Risk Management Manual of Examination Policies - FDIC

INTERNATIONAL BANKING Section 11.1
Shell Branch – See offshore branch.
Shogun Bonds – Foreign bonds issued in Tokyo and
denominated in currencies other than the Japanese yen.
The usual denomination is the U.S. dollar.
Short Position – An excess of liabilities (and/or forward
sale contracts) over assets (and/or forward purchase
contracts) in the same currency. A dealer’s position when
the net of purchases and sales leaves the trader in a netsold
or oversold position.
Sight Draft – A draft payable upon presentation to the
drawee or within a brief period thereafter known as “days
of grace.”
Society for Worldwide Interbank Financial
Telecommunications (SWIFT) – A telecommunications
network established by major financial institutions to
facilitate massages among SWIFT participants. These
messages typically result in a monetary transaction
between institutions. The network is based in Brussels.
Soft Currency – A currency that is not freely convertible
into other currencies.
Soft Loans – Loans with exceptionally lenient repayment
terms, such as low interest, extended amortization, or the
right to repay in the currency of the borrower.
Sole of Exchange – A phrase appearing on a draft to
indicate that no duplicate is being presented.
Sovereign Risk –The risk that the government of a country
may interfere with the repayment of debt.
Space Arbitrage –The buying of a foreign currency in one
market and the selling of it for a profit in another market.
Special Drawing Rights (SDRs) – International paper
money created and distributed to governments by the IMF
in quantities dictated by special agreements among its
member countries. The value of SDRs is determined by
the weighted value of a “basket” of major currencies.
Specially Designated Nationals – Persons or entities
listed by OFAC. These persons or entities are typically
front organizations and are subject to OFAC prohibitions.
Spot Contract – A foreign exchange contract traded in the
interbank market in which the value date is two business
days from the trade date.
Spot Exchange (or Spot Currency) – Foreign exchange
purchased or sold for immediate delivery and paid for on
the day of the delivery. Immediate delivery is usually
considered delivery in one or two business days after the
conclusion of the transaction. Many U.S. banks consider
transactions maturing in as many as ten business days as
spot exchange. Their reasons vary but are generally to
facilitate reevaluation accounting policies and to initiate
final confirmation and settlement verification procedures
on future contracts nearing maturity.
Spot Transaction – A transaction for spot exchange or
currency.
Spread – The difference between the bid rate and the offer
rate in an exchange rate quotation or an interest quotation.
This difference is not identical with the profit margin
because traders seldom buy and sell at their bid and offer
rates at the same time.
Square Exchange Position – To make the inflows of a
given currency equal to the outflows of that currency for all
maturity dates. This produces a square exchange position
in that currency.
Sterilization – Intervention in the foreign exchange market
by a central bank in which the change in the monetary base
caused by the foreign exchange intervention is offset by
open market operations involving domestic assets.
Subsidiary – In the context of banking, an entity in which
a bank has a degree of control. Used to facilitate entry into
foreign markets in which other operations are proscribed.
Sushi Bonds – Dollar-denominated Eurobonds issued by
Japanese companies and purchased primarily by Japanese
investors. These bond issues are typically managed by
Japanese banks.
Swap – The combination of a spot purchase or sale against
a forward sale or purchase of one currency in exchange for
another; merely trading one currency (lending) for another
currency (borrowing) for that period of time between
which the spot exchange is made and the forward contract
matures.
Swap Arrangement (Reciprocal) – A bilateral agreement
between the central banks enabling each party to initiate
swap transactions up to an agreed limit to gain temporary
possession of the other party’s currency.
Swap Cost or Profit – In a swap transaction, the cost of
profit related to the temporary movement of funds into
another currency and back again in a "swap" transaction.
That exchange cost or profit must then be applied to the
rate of interest earned on the loan or investment for which
the exchange was used. Furthermore, the true trading
International Banking (12-04) 11.1-46 DSC Risk Management Manual of Examination Policies
Federal Deposit Insurance Corporation