Devaluation
Deliberate downward adjustment of a currency against its fixed parities or bands which is normally accompanied by formal announcement. A deliberate downward adjustment to a country's official exchange rate relative to other currencies. 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 "revaluation". There are two implications for a currency devaluation. First, devaluation makes a country's exports relatively less expensive for foreigners and second, it makes foreign products relatively more expensive for domestic consumers, discouraging imports. As a result, this may help to reduce a country's trade deficit.  


Diamond Top Formation
A technical analysis reversal pattern that is used to signal the end of an uptrend. This relatively uncommon pattern is found by identifying a period in which the price trend of an asset starts to widen and then starts to narrow. This pattern is called a diamond because of the shape it creates on a chart. Since technical traders use this pattern to predict a reversal of an uptrend, a short position is taken when the price falls below the lower ascending trendline. In general, price targets are usually set to be equal to the entry price minus the distance between the top and the bottom of the pattern.   


Direct Quotation
Quoting in fixed units of foreign currency against variable amounts of the domestic currency. A foreign exchange rate quoted as the domestic currency per unit of the foreign currency. In other words, it involves quoting in fixed units of foreign currency against variable amounts of the domestic currency. For example, in the U.S., a direct quote for the Canadian dollar would be US$0.85  = C$1. Conversely, in Canada, a direct quote for U.S. dollars would be C$1.17 = US$1.  


Dirty Float
A system of floating exchange rates in which the government or the country's central bank occasionally intervenes to change the direction of the value of the country's currency. In most instances, the intervention aspect of a dirty float system is meant to act as a buffer against an external economic shock before its effects become truly disruptive to the domestic economy. Also known as a "managed float". For example, country X may find that some hedge fund is speculating that its currency will depreciate substantially, thus the hedge fund is starting to short massive amounts of country X's currency. Because country X uses a dirty float system, the government decides to take swift action and buy back a large amount of its currency in order to limit the amount of devaluation caused by the hedge fund. A dirty float system isn't considered to be a true floating exchange rate because, theoretically, true floating rate systems don't allow for intervention. 


Discount
Less than the spot price example: forward discount.

Discount Rate
The rate at which a bill is discounted. Specifically it refers to the rate at which a central bank is prepared to discount certain bills for financial institutions as a means of easing their liquidity, and is more accurately referred to as the official discount rate

E

Equity Linked Foreign Exchange Option - ELF-X
A put or call option that protects an investor from foreign-exchange risk for a future sale or purchase of a specified foreign-equity portfolio. ELF-X options are a combination of a currency option and an equity forward contract. Should the exchange rate work in the investor's favor under the option contract, the total payout from the option is dependent upon the performance of the equities underlying the contract. Otherwise, the investor does not receive a payout. For example, if an investor holds an ELF-X call option on USD relative to CAD, and the Canadian dollar depreciates relative to the American, the investor would not receive a payout. However, if USD depreciated relative to CAD, the investor would receive the amount saved from use of the spot exchange rate in the option contract and the foreign-equity portfolio value, less the premium paid for the call option. Also known as a "portfolio currency protection option" or PCPO.


Euro LIBOR
London Interbank Offer Rate denominated in euros. This is the interest rate that banks offer each other for large short-term loans in euros. The rate is fixed once a day by a small group of large London banks but fluctuates throughout the day. This market makes it easier for banks to maintain liquidity requirements because they are able to quickly borrow from other banks that have surpluses. The Euro LIBOR is based on the average lending rates of 16 banks. These bank rates are available to the public through the British Bankers' Association. Euro LIBOR exists mainly for continuity purposes in swap contracts dating back to pre-euro times and is not very commonly used. 


Euro Medium Term Note - EMTN
A flexible medium-term debt instrument that is issued and traded outside of Canada and the United States and requires fixed dollar payments. EMTNs are issued directly to the market with maturities of less than five years and are offered continuously rather than all at once like a bond issue. EMTNs make it easier for issuers to enter into foreign markets for capital. With EMTNs, the issuer maintains a standardized document (known as a program) that can be transferred across all issues and has a great proportion of sales through a syndication of pre-selected buyers. 


Euroclear
One of two principal clearing houses for securities traded in the Euromarket. Euroclear specializes in verifying information supplied by two brokers in a securities transaction and the settlement of securities. Euroclear is market owned and governed and was recently renamed Euroclear Belgium. Euroclear is one the oldest settlement systems and was originally subsidized by Morgan Guaranty. Its computerized settlement and deposit system helps ensure the safe delivery and payment of Eurobonds. The other principal clearing house is Clearstream, formerly the Centrale de Livraison de Valeurs Mobilières (CEDEL). 


Eurocommercial Paper
An unsecured, short-term loan issued by a bank or corporation in the international money market, denominated in a currency that differs from the corporation's domestic currency. For example, if a U.S. corporation issues a short-term bond denominated in Canadian dollars to finance its inventory through the international money market, it has issued eurocommercial paper.


Eurocurrency Market
The money market in which Eurocurrency, currency held in banks outside of the country where it is legal tender, is borrowed and lent by banks in Europe. The Eurocurrency market allows for more convenient borrowing, which improves the international flow of capital for trade between countries and companies. For example, a Japanese company borrowing U.S. dollars from a bank in France is using the Eurocurrency market. 


Eurodollar Bond
A U.S. dollar denominated bond issued by an overseas company and held in a foreign institution outside both the U.S. and the issuer's home nation. Eurodollar bonds are an important source of capital (in U.S. dollar) for multinational companies and foreign governments. A eurodollar bond is a type of Eurobond. Don't let the name confuse you! Although the eurodollar originated in London, the name today refers only to the history, not the currency. For example, if a Chinese bank held dollar-denominated bonds issued by a Japanese company, this would be considered a eurodollar bond. Eurodollar bonds are advantageous because they are subject to fewer regulatory restrictions. They are not registered with the United States' Securities and Exchange Commission and can be sold at lower interest rates than in the U.S. 


Euromarket
The market that includes all of the European Union member countries - many of which use the same currency, the euro. All tariffs between Euromarket member countries have been abolished, and import duties from all non-member countries have been fixed for all of the member countries. The Euromarket also has one central bank for all of the member countries, the European Central Bank (ECB). Also known as "the common market". The Euromarket is a large single market comprised of all member countries, allowing for more efficient trade and the centralization of monetary policy through the ECB. The Euromarket is considered a major finance source for international trade, through the money market or eurocurrency, eurocredit and eurobonds. 


European Central Bank - ECB
The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed in Germany in June 1998 and works with the other national banks of each of the EU members to formulate monetary policy that helps maintain price stability in the European Union. The European Central Bank has been responsible for the monetary policy of the European Union since January 1, 1999, when the euro currency was adopted by the EU members. The responsibilities of the ECB are to formulate monetary policy, conduct foreign exchange, hold currency reserves and authorize the issuance of bank notes, among many other things. 


European Currency Quotation
An indirect quotation in the foreign exchange markets whereby the value of a foreign currency is stated as a per-unit measure of the U.S. dollar. This type of quotation shows how much foreign currency it takes to purchase one U.S. dollar. For example, a European currency quote would be C$1.24 per US$1. This explains that it will take 1.24 Canadian dollars to purchase a single unit of U.S. currency. If you wanted to purchase US$1,000 it would cost C$1,240.  

EOE
European Options Exchange.


European Union - EU
The group formerly known as the European Community. A group of European countries that participates in the world economy as one economic unit and operates under one official currency, the euro. The EU's goal is to create a barrier-free trade zone and to enhance economic wealth by creating more efficiency within its marketplace. The current formalized incarnation of the European Union was created in 1993 with 12 inital members. Since then, many additional countries have since joined. The EU has become one of the largest producers in the world, in terms of GDP, and the euro has maintained a competitive value against the U.S. dollar. EU and non-EU members must agree to many legal requirements in order to trade with the EU member states. 


Euroyen
Japanese yen-denominated deposits held in banks outside Japan. Also a term that refers to yen traded in the Eurocurrency market. An example of Euroyen would be yen deposits held in U.S. banks. 


Euroyen Bond
A Eurobond that is denominated in Japanese yen and issued by a non-Japanese company outside of Japan. Despite what the name suggests, Euroyen bonds can be found in bond markets around the world, not just in European markets. For example, if a U.S. bank holds yen-denominated bonds issued by a French company, then it is holding Euroyen bonds. These types of bonds are advantageous because they face less regulatory restrictions. Euroyen bonds also tend to have small par values and high liquidity. These types of bonds have been around since 1984, when Japan started to open its financial markets. 

Eurozone
A geographic and economic region that consists of all the European Union countries that have fully incorporated the euro as their national currency. Also referred to as "euroland". The eurozone is one of the largest economic regions in the world and its currency, the euro, is considered one of the most liquid when compared to others. This region's currency continues to develop over time and is taking a more prominent position in the reserves of many central banks. 


Exchange Control
Types of controls that governments put in place to ban or restrict the amount of foreign currency or local currency that is allowed to be traded or purchased. Common exchange controls include banning the use of foreign currency and  restricting the amount of domestic currency that can be exchanged within the country. Typically, countries that employ exchange controls are those with weaker economies. These controls allow countries a greater degree of economic stability by limiting the amount of exchange rate volatility due to currency inflows/outflows. The International Monetary Fund has a provision called article 14, which only allows countries with transitional economies to employ foreign exchange controls. 


Exchange Rate
The price of one country's currency expressed in another country's currency. In other words, the rate at which one currency can be exchanged for another. For example, the higher the exchange rate for one euro in terms of one yen, the lower the relative value of the yen. In most financial papers, currencies are expressed in terms of U.S. dollars, while the dollar is commonly compared to the Japanese yen, the British pound and the euro. As of the middle of 2006, the exchange rate of one U.S. dollar for one euro was about 0.84, which means that one dollar can be exchanged for 0.84 euros. 


ERM
Exchange Rate Mechanism. 
 

Exchange Rate Risk
The potential loss that could be incurred from an adverse movement in exchange rates.

Exchange Stabilization Fund - ESF
Money available to the U.S. Treasury Department primarily used for participating in the foreign-exchange market in an attempt to maintain currency stability. It holds U.S. dollars, foreign currencies and special drawing rights. The ESF allows the U.S. government to intervene in the forex market to influence exchange rates, usually the domain of the central bank, without affecting the domestic money supply. This money is also used to provide financing to foreign countries.


Exercise Price (Strike Price)
The price at which an option can be exercised.

Federal Debt
The amount of money that the United States federal government owes to creditors. The government's creditors include all individuals, businesses, governments and other organizations that own U.S. government debt securities. The federal debt exists as a result of federal government shortfalls, or deficit budgets in which the government's expenses exceed its revenues. The federal debt does not include any debts in the name of individuals, corporations, and state or municipal governments. In recent years, the federal debt has grown to exorbitant amounts - as of April 2006, the total federal debt is estimated to be $8.4 trillion. Viewed as an absolute number, the federal debt seems quite enormous, representing over 20% of total worldwide debt. However, some economists point out that the federal debt is only about two-thirds the size of the U.S. GDP - a statistic that puts the U.S. well below the debt-to-GDP levels of other industrialized countries, such as Japan. Heated debate continues as to whether the federal debt is too large and should be paid down, or whether it is simply a necessary catalyst for continued economic growth. 


Fed Funds
Cash balances held by banks with their local Federal Reserve Bank. The normal transaction with these fund is an inter bank sale of a Fed fund deposit for one business day. Straight deals are where the funds are traded overnight on a unsecured basis.

Fed Fund Rate
The interest rate on Fed funds. This is a closely watched short term interest rate as it signals the Feds view as to the state of the money supply.

Federal National Mortgage Association
A privately owned but US government sponsored corporation that trades in residential mortgages. Its activities are funded by the sale of instruments commonly known as Fannie Maes.