Risk Management Manual of Examination Policies - FDIC

INTERNATIONAL BANKING Section 11.1
Forward Exchange Position – The long or short position
that a dealer may have in the forward market, as compared
to spot dealing.
Forward Exchange Risk – The possibility of a loss on a
covered position as a result of a change in the swap
margin.
Forward-forward Dealing – The simultaneous purchase
and sale of a currency for different forward dates.
Forward Premium – A phrase used to describe a currency
whose forward price is more expensive than its spot price.
Also referred as “at a forward premium.”
Forward Purchase – An outright purchase of a forward
contract.
Forward Rates – The rates at which foreign exchange for
future delivery are quoted, bought, and sold.
Free Alongside Ship (F.A.S.) – A term for a price
quotation under which the seller delivers merchandise free
of charge to the steamer's side and pays shipping-related
expenses up to that destination, if necessary.
Free On Board (F.O.B.) (destination) – A term for a
price quotation under which the seller undertakes at his or
her risk and expense to load the goods on a carrier at a
specified location. Expenses subsequent thereto are for
account of the buyer.
Free On Board (F.O.B.) (vessel) – A term for a price
quotation under which the seller delivers the goods at his
or her expense on board the steamer at the location named.
Subsequent risks and expenses are for account of the
buyer.
Free Port – A foreign trade zone open to all traders on
equal terms where merchandise may be stored duty-free
pending its reexport or sale within that country.
Free Trade Area – An arrangement between two or more
countries for free trade among themselves, although each
nation maintains its own independent tariffs toward
nonmember nations. It should not be confused with “free
trade zone,” which is synonymous with “foreign trade
zone.”
Free Trade Area of the Americas (FTAA) – A
movement by 34 member countries initiated in 1994 to
integrate the Western Hemisphere into a single free trade
area. The goal of the FTAA is to reduce trade and
investment barriers between member countries.
Negotiations to form the FTAA are still in process but are
supposed to be finalized by January 2005. Implementation
of the FTAA is to begin as soon possible thereafter with
the ultimate goal of achieving the FTAA by December
2005.
Future (or Forward) Exchange Contract – A contract
usually between a bank and its customer for the purchase
or sale of foreign exchange at a fixed rate with delivery at a
specified future time. A future contract is due later than a
spot contract which is settled in one to ten days depending
on the bank or market. Future exchange contracts are
generally used by the customer to avoid the risk of
fluctuations in rates of foreign exchange which he or she
may need or may be due in the future.
G-7 (Group of Seven) – A group of industrialized
countries comprising Canada, France, Germany, Great
Britain, Italy, Japan, and the U.S.
G-10 Countries – The informal term for the Group of ten
countries, which consists of Belgium, Canada, France,
Germany, Italy, Japan, Luxemburg, the Netherlands,
Sweden, the United Kingdom, and the U.S.. Switzerland
joined in 1984, but the name remains as is.
Global Bond – A temporary debt certificate issued by a
Eurobond borrower, representing the borrower’s total
indebtedness. The global bond will subsequently be
replaced by individual bearer bonds.
Global Line – A bank-established aggregate limit that sets
the maximum exposure the bank is willing to have to any
one customer on a worldwide basis.
Guidance Line – An authorization, unknown to the
customer, or a line of credit. If communicated to the
customer, the guidance line becomes an advised line of
credit commitment.
Hawalas – Informal exchangers and money transmitters
commonly used in Arab and other Islamic countries and in
India. The system relies on dealings with a trusted party
who has financial connections with another individual in
another country. Because of the discreteness and
informality of the dealings between the parties, hawalas
represent a high risk for money laundering. Furthermore,
terrorists have used these networks to transfer funds around
the world.
Heavily Indebted Poor Countries (HIPCs) – A
designation by the IMF to identify nations targeted that
need to reduce external debt to more sustainable levels. To
determine sustainability, the net value of a country’s debt
burden is divided into its export earnings. An HIPC is
DSC Risk Management Manual of Examination Policies 11.1-39 International Banking (12-04)
Federal Deposit Insurance Corporation