Risk Management Manual of Examination Policies - FDIC

INTERNATIONAL BANKING Section 11.1
countries thereby creating jobs and economic prosperity
for the citizens of all three countries.
Nostro Accounts – Demand accounts of banks with their
correspondents in foreign countries in the currency of that
country. These accounts are used to make and receive
payments in foreign currencies for a bank's customers and
to settle maturing foreign exchange contracts. Also called
due from foreign bank - demand accounts, our balances
with them, or due from balances.
Odd Dates – Deals within the market are usually for spot,
one month, two months, three months or six months
forward. Other dates are odd dates, and prices for them are
frequently adjusted with more than a mathematical
difference. Hence, most market deals are for regular dates,
although commercial deals for odd dates are common.
Offer Rate – The price at which a quoting party is
prepared to sell or lend currency. This is the same price at
which the party to whom the rate is quoted will buy or
borrow if it desires to do business with the quoting party.
The opposite transactions take place at the bid rate.
Office of Foreign Asset Control (OFAC) – An office
within the U.S. Treasury Department that administers U.S,
laws imposing economic sanctions against targeted hostile
foreign countries. While OFAC is responsible for
administration of these statutes, all of the bank regulatory
agencies cooperate in ensuring compliance.
Official Rate – The rate established by a country at which
it permits conversion of its currency into that of other
countries.
Offshore Branch – Banking organization designed to take
advantage of favorable regulatory or tax environments in
another country. Many of these operations are shell
branches with no physical presence.
Offshore Dollars – Same as Eurodollars, but
encompassing the deposits held in banks and branches
anywhere outside of the U.S., including Europe.
Open Contracts – The difference between long positions
and short positions in a foreign currency or between the
total of long and short positions in all foreign currencies.
Open spot or open forward positions that have not been
covered with offsetting transactions.
Open Market Operations – Purchases or sales of
securities or other assets by a central bank on the open
market.
Open Position Limit – A limit placed on the size of the
open position in each currency to manage off-balance sheet
items.
Opening Bank – The bank that draws up and opens the
letter of credit and that makes payment according to the
conditions stipulated.
Option Contracts – A contract giving the purchaser the
right, but not the obligation, to buy (call option) or sell (put
option) an asset at a stated price (strike or exercise price)
on a stated date (European option) or at any time before a
stated date (American option).
Organization for Economic Cooperation and
Development (OECD) – An organization of 30 countries
that fosters democracy and free market development
throughout the world. The OECD also researches issues
having international implications. The OECD publishes its
research findings and international statistics on various
countries at its website at http://www.oecd.org. The
OECD also benchmarks best practices on economic, social,
and governance issues. The OECD supports other
international groups such as the FATF that have similar
goals.
Other Transfer Risk Problems (OTRP) – A category
assigned by ICERC for countries near default or in
noncompliance with their debt requirements.
Outright – Forward exchange bought and sold
independently from a simultaneous sale or purchase spot
exchange.
Outright Forward Rate – A forward exchange rate that is
expressed in terms of the actual price of one currency
against another, rather than, as is customary, by the swap
rate. The outright forward rate can be calculated by adding
the swap premium to the spot rate or by subtracting the
swap discount from the spot rate.
Override Limit – The total amount of money measured in
terms of a bank’s domestic currency that the bank is willing
to commit to all foreign exchange net positions.
Parity – A term derived from par, meaning the equivalent
price for a certain currency or security relative to another
currency or security, or relative to another market for the
currency or security after making adjustments for exchange
rates, loss of interest, and other factors.
Parity Grid – The system of fixed bilateral par values in
the European Monetary System. The central banks of the
countries whose currencies are involved in an exchange
rate are supposed to intervene in the foreign exchange
International Banking (12-04) 11.1-44 DSC Risk Management Manual of Examination Policies
Federal Deposit Insurance Corporation