Name: Assadullah HASHIMI

ID # 020112066
Lecturer: Hasan Alpagu
Assignment # I

Forward and Future Market: Forward markets are used to contract for the physical delivery
of a commodity. By contrast, futures markets are 'paper' markets used for hedging price risks
or for speculation rather than for negotiating the actual delivery of goods. On the whole,
prices in the physical and the futures markets move parallel to each other. However, whereas
the futures price represents world supply and demand conditions, the physical price for any
particular coffee in the forward market reflects the supply and demand for that specific type
and grade of coffee, and the nearest comparable growths.
Spot Market: Spot markets differ from futures markets in that delivery takes place
immediately. For example, if you wish to purchase Company XYZ shares and own them
immediately, you would go to the cash marketon which the shares are traded (the New
York Stock Exchange, for example). If you wanted to buy gold on the spot market, you could
go to a coin dealer and exchange cash for gold.
Option Market: An options contract is a contract that allows the holder to buy or sell
an underlying security at a given price, known as the strike price. The two most common
types of options contracts are put and call options, which give the holder-buyer the right to
sell or buy respectively, the underlying at the strike if the price of the underlying crosses the
strike
Swap Market: A swap is a derivative contract through which two parties exchange financial
instruments. These instruments can be almost anything, but most swaps involve cash
flows based on a notional principal amount that both parties agree to. Usually,
the principal does not change hands. Each cash flow comprises one leg of the swap. One cash
flow is generally fixed, while the other is variable, that is, based on a a benchmark interest
rate, floating currency exchange rate or index price. The most common kind of swap is
an interest rate swap. Swaps do not trade on exchanges, and retail investors do not generally

engage in swaps. Rather, swaps are over-the-counter contracts between businesses or financial
institutions.
Open Market Orientation: Open market operations (OMO) refer to the buying and selling
of government securities in the open market in order to expand or contract the amount of
money in the banking system. Purchases inject money into the banking system and stimulate
growth while sales of securities do the opposite.
Hedge Fund: Hedge funds are alternative investments using pooled funds that may use a
number of different strategies in order to earn active return, or alpha, for their investors.
Hedge funds may be aggressively managed or make use of derivatives and leverage in both
domestic and international markets with the goal of generating high returns (either in an
absolute sense or over a specified market benchmark). Because hedge funds may have
low correlations with a traditional portfolio of stocks and bonds, allocating an exposure to
hedge funds can be a good diversifier.
Eurodollar: The eurodollar is a U.S.-dollar denominated deposits at foreign banks or foreign
branches of American banks. By locating outside of the United States, eurodollars escape
regulation by the Federal Reserve Board.

LIBOR: Libor stands for London interbank offered rate. The interest rate at which banks
offer to lend funds (wholesale money) to one another in the international interbank market.
Libor is a key benchmark rate that reflects how much it costs banks to borrow from each
other. It is the reference rate for about $350tn of financial products, ranging from interest rate
swaps and corporate loans to credit cards, mortgages and savings accounts.
Bencmarking: In the business world, companies use benchmarking as a point of reference as
well. But instead of having physical benchmarks carved in stone, they use benchmark reports
as a way to compare themselves to others in the industry. Benchmarking is the practice of a
business comparing key metrics of their operations to other similar companies.
Arbitrage: Triangular arbitrage is the process of converting one currency to another,
converting it again to a third currency and, finally, converting it back to the original currency
within a short time span. This opportunity for riskless profit arises when the
currency's exchange rates do not exactly match up. Triangular arbitrage opportunities do not
happen very often and when they do, they only last for a matter of seconds. Traders that take
advantage of this type of arbitrage opportunity usually have advanced computer equipment
and/or programs to automate the process
REPO: A repurchase agreement (repo) is a form of short-term borrowing for dealers in
government securities. The dealer sells the government securities to investors, usually on an
overnight basis, and buys them back the following day.

For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for
the party on the other end of the transaction, (buying the security and agreeing to sell in the
future) it is a reverse repurchase agreement.
Rediscount: Rediscount is the act of discounting a short-term negotiable debt instrument for
a second time. Banks may rediscount these short-term debt securities to assist the movement
of a market that has a high demand for loans.
Federal Discount Rate: A decrease in the discount rate makes it cheaper for commercial banks to
borrow money, which results in an increase in the supply of money in the economy. Conversely, a
raised discount rate will make it more expensive for the banks to borrow, and would thereby decrease
the money supply. Funds borrowed from the fed are processed through thediscount window and the
rate is reviewed every 14 days.

FDI: The investing company may make its overseas investment in a number of ways - either
by setting up a subsidiary or associate company in the foreign country, by acquiring shares of
an overseas company, or through a merger or joint venture.
The accepted threshold for a foreign direct investment relationship, as defined by the OECD,
is 10%. That is, the foreign investor must own at least 10% or more of the voting stock
or ordinary shares of the investee company.
BREAKING DOWN Forex FX: There is no central marketplace for currency
exchange; trade is conducted over the counter. The forex market is open
24 hours a day, five days a week and currencies are traded worldwide
among the major financial centers of London, New York, Tokyo, Zrich,
Frankfurt,etc. Forex is the largest market in the world in terms of the total
cash value traded, and any person, firm or country may participate in this
market
Bid-Ask Spread: A bid-ask spread is the amount by which the ask price exceeds the bid. This is
essentially the difference in price between the highest price that a buyer is willing to pay for
an asset and
the
lowest
price
for
which
a seller is
willing
to
sell
it.
For example, if the bid price is $20 and the ask price is $21 then the "bid-ask spread" is $1.

CHIPS: CHIPS is the largest private-sector U.S.-dollar funds-transfer system in the world,
clearing and settling an average of $1.5 trillion in cross-border and domestic payments daily.
It combines best of two types of payments systems: the liquidity efficiency of a netting system
and the intraday finality of a RTGS
TARGET: Connecting to different payment infrastructures will necessitate the management
of multiple liquidity positions in euro. It is important to note that there are at present no wellestablished intraday liquidity bridges between different euro payment systems. On an intraday
basis, only the funds received within each system can be used to make outgoing payments via
the same system. In order to reduce risk, large-value net settlement systems have to respect
binding intraday limits on participants positions, which cannot normally be increased during
the day. Once these limits have been reached, payments are blocked. Liquidity is effectively
trapped in the net settlement system until the point at the end of the day when the balances of
such netting systems are settled by means of a payment through TARGET or the domestic
RTGS environment.

SWIFT: SWIFTs messaging services are used and trusted by more than 11,000 financial
institutions in more than 200 countries and territories around the world.
Together with our role in standardisation, SWIFT enables secure, seamless and automated
financial communication between users.
SWIFT is at the forefront of innovative application of technology within the financial sector.
We retain and hire the best minds and embrace the exciting potential of new technologies; we
are committed to maintaining a market-leading platform and to delivering secure and reliable
innovative technological solutions.
Appreciation and Depreciations of Currencies: Although the effects can take time, changes in
the exchange rate can have a big impact on the economy and your own standard of living and
purchasing power! There is often debate over whether a country should have a high or low exchange
rate. These discussions often revolve around the current economic and political goals at the time. Let's
explore the effects of changes in the exchange rate and see how economic variables, such as inflation,
the trade balance, GDP and exports & imports, are affected.

To review quickly, an exchange rate is the rate at which one country's currency can be traded
for another country's currency. For example, in the United States the dollar's strength is often
judged in relation to other currencies, such as the Japanese yen, the Swiss franc, and the euro.
When a currency appreciates it means it increased in value relative to another
currency; depreciates means it weakened or fell in value relative to another currency.

Revaluation and Devaluation: A revaluation is a calculated adjustment to a country's

official exchange rate relative to a chosen baseline. The baseline can be anything from wage
rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a
decision by a country's government (i.e. central bank) can alter the official value of the
currency.
Contrast
to
"devaluation"
Devaluation is a deliberate downward adjustment to the value of a country's currency, relative
to another currency, group of currencies or standard. Devaluation is a monetary policy tool of
countries that have a fixed exchange rate or semi-fixed exchange rate.
Volatility: In other words, volatility refers to the amount of uncertainty or risk about the size
of changes in a security's value. A higher volatility means that a security's value can
potentially be spread out over a larger range of values. One measure of the relative volatility
of a particular stock to the market is its beta. A beta approximates the overall volatility of a
security's returns against the returns of a relevant benchmark (usually the S&P 500 is used).
For example, a stock with a beta value of 1.1 has historically moved 110% for every 100%
move in the benchmark, based on price level. Conversely, a stock with a beta of .9 has
historically moved 90% for every 100% move in the underlying index.
Balance of Payment: A statement that summarizes an economys transactions with the rest of
the world for a specified time period. The balance of payments, also known as balance of
international payments, encompasses all transactions between a countrys residents and its
nonresidents involving goods, services and income; financial claims on and liabilities to the

rest of the world; and transfers such as gifts. The balance of payments classifies these
transactions in two accounts the current account and the capital account.

Capital Flight: A large-scale exodus of financial assets and capital from a nation due to
events such as political or economic instability, currency devaluation or the imposition of
capital controls. Capital flight may be legal, as is the case when foreign investors repatriate
capital back to their home country, or illegal, which occurs in economies with capital
controls that restrict the transfer of assets out of the country. Capital flight can impose a
severe burden on poorer nations, since the lack of capital impedes economic growth and may
lead to lower living standards.