Risk Management Manual of Examination Policies - FDIC

INTERNATIONAL BANKING Section 11.1
profits or losses generated by the foreign exchange trader
cannot be determined if swap profits or costs are charged
to the exchange function rather than being allocated to the
department whose loans or investments the swap actually
funded.
Swap and Deposit – A combination of swap transactions
that enables the borrower to have use of both currencies for
the duration of the transaction.
Swap Position – A situation where the scheduled inflows
of a given currency are equal to the scheduled outflows,
but the maturities of those flows are purposely mismatched.
The expectation in a swap position is that the swap rate
will change and that the gap can be closed at a profit.
Swap Rate – The difference between the spot exchange
rate of a given currency and its forward exchange rate.
Swap Swap – A swap transaction involving one forward
maturity date against another forward maturity date.
Swaption – An option on a swap. It gives the buyer the
right, but not the obligation, to enter into an interest-rate
swap at a future time period.
Tariff – A duty or tax on imports of goods or services that
can be either a percentage of cost or a specific amount per
unit of import.
Telegraphic Transfer (TT) Rate – The basic rate at
which banks buy and sell foreign exchange. Buying rates
for mail transfers, foreign currency drafts, traveler’s
checks, and similar instruments are all based on the TT
rate. The TT rate may be slightly less favorable that other
rates because of the time required for collection. Foreign
currency time (usance) drafts are also bought at the TT
rate, but interest to maturity is deducted for the time which
must elapse until maturity.
Telex – Direct communication between two banks or
companies and organizations via satellite or underwater
cable.
Tenor – Designation of payment of a draft as being due at
sight, a given number of days after sight, or a given number
of days after the date of the draft.
Terms of Trade – Relative price levels of goods exported
and imported by a country.
Test Key – A code used in transferring funds by cable or
telephone so that the recipient may authenticate the
message. A test key generally consists of a series of
numbers, including a fixed number for each correspondent
bank; a number for the type of currency, a number for the
total amount; and, possibly, numbers for the day of the
month and day of the week. A single number code
indicates whether the total amount is in thousands,
hundreds, tens, or digits. To arrive at a test number, the
indicated numbers are totaled, and the total amount usually
precedes the text of the message.
Third Country Bills – Banker’s acceptances issued by
banks in one country that finance the transport or storage
of goods traded between two other countries.
Tied Loan – A loan made by a governmental agency that
requires the borrower to spend the proceeds in the lender’s
country.
Time Draft – A draft drawn to mature at a fixed time after
presentation or acceptance.
Tomorrow Next – The simultaneous purchase and sale of
a currency for receipt and payment on the next and second
business day, respectively, or vice versa.
Tradable Amount – The minimum amount accepted by a
foreign exchange broker for the interbank market, for
example, 100,000 Canadian dollars or 50,000 pounds
sterling.
Trade Acceptance – A draft drawn by the seller (drawer)
on the buyer (drawee) and accepted by the buyer. Also
called a trade bill, customer acceptance, and two-name
trade paper.
Trade Accounts – Those parts of the balance of payments
that reflect money spent abroad by the citizens of a country
on goods and services and the money spent by foreigners in
the given country for goods and services.
Trader’s Ticket or Dealer’s Slip – The handwritten
record of a foreign exchange trade and/or placing and
taking of deposits that is written by the dealer who
executed the transaction.
Trading Position Worksheet – A record of incomplete
transactions in a particular currency.
Tranche – A term sometimes used when referring to the
number of drawings of funds by a borrower under a term
loan.
Transfer Risk – The risk arising when a borrower incurs a
liability in a currency that is not the currency in which
revenues are generated. The borrower may not be able to
convert its local currency to service an international loan if
foreign exchange is not generated.
DSC Risk Management Manual of Examination Policies 11.1-47 International Banking (12-04)
Federal Deposit Insurance Corporation