Glossary of market terminology

Question 1

Appreciation

Answer 1

A currency is said to appreciate when its price rises.

Question 2

Arbitrage

Answer 2

The purchase or sale of an instrument and simultaneous taking of an equal and
opposite position in a related market, in order to take advantage of small price
differentials between markets.

Question 3

Ask/Offer Price

Answer 3

The price at which a market-maker is prepared to sell a specific asset (e.g. stock,
currency, commodity, etc.). An investor wishing to buy an asset would have to pay
the Asking Price. For example, in the quote EUR/USD 1.1022/23, the ask price is
1.1023; meaning you can buy one Euro for 1.1023 US Dollars.

Question 4

Asset Class

Answer 4

Individual assets (e.g. EUR-USD, Apple, Zinc, etc.) can be grouped into their own asset classes (e.g. FX, equities, base metals, etc.).

Question 5

Asset Allocation

Answer 5

An investment practice that divides capital among different types of asset classes in
order to achieve a return that is proportionate to the investor’s risk appetite

Question 6

Aussie (AUD)

Answer 6

Aussie (AUD) The Australian Dollar.

Question 7

Balance of Trade

Answer 7

Refers to the difference between a country’s value of exports and imports. If Exports
exceed Imports then a country is said to have a Trade Surplus. If a country’s value of
imports is greater than its exports, then the country is said to have a Trade Deficit.

Question 8

Barrier/Option
Barrier

Answer 8

A type of option which has a specified level which must not be broken in order for
the option to be paid. This leads to the barrier being defended so the option barrier
is not broken at a particular price level.

Question 9

Base Currency

Answer 9

The currency on the left hand side of a currency pair quotation. E.g. USD is the base
currency in USD/JPY, and EUR is the base currency in EUR/USD

Question 10

Base Rate

Answer 10

The main interest rate at which central banks will lend to institutions. Also known as
the main REFI (refinancing) rate.

Question 11

Basel III

Answer 11

The latest of the three Basel accords which regulate the global banking system, with
particular focus of the base capital requirements banks have to hold.

Question 12

Basket

Answer 12

A group of currencies (as opposed to one single currency) normally used to measure
the exchange rate of another currency. For example the USD Index is the measure of
the USD against a basket of 16 other currencies.

Question 13

Basis Point

Answer 13

When describing interest rate changes, 1 basis point is equivalent to 0.01%. For
example, if the Bank of England MPC increased interest rates to 0.25% from 0.50%
this would be an increase of 25 basis points

Question 14

Bear Market/Bearish

Answer 14

A market in which prices are declining. An investor who believes that a particular
instrument or the overall market will fall in price. The opposite of Bull/Bullish.