MARKET: Options
Rainbow option (or basket option) is a derivative contract that is exposed to two or more sources of uncertainty, as opposed to a vanilla (simple) option that is exposed to only one source of uncertainty (the price of underlying asset). Rainbow options are usually calls or puts on the best or worst performing of a set of underlying assets, or options which pay the best or worst of a number of selected assets.
Ratings
MARKET: General
An evaluation given by Moody’s, Standard & Poor’s or Fitch, or other rating services (agencies) of the creditworthiness of a given security or issuer of securities.
Real Effective Exchange Rate
MARKET: FX
A measure of the rate of exchange of the rand relative to a trade-weighted average of South Africa’s major trading partner currencies, adjusted for price trends (inflation) in the respective countries.
Real Exchange Rate
MARKET: FX
The exchange rate adjusted for changes in the relative rates of inflation in the two currencies.
Real Interest Rate
MARKET: General
The nominal rate of interest, adjusted for compounding, minus the inflation rate.
Realised Profit/Loss
MARKET: General
A profit or loss resulting from both the buy and the sell sides of the completed transaction.
Recession
MARKET: Economics
A recession is a period where a decline in national output and income is witnessed. A recession is usually defined as two consecutive periods (usually quarters) of negative economic growth.
Redemption Date
MARKET: Fixed Income
Also known as the maturity date. The date on which the final coupon payment as well as the principal amount (face value) of the bond is repayable.
Reference Rate
MARKET: Derivatives
A rate that determines pay-offs in a financial contract and that is outside the control of the parties to the contract. It is often some form of LIBOR or JIBAR rate, but it can take many forms, such as a consumer price index, a house price index or an unemployment rate. The reference rate is normally determined by a third party. It must be independent, to avoid a conflict of interest – if one party has the ability to influence the rate, it is safe to assume that they will do so in their favour.
Regulatory Capital
This is the amount of capital that the regulator, the South African Reserve Bank (SARB) wants FirstRand to hold. It is governed by the Basel II Accord with some local elections by the SARB.
Regulatory Risk
MARKET: Risk Management
The potential for loss stemming from changes in the regulatory environment pertaining to derivatives and financial contracts, the utility of these instruments for different counterparties etc.
Relative Value Trading
MARKET: Fixed Income Fixed-Income Relative-Value Investing (FI-RV) is a hedge fund investment strategy made popular by Long Term Capital Management (LTCM). FI-RV investors most commonly exploit interest-rate anomalies in the large, liquid interest rate markets of North America, Europe and the Pacific Rim. The financial instruments used include government bonds, interest-rate swaps and futures contracts. Trades of interest include:
Bond vs. Bond: Identify and trade bonds that are mispriced compared to other very similar bonds.
LIBOR vs. Bond: Take advantage of anomalies in the spread between bond and LIBOR curves.
Frequently, these anomalies occur when market participants are forced to make non-economic decisions due to accounting regulations, book clean-up, public furor or exuberance over a certain product, or sheer panic. The FI-RV investor aims to capitalise on these and other inefficiencies. When a mispricing is identified between products, FI-RV investors have the freedom to wait until the anomaly corrects. In contrast, other market participants, such as bank proprietary desks, are often limited by balance sheet considerations and accounting standards which influence the size and timing of their trades.
Reinvestment Risk
MARKET: Fixed Income
The risk to an investor that the rate at which receipts on an investment, for example bonds (coupon), cannot be reinvested at the same interest rate as originally anticipated.
Repo Rate
MARKET: Money Markets
The interest rate at which the SARB (South African Reserve Bank) lends money to commercial banks.
Repurchase Agreement
MARKET: Money Markets
A transaction carried out under an agreement, in which one party sells securities to another, and at the same time and as part of the same transaction, commits to repurchase equivalent securities on a specified future date, or at call, at a specified price. Repos are used for financing long and short securities positions. Investors in this market look to convert their excess cash balances into short- term collateralised loans.
Resistance Level
MARKET: Technical Analysis
In a bull market or upward price trend, certain price levels become associated with resistance because investors have given orders to sell at these levels in order to take profit. For this reason, the price may attempt three or four times to penetrate a resistance level before it is successful and all selling pressure has been absorbed.
Revaluation
MARKET: General
The process of valuing a financial instrument or transaction by calculating the profit or loss that can be realised if the position was to be reversed at current market prices or values.
Return
MARKET: General
A comparison of the money earned (or lost) on an investment to the amount of money invested. It is calculated by expressing the interest earned as a percentage of the money invested and expressing the number as a percentage per annum.
Risk
MARKET: General
A concept that denotes a potential negative impact to an asset or some characteristic of value that may arise from some present process or future event. In everyday usage, risk is often used synonymously with the probability of a loss or threat. In professional risk assessments, risk combines the probability of an event occurring with the impact that event would have and with its different circumstances.
Risk-free Rate
MARKET: General
The interest rate that it is assumed can be obtained by investing in financial instruments with no default risk. However, the financial instrument can carry other types of risk, e.g. market risk (the risk of changes in market interest rates), liquidity risk (the risk of not being able to sell the instrument for cash at short notice without significant costs) etc.
Risk Reversal
MARKET: Options
The manner in which similar out-of-the-money call and put options, usually foreign exchange options, are quoted by finance dealers. Instead of quoting these options' prices, dealers quote their volatility. The greater the demand for an options contract, the greater its volatility and its price. A positive risk reversal means the volatility of calls is greater than the volatility of similar puts, which implies a skewed distribution of expected spot returns composed of a relatively large number of small down moves and a relatively small number of large upmoves.
Rollercoaster Swap
MARKET: Derivatives
A generic name applied to swaps whose notional principal is different in different payment periods.
Rolling a Position
MARKET: General
The action taken by a market participant when an open position is moved from one value (settlement) date to the next. This is required by traders or investors when the expected movement in financial prices or values does not occur on the same trading day when the position was entered into.
