MARKET: FX
The nickname given to the sterling/dollar (GBP/USD) exchange rate. Refers to the fact that it was originally traded across the Atlantic using an undersea cable.
CAC40
MARKET: General
The CAC 40 (French: CAC quarante), which takes its name from the Paris Bourse's early automation system Cotation Assistée en Continu (Continuous Assisted Quotation), is a benchmark French stock market index. The index represents a capitalization-weighted measure of the 40 most significant values among the 100 highest market capitalisations on the Paris Bourse (now Euronext Paris).
Calendar Spread
MARKET: Options
An option trading strategy involving the simultaneous purchase and sale of options on the same underlying asset and strike price but with different expiry dates. Also known as time spread or horizontal spread.
Call Spread
MARKET: Options
An option trading strategy that provides the user with limited profit and limited risk that can be used when the trader is moderately bearish on the underlying price. It is constructed by buying call options of a given strike price and selling the same number of call options at a lower strike price on the same underlying and the same expiry month.
Call Option
MARKET: Options
A financial contract that gives the owner/buyer the right, but not the obligation, to buy a pre-specified amount of the underlying financial instrument at a pre-agreed (strike) price with a pre-agreed maturity (expiry) date.
Callable Bond
MARKET: Fixed Income
A bond that gives the issuer the right to redeem or repay the bonds prior to the maturity date by the payment of a pre-specified price, called the call price/value. The issuer will call the bonds if market interest rate levels are below the coupon on the bond.
Callable Swap
MARKET: Derivatives
An interest rate swap in which either the fixed rate payer or the fixed rate receiver has the right to terminate the swap at one or more pre-determined points during the life of the swap.
Cap
MARKET: Options
A financial contract giving the buyer/holder the right, but not the obligation, to borrow a pre-agreed amount of money at a pre-specified interest rate with a pre-agreed maturity date. The contract could also be traded on a reciprocal compensation basis, which means that the holder/buyer of the cap will receive a compensation payment if market interest rates on the maturity date are higher (above) the pre-agreed interest rate. If market rates are below the agreed interest rate (strike rate) of the strategy, no compensation payment is received or paid.
Capital Flow
MARKET: Economics
A term used to describe the flow of funds in and out of a country.
Capital Gains Tax (CGT)
MARKET: General
CGT is a tax levied on the income realised from the disposal (sale) of a capital asset. A capital gain represents the excess of the selling price over the purchase price of the asset.
Capital Goods
MARKET: Economics
Capital goods are products or durable goods which are not produced for immediate consumption, but rather are used to produce other goods and services. Capital goods include factories, machinery, tools, equipment, and various buildings which are used to produce other products for consumption.
Capital Project Bills
MARKET: Debt Markets
Bills used by state enterprises such as Telkom and Eskom as a means of bridging finance for capital projects in the short term, while longer-term finance for particular projects is being been arranged.
Capitalisation of Interest
MARKET: General
The process of adding interest earned to the original amount invested so that interest can be earned on the interest already earned.
Caption
MARKET: Options
An option contract that gives the buyer the right, but not the obligation, to enter into a cap. In exchange for the payment of a premium, the buyer has the right to enter into a cap agreement with pre-specified terms on (European caption) or before or on (American caption) a specified future date. Captions are generally used to hedge a contingent interest rate exposure, where the exposure is to higher interest rates.
Carry Trade
MARKET: Foreign FX
The carry trade is constructed by the borrowing of low interest rate currency, converting it into a currency with a higher interest rate and then lending out the funds. The element of risk in this trade is in the fluctuations in the exchange rate between the two currencies involved.
Cash-or-Nothing Binary Option
MARKET: Options
The cash-or-nothing binary option either pays a fixed amount of cash if the option expires in-the-money or nothing. For example, suppose you buy a binary cash-or-nothing call option on XYZ 's share at a strike of R100 with a binary payoff of R1,000. If, at maturity, the share is trading at or above R100, you receive R1,000. If it is trading below R100, you receive nothing.
Cash Reserves
MARKET: Regulation
The statutory requirement on banks to hold a certain amount of funds (in cash) with the Reserve Bank.
Cash Settlement
MARKET: Derivatives
The practice of settling a transaction/instrument/contract at expiry, based on the differential between the fixed/guaranteed (contract) price and the current (market) price of the underlying instrument.
CBOE
MARKET: Options
The Chicago Board Options Exchange (CBOE) is one of the world's largest options exchanges with annual trade of over 15 billion shares of stock options in more than 1,200 companies, 50 stock indexes, and 50 exchange-traded funds (ETFs). The exchange was established in 1973 by creating and listing standardised stock options. The CBOE is regulated by the Securities and Exchange Commission (SEC) and its options contracts are cleared by the Options Clearing Corporation (OCC).
CBOT
MARKET: Derivatives
The Chicago Board of Trade (CBOT) was formed in 1848 to trade grain. Futures contracts on agricultural commodities were developed in the 1860s. Financial futures were traded from 1975. The CBOT set up the Chicago Board of Exchange in 1975 to trade options. Options contracts on agricultural commodities and gold were added in 1983, while options on index futures and interest rates followed in 1984, with swap contracts being introduced in 1991. In 1990, a joint venture between the CME and the CBOT, which led to the development of GLOBEX —a 24-hour global trading system. It is now the largest futures market in the world.
CD
MARKET: General
Negotiable Certificate of Deposit (also NCD)
Central BankMARKET: General
A nation’s principal monetary authority that regulates interest rates, money or credit and which may be involved in financial sector regulation. In South Africa this is the Reserve Bank.
Certificate of Deposit
MARKET: Money Markets
Issued for a stated time period and normally pays a fixed rate of interest. It is issued in acknowledgement of a deposit made. Negotiable certificates of deposit are actively traded in the secondary market.
CFDS
MARKET: Derivatives
A contract for difference (or CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time. (If the difference is negative, the buyer pays an amount to the seller.)
Chapter 11
MARKET: General
Chapter 11 is a chapter of the US Bankruptcy Code, which permits the reorganisation of a company under the bankruptcy laws of the United States. Chapter 11 bankruptcy is available to any business, whether a corporation or sole proprietor, and to individuals, although it is most prominently used by corporate entities.
When a business is unable to service its debt or pay its creditors, the business or its creditors can file with a federal bankruptcy court for protection under Chapter 11. In Chapter 11, in most instances, the debtor remains in control of its business operations as a debtor in possession, and is subject to the oversight and jurisdiction of the court.
Chooser Option
MARKET: Options
A chooser option gives the buyer/holder a fixed period of time to decide whether the option will be a call or a put option.
Clean Price
MARKET: Fixed Income
The clean price of a fixed income security is the market price paid for the principal amount and future (remaining) coupons on a that security. The clean price excludes accrued interest.
Clearing House
MARKET: Derivatives
A clearing house acts as the intermediary in all transactions on an exchange, i.e. futures and exchange-traded options. By becoming the counterpart to both the buyer and the seller of the contract, the clearing house assumes the responsibility of ensuring that timely delivery or settlement on all transactions take place and hence attempts to remove the credit risk involved.
Close-out
MARKET: Derivatives
The final delivery (maturity) date upon which a futures contract matures. Close-out dates in the futures markets are generally in March, June, September and December.
Closing Price
MARKET: General
The last (final) price recorded on a financial instrument/currency/asset on any particular trading day.
Choice price
Market price where the bid-offer spread is zero, i.e. can buy/sell at the same price CME
MARKET: Derivatives
The Chicago Mercantile Exchange, also known as “the Merc” (CME is an American financial exchange based in Chicago). The CME was founded in 1898 as the Chicago Butter and Egg Board. Originally, the exchange was a non-organization. The exchange demutualised in November 2000, and went public in December 2002. The CME trades several types of financial instruments: interest rates, equities, currencies, and commodities. It also offers trading in exotic instruments such as weather and real estate derivatives. The CME has the largest options and futures contracts open interest (number of contracts outstanding) of any futures exchange in the world.
Collar
MARKET: Derivatives
An option strategy that involves the simultaneous purchase and sale of call and put options with the same maturity, but different strike rates (prices). The strategy protects the buyer against unfavorable market prices/rates, but allows for limited participation in favorable movements in market prices/rates.
Collateralised Debt Obligations (CDOs)
MARKET: Credit Derivatives
A type of structured asset-backed security (ABS) whose market value and payments are derived from a portfolio of underlying fixed-income securities. CDOs are generally assigned different credit risk classes, or tranches, whereby the “senior” tranches would be considered the safest securities in the structure. Interest and principal payments on the CDOs are made in order of seniority. This means that the junior tranches would offer higher coupon payments (and interest rates) or lower prices to compensate investors for additional default (credit) risk.
Collateriased Loan Obligations (CLOs)
MARKET: Credit Derivatives
A form of securitisation where payments from multiple middle sized and large business loans are pooled together and passed on to different classes of owners in various tranches.
Each class of owner (tranche) may receive larger payments in exchange for being the first in line to lose money if in the event of default when the issuer fails to repay the loans. The actual loans used are generally syndicated loans, usually originally granted by a bank with the intention of the loans immediately being redeemed by the proceeds received from the owners of the collateralized loan obligation.
Collusion
MARKET: Economics
A non-competitive agreement between rivals that attempts to disrupt the market's equilibrium. By collaborating with each other, rival firms look to alter the price of a good to their advantage. The parties may collectively choose to restrict the supply of a good, and/or agree to increase its price in order to maximize profits. Groups may also collude by sharing private information, allowing them to benefit from insider knowledge.
Commercial Paper (CP)
MARKET: Money Markets
A short-term form of borrowing. The main issuers are large creditworthy institutions, such as Microsoft, General Electric and Anglo American.
Commodity Currency
MARKET: FX
The currency being priced in an exchange rate quote. Example, in a quote USD/ZAR = 10.1250, the USD is the commodity currency. The quote states that one USD is the equivalent of ZAR 10.1250.
A commodity currency can also refer to currencies of countries that are dependent on commodities as their main export earner, normally the rand, and the Australian, Canadian and New Zealand dollars.
Commodity Future
MARKET: Derivatives
Financial contracts where the underlying asset on the contract is a physical commodity, whether agricultural, metal- or oil-based.
Commodity Market
MARKET: Commodities
Commodity markets are markets where raw or primary commodity products are bought/sold and exchanged.
Commodity Option
MARKET: Derivatives
Commodity options allow the buyer/holder the right, but not the obligation, to fix the price of a specified commodity, e.g. wheat, maize, oil, gold etc. The buyer is still able to benefit from favorable movements in the underlying commodity price.
Commodity Swap
MARKET: Derivatives
An over-the-counter (OTC) instrument. It can be used by a party who wishes to secure a fixed contract price for a particular commodity, by agreeing to pay (receive) the fixed price to a financial institution in return for receiving (paying) cash flow based on the market price of the underlying commodity on a pre-determined maturity date.
Comparative Advantage
MARKET: Economics
Where a country can produce a good or service at a lower cost relative to other countries.
Complement
MARKET: Economics
A good or service that is used in conjunction with another good or service. Usually, the complementary good has little to no value when consumed alone but, when combined with another good or service, it adds to the overall value of the offering. Also, good tends to have more value when paired with a complement than it does by itself.
Compound Interest
MARKET: General
Means that interest is earned on interest already earned. Compounding of interest is only possible when the assumption is made that the interest earned is capitalised. An example would be when an investment of R100 is made for a period of two years at a rate of 10% per annum. After two years, the investor would receive an amount of R121. R100 is the amount invested, R20 is interest earned (R10 in year one and R10 in year two) and R1 is 10% on the R10 of interest earned at the end of year one. R1 represents the portion of compound interest.
Constant Maturity Swap (CMS)
MARKET: Derivatives
A swap that allows the purchaser to fix the duration of received/paid flows on a swap. The floating leg of an interest rate swap typically resets against a published market index. The floating leg of a CMS fixes against a point on the swap curve on a periodic basis. The other leg of the swap is generally LIBOR but may be a fixed rate. CMS can either be single currency or traded as a cross-currency swap. The important factor that affects the CMS is the shape of the forward implied yield curves.
Consumer Price Index(CPI)
MARKET: Economics
CPI is a measure that estimates the average price of consumer goods and services purchased by households. It measures a price change for a constant basket of goods and services from one period to the next within the same area (city, region, or nation). The percentage change in the CPI is a measure which estimates inflation.
ContangoMARKET: Commodities
A term often used in commodities markets to refer to markets where the forward price of the commodity, or the longer-dated futures contract, is higher than the spot (shorter-dated futures) price.
Contract for Difference (CFD)
MARKET: Derivatives
A contract between two counterparties that mirrors the actual position of trading a security, without actually buying or selling the underlying security. The two parties enter into a contract whereby the seller will pay the buyer the difference in value if the price of the underlying security increases after a certain period of time, and the buyer will in return pay the seller the difference in value should the price of the underlying instrument decreases. CFDs are traded in the “over the counter markets” in many countries
Convertible Bond
MARKET: Fixed Income
A bond containing a provision that permits the conversion of that bond, by the investor/holder of the bond, into the issuer’s ordinary shares at some fixed conversion ratio and conversion price on a specified date in the future.
Convertible HEDGE
MARKET: Fixed Income
A convertible hedge is an arbitrage strategy which involves the buying of a convertible security and the simultaneously selling (short) of the same company's ordinary shares. This strategy involves identifying shares that are mispriced by the market, selling the shares and buying the convertible security issued by the same company. Having sold the shares short, the investor puts the proceeds into an interest-bearing account. If the share price does not change, the investor will earn interest on the short sale and interest on the convertible security, while paying fees to the lender of the shares (securities). In most cases, this situation will lead to a positive net cash flow.
If the share price increases, the investor will gain on the convertible security, but loses (hopefully a smaller amount) on the short sale position. If the stock price falls, the price of the convertible will also fall, but the value of the convertible security will never fall below the value of an ordinary bond issued by the same company. On the other hand, the investor gains on the short position (hopefully more than the amount lost on the convertible).
A convertible hedge is considered as a relatively safe strategy, but choosing which ones to pursue is complex.Convexity
MARKET: Economics
A financial instrument is said to have convexity when the price does not change by the same magnitude when interest rates rise or fall. A bond/ instrument/contract is said to be positively convex (or to possess positive convexity) if the price of the financial instrument rises more for a downward move in its yield than its price declines for an equal upward move in its yield.
Cost-Push Inflation
MARKET: Economics
This is inflation caused by an increase in production costs, such as wages and fuel prices.
Correlation Trade
MARKET: General
A strategy in which the investor gets exposure to the average correlation of an index. The key to correlation trading is understanding the principle of diversification — that the volatility of a portfolio of securities is less than (or equal to) the volatility of a single security in that portfolio. The lower the correlation among the individual securities, the lower the overall volatility of the entire portfolio. To buy correlation, an investors can buy a portfolio of financial options on the index and sell a portfolio of options on the individual constituents of the index.
Cost of Carry
MARKET: General
The funding cost of holding any physical asset or instrument and results from the interest payable on the finance required to acquire the asset/instrument.
Countercyclical Fiscal Policy
MARKET: Economics
Policy that has the opposite effect on economic activity to that caused by the current business cycle, such as slowing spending growth in a boom period or accelerating spending during a recessionary period.
Country Risk
MARKET: Risk Management
The likelihood that changes in the local business and financial environment negatively affect the value of assets and investments in a specific country. For example, financial factors such as exchange control regulations, devaluation of the local currency, regulatory changes, or stability factors such as riots, protests, civil war and other potential events that may have an effect on investment values. This term is also sometimes referred to as political risk.
Coupon
MARKET: Fixed Income
The rate of interest that the issuer of a bond promises to pay holders of that bond annually or semi-annually. The coupon of a bond is usually expressed as a fixed percentage of the face value of the bond.
Coupon Rate
MARKET: Fixed Income
Nominal annual rate of interest that the issuer of a note or bond promises to pay the holder/investor during the life of the instrument, up to and including the maturity date.
Coupon Securities
MARKET: Debt Markets
Interest-bearing instruments that accrue interest at a fixed rate on their face (nominal) value and generally pay this interest at maturity or regularly during the life of the instrument.
Coupon Swap
MARKET: Derivatives
An interest rate swap that has a fixed interest leg/side, a floating interest leg/side as well as a notional principal amount that remains the same over the life of the swap. The parties that enter into the coupon swap exchange interest flows at regular intervals during the term/life of the swap contract.
Covered Call
MARKET: Options
A combination of owning shares or other securities and selling (or writing) a call option on those shares or securities in corresponding amounts. It has essentially the same payoff (outcome) as a short put option on the shares, and thus should have essentially the same price (or premium) as that of a short put.
Covered Interest Arbitrage
MARKET: FX
A measure of the price increases of a basket of consumer goods, which differs from the consumer price index (CPI) in that it excludes mortgage costs.
CPIX Inflation
MARKET: Economics
The practice of entering into a foreign exchange swap coupled with two money market transactions to make an arbitrage profit by taking advantage of an inconsistency of market interest rates and forward foreign exchange rates.
Credit Crunch
MARKET: General
A credit crunch is created when banks hugely reduce their lending activities to each other because of the uncertainty of how much money they will have available.
Credit Default Swap (CDS)
MARKET: Credit Derivatives
A swap designed to transfer credit exposure between parties. It is the most widely used form of credit derivative. It is an agreement between a protection buyer and a protection seller where the buyer pays a periodic (or upfront) fee in return for a contingent payment by the seller upon a credit event (such as a certain default) happening in the reference entity (the credit exposure upon which protection is bought). A CDS is often used like an insurance policy, or hedge, for the holder of a corporate bond.
Credit Derivative
MARKET: Credit Derivatives
A contract (derivative) used to transfer the risk of the total return on a credit asset falling below an agreed level, without having to transfer the underlying asset. This is usually achieved by transferring risk on a credit reference asset. Some common forms of credit derivatives are credit default swaps, total return swaps and credit-linked notes.
Credit-Linked Notes (CLN)
MARKET: Credit Derivatives
A note whose cash flow(s) depends on a specified event, which could be a credit default, a change in credit spread, or rating adjustment. The definition of relevant credit events are generally negotiated by the parties to the transaction. A CLN effectively combines a credit-default swap (CDS) with a regular debt security (with coupon, maturity, redemption).
Credit Risk
MARKET: Risk Management
The risk of loss from a counterparty not honoring their commitment in a financial transaction, or is in default or results from a change in the credit status of a counterparty that causes the value of their obligations to decrease.
Credit Spread
MARKET: Fixed Income
The difference between the yield on the borrower’s debt and the yield on the government bond with similar maturity. It provides a measure of the premium (in yield) that investors require as compensation for taking the additional the risk of default.
Cross Rate
MARKET: FX
The exchange rate for one non-US dollar currency against another non-US dollar currency, e.g. CHF/JPY.
Cross-currency Swap
MARKET: Economics
An exchange of interest rate payments in different currencies on a pre-set notional principal amount and in reference to pre-determined interest rate indices in which the notional amounts are exchanged at inception of the contract and then re-exchanged at the termination of the contract at pre-agreed exchange rates.
Crowding-out
MARKET: Derivatives
A fall in private investment or consumption as a result of increased government expenditure financed through borrowings.
Cum and Ex
Term used to describe whether a market price includes (cum) or excludes (ex) interest (bonds) or dividend (shares) Currency
MARKET: FX
An accepted medium of exchange.
Currency Future
MARKET: FX Derivatives
A standardised exchange-traded financial contract, where the holder is entitled to take/make delivery of a specified amount of one currency in exchange for a specified amount in another currency on a specified future date.
Currency Option
MARKET: FX Derivatives
An option that represents the right, but not the obligation, to buy (call) or sell (put) one currency for another at a specified price (exchange rate) during a specified period of time (European-style) or at a specified maturity date (American-style).
Currency Peg
MARKET: FX
A currency peg is a commitment by government to maintain its currency at a fixed value in relation to another currency. This avoids any fluctuation in the currency as a result of normal demand and supply forces in the market.
Currency (FX) Swap
MARKET: FX
A short-term FX transaction that involves the purchase (sale) of one currency against another and the simultaneous sale (purchase) of the same amount of the same currency pair on a specified future date.
Current Account Balance
MARKET: Economics
The net balance on the current account.
Current Account Balance of the Balance of Payments
MARKET: Economics
The current account of the balance of payments represents the difference between total imports and total exports, including account service payments and receipts, interest, dividend payments and transfers. The current account can be in a deficit or surplus, depending on the inflows and outflows during any given period.
Current Account Deficit
MARKET: Economics
A negative balance on the current account of the Balance of Payments (BoP).
Current Account Surplus
MARKET: Economics
A positive balance on the current account of the Balance of Payments (BoP).
Current Issue
MARKET: Fixed Income
In bonds, the most recently auctioned issue.
Current Maturity
MARKET: Fixed Income
Current time to maturity of an outstanding bond.
Current Yield
MARKET: Fixed Income
The bond’s annual coupon divided by its clean price.
