| arbitrage | The process of buying and selling instantaneously to make profit with no risk
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| ask price | Sales price
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| bid price | Price offered to buy
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| central reserve asset | Asset, usually currency, held by a government's central bank
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| cross rates | Currency exchange rates for trading directly between non- US$ currencies
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| efficient market approach | Assumption that current market prices fully reflect all available relevant information
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| fiscal policies | Policies that address the collecting and spending of money by the government
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| Fisher effect | The relationship between real and nominal interest rates: The real interest rate will be the nominal interest rate minus the expected rate of inflation
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| forward currency market | Trading market for currency contracts deliverable 30, 60, 90, or 180 days in the future
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| forward rate | The exchange rate between two currencies for delivery in the future, usually 30, 60, 90, or 180 days
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| fundamental approach | Exchange rate prediction based on econometric models that attempt to capture the variables and their correct relationships
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| international Fisher effect | Concept that the interest rate differentials for any two currencies will reflect the expected change in their exchange rates
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| intervention currency | A currency used by a country to intervene in the foreign currency exchange markets, often to buy (strengthen) its own currency
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| law of one price | Concept that in an efficient market, like products will have like prices
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| monetary policies | Government policies that control the amount of money in circulation and its growth rate
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| purchasing power parity (PPP) | Theory that predicts that currency exchange rates between two countries should equal the ratio of the price levels of their commodity baskets
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| random walk hypothesis | Assumption that the unpredictability of factors suggests that the best predictor of tomorrow's prices is today's prices
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| spot rate | The exchange rate between two currencies for delivery within two business days
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| technical analysis | An approach that analyzes data for trends and then projects these trends forward
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| trading at a discount | Situation in which a currency's forward rate quotes are weaker than spot
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| trading at a premium | Situation in which a currency's forward rate quotes are stronger than spot
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| vehicle currency | A currency used as a vehicle for international trade or investment
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