Glossary of Terms
A nine-digit code that identifies banks in the USA that are part of the Fedwire system. Certain banks will have different ABA numbers depending on whether you’re sending/receiving a wire, an ACH or a paper item.
Anti money laundering. Money laundering is the process used to disguise the source of money or assets derived from criminal activities. Payline takes an active role in ensuring that our services do not facilitate money laundering or deal with proceeds of crime. We are governed by policies in keeping with FINTRAC requirements and maintain strict controls to identify and report any money laundering activities.
The price at which a currency is offered for sale.
Automated Clearing House (ACH)
An automated system for processing of account debits and credits in the US banking system. Funds are not as immediate as wire transfers, but there are no banking costs to receive payments processed by this method. Sometimes referred to as low-value wires.
Bankers automated clearing services. This is the United Kingdom system for processing of debits and credits for less time-sensitive payments. Payments made this way generally take three days to settle but come at no cost.
Bank Identifier Code – An 8 or 11 alphanumeric code often referred to as a SWIFT code. Used for sending funds internationally.
1) The price at which a buyer has offered to purchase a currency.
2) Also used to refer to a market order. A client may place a bid with Payline to buy or sell a specific amount of currency if the rate reaches a level where their targeted price can be exercised.
A paper payment order issued by a US bank. It represents guaranteed funds to the person or business to whom it’s made payable.
A bank responsible for controlling a country’s monetary policy. It is often the issuing bank and governs bank licensing and any foreign exchange control system. The Bank of Canada or the US Federal Reserve would be examples of central banks.
Clearing House Automated Payment System. London-based GBP currency payment processing system that offers same day value for GBP transfers, but at a price ranging up to £35.
1) A term used to describe the fulfillment of standards and regulations set out by regulatory agencies, such as FINTRAC, regarding financial transactions.
2) Reference to a department in most financial service companies, the “Compliance Team” can usually be used interchangeably with the AML department. They are responsible for ensuring policies meet the regulatory and legislative standards and for ensuring that the company is abiding by those policies properly.
A common foreign exchange term describing the value of one foreign currency relative to another foreign currency, ignoring the local currency. An example would be discussion of the EUR/USD rate or the JPY/USD rate in Canada.
Deliverable Foreign Exchange
This describes transactions that result in the movement of a settlement currency back and forth between two parties. It deals with only currencies that are convertible and tradable in nature.
A method of settling payments electronically via secure debits from an authorized bank account. Often used in the settlement process for transactions with Payline by ICE.
A term in foreign exchange trading regarding the impact of certain information about events coming out before the event occurs, therefore limiting the impact of the event itself. When information is public, it is already thought to usually be “priced in” to the rate already.
A paper payment order issued by a bank. This represents guaranteed funds, and usually comes at a cost to the purchaser.
EFT / Electronic Funds Transfer
A term used to describe the transfer of funds electronically from one bank to another. In Canada, this is the method used for directly debiting a bank account. By giving someone access through the use of a void cheque, they will be doing an EFT debit to your account. Timeliness of EFT payments can vary significantly between foreign exchange providers based due to how and when they release payment.
The price of one foreign currency in terms of another currency. Also known as rate of exchange.
FINTRAC, Financial Transactions and Reports Analysis Centre of Canada (www.fintrac.gc.ca) receives, analyzes, assess and discloses financial intelligence on suspected money laundering, terrorist financing and threats to the security of Canada. It works towards public awareness as well as detection and deterrence.
A term describing a currency’s exchange rate which is determined by the government or central bank. The rate of exchange does not fluctuate with the market and is only traded at the official rate.
The primary US system for dealing with large-value or time-sensitive payments. Often both senders and recipients are charged a fee for sending and receiving Fedwire payments. The funds are considered to be guaranteed funds, and payments sent by this method are normally received within hours of being sent.
A term describing a currency’s exchange rate as determined by the foreign exchange market. The rate of exchange is determined by the market’s activity and the currency is allowed to “float” in value against other currencies.
A foreign exchange instrument where one is able to purchase or to sell a specific amount of foreign currency, at a specific rate of exchange, for a specific date or range of dates in the future ranging from four days to one year. This protects the buyer against the risk of fluctuating rates.
Percentage point additions or deductions from the spot price of a currency based on interest rate variances between the two countries. It is favourable to hold funds in a currency that has higher interest rates, and detrimental to hold funds in a currency that has lower interest rates, and this is reflected through the application of forward points to the exchange rate of Forward Contracts.
A common foreign exchange term used to describe a strong currency with long-term stability. These currencies are often used as reserve currencies by central banks. Examples of hard currencies are the U.S. dollar, Japanese yen, Euro, and Swiss franc.
A common foreign exchange trading term used to describe the process of eliminating, managing or reducing exchange risk through the use of instruments such as forward contracts, futures, and options.
International Bank Account Number (IBAN) is a standard for identifying bank account information across borders in Europe and the UK. It may combine the country code with both the account number and routing information.
A term used to describe the process of a central bank, or central banks, participating in the foreign exchange market by buying and selling large blocks of currency in order to strengthen or weaken a particular currency.
In the Canadian banking system, institutions are given a three-digit institution number.
001 – Bank of Montreal
002 – Scotiabank
003 – Royal Bank of Canada
004 – TD Canada Trust
010 – CIBC
016 – HSBC
An acronym in the Financial Services Industry for “Know Your Client”, this information is of vital importance in understanding and making proper decisions regarding risk and evaluating when transactions fall outside of the normal range and further information needs to be gathered.
A term representing the London Interbank Offer Rate. A popular key interest rate in the European financial system, similar to the U.S. Federal Funds rate.
A term used to describe the overall global foreign currency trading between banks, companies, and governments.
Non-Deliverable Foreign Exchange
Describes transactions where a currency is bought on either a spot or a forward basis, and then subsequently sold off in an attempt to net out the profits based on fluctuations between booking and the value date. Payline does not participate in non-deliverable foreign exchange transactions.
Non-Deliverable Forward Contract
Contracts normally used to hedge risk on currencies that are not traded internationally. On the settlement date, the difference between the contracted exchange rate and the spot rate would be applied as a gain or a loss.
A term referring to the price at which one will sell to another a particular foreign currency. Also referred to as the ask price.
A term used to describe an equal exchange rate of one unit of currency for another unit of another currency.
PAD – Pre-Authorized Debit
An agreement allowing another party to EFT debit your bank account for settlement of a transaction. This can be a one-time or ongoing authorization and can have limits in place as to the parameters. It provides for an easy and cost effective settlement alternative to wires, cheques or drafts.
Politically Exposed Foreign Person (PEFP)
A person who has, or is closely related to someone who has held a high ranking political position in a foreign country, its military, or with a state-owned bank or company. These could include heads of state, members of legislature, deputy ministers, ambassadors, judges, or other positions that potentially wield substantial influence. People under this classification require additional diligence on large transactions to ensure that the source of funds are not related to bribery or corruption.
The interest rate charged by commercial banks for short-term loans to the bank’s best customers. The prime rate is often affected by changes in the Central Bank’s rate.
The selling of one currency for another to cash in on gains earned on a rise in value.
A common term describing currency movements fluctuating only within a narrow band.
A foreign exchange trading term used to describe a rate of exchange or market level where political or economic factors may prohibit the currency’s value from rising above a certain level. Resistance levels may change as market conditions warrant. The opposite of a resistance level is a support level, working to keep a currency from falling below that level.
A term, rooted in the presence of uncertainty, used to describe the potential monetary loss or gain from fluctuating exchange rates.
Real Time Gross Settlement. Fedwire in the U.S. and CHAPS in the U.K. are examples of RTGS payment systems. Value is final when a RTGS payment is executed.
A term describing the process of purchasing or selling large blocks of foreign currency, often using leverage, in an effort to profit from exchange rate movements. Payline does not engage in speculative trading and only transacts in deliverable foreign exchange transactions.
A foreign exchange term referring to a transaction for immediate delivery of the funds as opposed to a future date. The delivery of a spot transaction is no more than two business days in the future. For USD-CAD transactions spot value will be considered to be the next business day.
A foreign exchange trading term used to describe a rate of exchange or market level under which political or economic factors may prohibit the dollar’s value from falling. Support levels may change as market conditions warrant. The opposite of the support level is the resistance level.
Society for a Worldwide Interbank Financial Telecommunication (www.swift.com). The financial messaging service through which international transfers are sent. Institutions on the SWIFT network will have a SWIFT code or BIC (Bank Identifier Code) made up of 8 or 11 alphanumeric characters.
In Canada, each branch of every financial institution will have a unique transit number consisting of four or five digits. These transit numbers are regulated by the Canadian Payments Association. The fifth digit is reflective of the province or territory that the branch is located in.
• 0 are located in British Columbia and Yukon
• 1 are located in Western Québec including Montreal and surrounding areas
• 2 are located in Ontario including Toronto and surrounding area
• 3 are located in Nova Scotia, Prince Edward Island and Newfoundland excluding Labrador
• 4 are located in New Brunswick
• 5 are located in Eastern Québec including Labrador
• 6 are located in Eastern Ontario including Ottawa and surrounding area
• 7 are located in Manitoba and North-Western Ontario
• 8 are located in Saskatchewan
• 9 are located in Alberta, the Northwest Territories and Nunavut
This refers to the delivery date of funds traded. On spot transactions, the value date will be within two days after a transaction is executed and, in the case of a forward contract, it will be the date or dates when the contract is to be delivered upon.
A transfer of funds electronically from one bank to another that results in expedited delivery of clear funds. Also referred to as a Telegraphic Transfer or TT, and sometimes called a SWIFTwire or a Fedwire based on the method of sending.