivity of
the delta.
Gann percentage retracements The Gann theory focuses mostly on the
eighths, along with retracements in thirds.
Gap The price gap between consecutive trading ranges (i.e., the low of
the current range is higher than the high of the previous range).
Genetic algorithms Method used to optimize a neural network. Trial
and error are applied to an evolutionlike system, which mimics
natural selection for financial forecasting purposes.
GLOBEX An electronic trading system conceived in 1987 as an afterhours
trading system and geared toward global futures trading;
created through a joint venture of the Chicago Mercantile Exchange
(CME), the Chicago Board of Trade (CBT), and Reuters PLC.
Golden cross An intersection of two consecutive moving averages
that move in the same direction and suggest that the currency will
move in the same direction.
Gross Domestic Product The sum of all goods and services
produced in the United States.
Gross National Product The sum of government expenditure,
private investment, and personal consumption.
Gross National Product Implicit Deflator Deflator tool designed to
adjust the Gross National Product for inflation. It is calculated by
dividing the current dollar GNP figure by the constant dollar GNP
figure.
H
Harami bar A "wait-and-see" two-day candlestick combination. It
consists of two consecutive ranges having opposite directions, but it
does not matter which one is first. The second day's range results
fall within the previous day's body.
Head-and-shoulders A bearish reversal pattern that consists of a series of
three consecutive rallies, such that the first and third rallies (the
shoulders) have about the same height and the middle one (the
head) is the highest. The rallies are based on the same support line,
known as the neckline. When the neckline is broken, the price target
is approximately equal in amplitude to the distance between the top
of the head and the neckline.
Hedging A method used to minimize or eliminate the risk of
exchange rate fluctuations.
High-low band A band created by two winding parallel lines above
and below a short-term moving average that borders most price
fluctuations. The moving average is based on the high and low
prices. The resulting two moving averages define the edges of the
band. A close above the upper band suggests a buying signal and a
close below the lower band gives a selling signal.
Hoshi (star) A "wait-and see" two-day candlestick combination. It
consists of a tiny body that appears the following day outside the
original body. It is not important whether the star reaches the
previous day's shadows. The direction of the two consecutive ranges
is also irrelevant.
Households survey Consists of the unemployment rate, the overall
labor force, and the number of people employed.
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