Bank of International Settlements (BIS)
International organisation, created at The Hague Conference in 1930, owned and controlled by the central banks, in order to render a number of services to them, and as such, indirectly, also to the international financial system. The organisation has its headquarters in Basle.

Forward
The most basic type of derivative, whereby users of it promise to buy or sell a specified asset at a specified price for delivery at some future maturity. As it is an OTC-instrument, terms are freely negotiated, but there is no secondary market, and settlement is at maturity. Until that point, no cash changes hand.
Often, a spot and a forward operation are combined into one transaction, enabling the purchase or sale of a specific currency now at the current market price, while at the same time reselling it or buying it back at some predetermined future time (say, after 7 days) at the predetermined forward rate. This is called a repo (currency repos; often the term 'foreign exchange swaps' is used, which is a bit confusing). In non-technical terms, this operation is generally labelled as a 'round-trip'.

Fundamental trading
Buying and selling of financial assets based on the underlying determinants of the value of the asset. Opposite of 'noise' trading.

Future
The exchange-traded alternative to a forward is a futures contract. It is simply a standardised forward with an active secondary market; trading is anonymously with the clearing house as a counterparty; the value of the contract is determined daily and contracts are 'marked to market'. For example, cash (a 'margin payment') is paid in by the user to cover any value losses on the contract, and is also paid out (on an account of the user at the clearing house) to the user when the value of the contract increases, on a daily basis. This last specific feature of futures contracts greatly reduces counterparty risk.

Hedging
Covering a risky position that results from buying or selling a financial asset whose value may change over time.

Noise trading
Buying and selling of financial assets not based on the underlying determinants of the value of the asset, but instead on price dynamics, guided by analysis techniques such as technical analysis or 'rumours'. Opposite of 'fundamentals' trading.

Official Development Assistance (ODA)
Financial assistance in the form of grants or low-interest loans for developing countries and multilateral institutions provided by official public agencies, including state and local governments. Excludes assistance for military purposes. Coordination is done by the Development Assistance Committee (DAC) of the OECD in Paris.

Options
Another type of financial derivative products, having a number of different characteristics from swaps. An option is a contract between parties giving the buyer the right, but not the obligation, to buy (call-option) or sell (put-option) a specified amount of a financial asset at a predetermined price (the strike price), and this during a specified future period (American option), or at a specific moment in the future (European option). For that right, the buyer pays a (non-refundable) up-front fee (the premium) to its counterparty, the seller (or writer). As such, the writer cashes in the premium, and has an obligation to honour the contract when the buyer decides to execute the option. Unlike forwards and swaps, the pay-off profile of an option is non-linear. The maximum amount the buyer of an option contact can lose is the premium; however, he can gain a lot. The counter-party in the option, i.e. the seller (or 'writer') cashes in the premium. He must honour the obligation whenever the buyer decides to execute. His gain is limited to the premium; his losses can be considerable.
Due to no or a very limited investment upfront, derivatives enable investors (or speculators) to take very large underlying demand or supply positions in a currency (the so-called 'notional amount') with little cash involved. This is the so-called 'leverage' effect of derivatives, which also increases the potential rate of return, relative to the small cash investment.

Settlement of foreign-exchange trades
The arrangements under which banks credit and debit in their customers’ accounts transactions involving exchange of currencies, and the domestic payment systems and cross-border netting systems that settle the claims of these banks against each other.

Settlement risk
The risk to one party in a currency trade that the other will not pay up.

Speculation
In a financial market sense, it refers to deliberately exposing oneself to a risky situation e.g. buying or selling a financial asset whose value can change in order to take advantage of an anticipated favourable future price change of the asset. If, on the other hand, the value changes disfavourably, you are not protected against this and incur a loss.

Spot transactions
Conversions done at the price of today and settlement is usually within two days. However, this is not the only way currencies change hands. Apart from these spot operations, a number of 'derivative currency transactions' are made, such as forwards, repos, swaps, futures and options.

Swap
Generally defined as an exchange operation by which two parties, within a specified time period, on regular intervals, exchange payments. These exchanged payments can be of a dual nature: or they are exchanges in different currencies (labelled as currency swaps, e.g. exchanging a payment in dollars with one in deutschmarks), in different interest rates (labelled interest rate swaps, e.g. exchanging a fixed interest rate payment for a variable interest rate payment), or a combination of the two (cross-currency swap). As such, a swap is nothing other than a bundle of forwards, and shares all the basic features.

United Nations Development Program (UNDP)
Created in 1966, it is responsible for administering and co-ordinating development projects and technical assistance provided under the auspices of or in liaison with the UN system of development agencies and organisations.

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