Forex glossary of terms
Forex glossary - E
Economic Exposure - Reflects the impact of foreign exchange changes on the future competitive position of a company in the sense of the impact it can have on the future cash flows of the company.
Economic Indicator - A statistics which indicates current economic growth rates and trends such as retail sales and employment.
ECU - European Currency Unit - A basket of the member currencies. As a composite unit, the ECU consists of all the European Community currencies, which are individually weighted. It was created by the European Monetary System with the eventual goal of replacing the individual European member currencies.
Effective Exchange Rate - An attempt to summarize the effects on a country's trade balance of its currency's changes against other currencies.
Efficient Markets - Markets where assets are traded in which the price is indicative of all current and relevant information and thus it is impossible to have undervalued assets.
The Efficient Market Theory - The theory that the current market price reflects all information and expectations regarding the currency pair in question. The theory also assumes that the market cannot overprice or underprice an asset, and hence the current price is the correct valuation at the time.
EFT - Electronic Fund Transfer.
Either Way Market - In the Euro Interbank deposit market where both bid and offer rates for a particular period are the same.
Elliot Wave Theory - A theory based on the notion that the market moves in waves, which consist of trends followed by partial corrections. The Elliot Wave Theory stated that there are 5 waves within an overall trend.
EMU - European Monetary Union.
EMS - European Monetary System.
Envelopes - While Bollinger Bands place boundary lines based on standard deviation, envelopes place lines at fixed percentage points above and below a moving average line. The upper and lower limits specify entry and exit points for traders.
End of the Day (Mark to Market) - Accounting measure, referring to the way traders record their positions. There are two ways that a trader can record his positions - the accrual system in which only cash flows are recorded and the mark to market method, in which the value of an asset is recorded at the end of each trading day at the closing rate or value.
Equilibrium - A price region that suggests a balance between demand and supply for an currency pair in the marketplace.
Estimated Annual Income - The expected yearly earnings.
Euro - The new monetary unit of the European Monetary Union used by twelve countries in the European Union. It is now the legal tender of those countries as of January 2002. Those countries include Germany, France, Belgium, The Netherlands, Luxembourg, Spain, Portugal, Italy, Austria, Ireland, Finland and Greece.
European Central Bank - The central bank of the EMU, responsible for the monetary policy of all member countries.
European Monetary Union - An institution of the EU, whose primary goal is to establish a single currency (the euro) for the entire EU.
Exponentially Weighted Moving Average (EMA) - While the simple moving average distributes weight equally across the data series, exponentially weighted moving averages place greater weight to more recent data. As a result, they are more recent asset movement, as opposed to assuming an unbiased view.
Electronic trading - Trading via computer through an automated, order entry and matching system. GLOBEX is an example of an international electronic trading system.
Elliot wave theory - A type of technical analysis that studies price wave sequences.
Ending stocks - The amount of a storable commodity remaining at the end of a year.
EOE - European Options Exchange.
Epsilon - The change in the price of an option associated with a 1% change in implied volatility (technically the first derivative of the option price with respect to volatility). Also referred to as eta, vega, omega and kappa.
ERM - Exchange Rate Mechanism.
Euro Clear - A computerized settlement and depository system for safe custody, delivery of, and payment for Eurobonds.
European-style options - Options that may be exercised only on the option's expiration date.
European Union - The group formerly known as the European Community.
Exchange Rate Risk - The potential loss that could be incurred from an adverse movement in exchange rates.
Exercise - The process of an option holder exchanging it for the underlying futures contract.
Exercise notice - A notice tendered by a brokerage firm to the CME Clearing House that exchanges an option for a futures contract.
Exercise price - The price at which the holder (buyer) may purchase or sell the underlying futures contract. Also called strike price.
Exhaustion gap - A gap in prices near the top or bottom of a price move that signals an abrupt turn in the market.
Exotic - A less broadly traded currency.
Expiry Date - The last day on which the holder of an option can exercise his right to buy or sell the underlying security.
Expiration Date - (1) Options - the last date after which the option can no longer be exercised. (2) Bonds-the date on which a bond matures.
Expiration Month - The month in which an option expires.
Exposure - The total amount of money loaned to a borrower or country. Banks set rules to prevent overexposure to any single borrower. In trading operations, it is the potential for running a profit or loss from fluctuations in market prices.
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