Articles

What is the USD Index?

USD Index Definition. The USD or U.S. Dollar Index (USDX) is an index that determines the relative value of the United States Dollar to a basket of foreign currencies. Since currencies come in pairs that are influenced by the respective fundamentals of each country’s economy, it is difficult to measure on an overall basis whether a currency is strengthening or weakening in the forex market. This formulated “basket” of currencies comprises the weighting of six other currencies as follows:

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What is an Unrealized Gain/Loss?

Unrealized Gain/Loss Definition. An Unrealized Gain/Loss is the hypothetical gain or loss on a single Open Position, or on all Open Positions, valued at current market rates, as determined by the forex trader or by his broker to assess his outstanding risk. The figure is computed by taking the current market value for a position and deducting its book value, i.e., the amount expended originally to purchase the open position. Unrealized Gains or Losses become Profits or Losses for tax reporting purposes whenever a position is liquidated or closed.

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What is Premium?

Premium Definition. A Premium has various meanings based on the investment vehicle that provides the context for the term. In forex markets, a premium equates to the amount by which the forward or futures price exceeds the spot price. It can also refer to the total cost of an option. Since an option has no intrinsic value, its value depends on market valuation of the underlying asset. If the option is “In the Money”, the value appreciation less the premium initially expended constitutes the holder’s paper gain, unless it is realized through a sale. If there is no possibility for gain, when the option expires, the loss is limited to the amount of the premium. In the case of bonds, a premium represents the difference between the higher price paid for bond and the bond’s face amount at issue. A bond typically changes in face value in a trading market due to changes in prevailing interest rates. A bond will increase in value if interest rates decline, and decline in value when interest rates rise. In many cases, investors misunderstand this property of bonds since bonds are commonly referred to as “fixed income securities”. As for futures and options, volatility in the market will also impact the pricing of the financial instrument.

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What is SWIFT?

SWIFT Definition. SWIFT is the Society for Worldwide Interbank Financial Telecommunication. It operates a global financial messaging network that exchanges messages between banks and other financial institutions. SWIFT also markets software and establishes standards for communications between its members. Various identifiers used are commonly referred to as “SWIFT codes”. SWIFT does not participate in the actual funds transfer, rather, it sends payment orders, which must be settled via correspondent relationship accounts that institutions maintain with each other. SWIFT is a cooperative society under Belgian law and was founded in Brussels in 1973. Its member financial institutions own the organization. SWIFT has offices around the world and is headquartered in La Hulpe, Belgium, near Brussels. The majority of international interbank messages flow over the highly secure SWIFT network. As of November 2008, SWIFT linked 8,740 financial institutions in 209 countries.

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What is Risk Management?

Risk Management is the process for mitigating the impacts of specific risk threats and includes identification, assessment, and prioritization of risks. The ISO group has published standards governing every aspect of managing risk, which it defines as the effect of uncertainty on objectives, whether positive or negative. Risks can arise due to uncertainty in financial markets, project failures, legal liabilities, credit risk, accidents, natural causes and disasters, as well as war and any armed insurrection. The strategies to manage risk include shifting the risk to another party, avoiding the risk all together, reducing the negative impact of the risk, and accepting all or a portion of the consequences of a particular risk if the costs for containing the risk are not justifiable. The steps in the process benefit from the use of bow-tie” diagrams that list faults or threats on the left and the consequences on the right, with the hazard being defined in the middle that connects the two lists, resulting in the look of a bow tie.

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