C

Calendar combination A compound option strategy that consists of the

simultaneous call calendar spread and put calendar spread, in which

the strike price of the calls is higher than the strike price of the puts.

Calendar spread A combination option of two similar types of options,

either calls or puts, with the same strike price but different expiration

dates. The dissimilarity between the expiration dates allows this type

of spread to capitalize on both the impact of the time decay and the

interest rate differentials.

Calendar straddle A compound option strategy that consists of

simultaneous buying of a longer-term straddle and a near-term

straddle with a common strike price.

Call ratio backspread A compound option strategy that consists of

short calls with a lower strike price and more long calls with a higher

strike price. The profit is twofold. The maximum upside profit

potential is unlimited. The downside profit potential consists of the

total premium received. The maximum loss potential occurs when

the currency price reaches the higher strike price at expiration.

Candlestick chart A type of chart that consists of four major prices: high,

low, open, and close. The body (jittai) of the candlestick bar is

formed by the opening and closing prices. To indicate that the

opening was lower than the closing, the body of the bar is left blank.

If the currency closes below its opening, the body is filled. The rest

of the range is marked by two "shadows": the upper shadow

(uwakage) and the lower shadow (shitakage).

Capacity utilization An economic indicator that consists of total industrial

output divided by total production capability. The term refers to the

maximum level of output a plant can generate under normal

business conditions.

Cardinal square A Gann technique for forecasting future significant

chart points by counting from the all-time low price of the currency.

It consists of a square divided by a cross into four quadrants. The

all-time low price is housed in the center of the cross. All of the

following higher prices are entered in clockwise order. The numbers

positioned in the cardinal cross are the most significant chart points.

Channel line A parallel line that can be traced against the trendline,

connecting the significant peaks in an uptrend, and the significant

troughs in a downtrend.

Chaos theory A theory that holds that statistically noisy behavior may

occur randomly, even in simple environments. This seemingly

random behavior may be predicted with decreasing accuracy if the

source is known.

CHIPS (Clearing House Interbank Payments System) A computerized

system used for foreign exchange dollar settlements.

Christmas tree spread A compound option strategy that consists of

several short options at two or more strike prices.

Classes of options The types of options: calls and puts.

Combination spread (synthetic future) A compound option strategy

that consists of a long call and a short put, or a long put and a short

call, with a common expiration date.

Commodity Channel Index (CCI) An oscillator that consists of the

difference between the mean price of the currency and the average

of the mean price over a predetermined period of time. A buying

signal is generated when the price exceeds the upper (+100) line,

and a selling signal occurs when the price dips under the lower (-

100) line.

Commodity Futures Trading Commission (CFTC) An independent agency

created by Congress in 1974 with a mandate to regulate commodity

futures and options markets in the United States. The CFTC's

responsibilities are to ensure the economic utility of futures markets,

via competitiveness and efficiency; ensure the integrity of these

markets; and protect the participants against manipulation, fraud,

and abusive practices. The Commission, based in Washington, D.C.,

regulates the activities of 285 commodity brokerage firms; 48,211

salespeople; 8017 floor brokers; 1325 commodity pool operators

(CPOs); 2733 commodity trading advisers (CTAs); and 1486

introducing brokers (IBs).

Commodity Research Bureau's (CRB) Futures Index Index formed from

the equally weighted futures prices of 21 commodities. The

preponderance of food commodities makes the CRB Index less

reliable in terms of general inflation.

Common gap A price gap that occurs in relatively quiet periods or in

illiquid markets. It has limited technical significance.

Condor spread A compound option strategy that consists of either

four same-type options with a common expiration date—two long

options with consecutive strike prices, one short option with an

immediately lower strike price, and one short option with an

immediately higher strike price; or four same-type options with a

common expiration date—two short options with consecutive strike

prices, one long option with an immediately lower strike price, and

one long option with an immediately higher strike price.

Consumer Price Index (CPI) An economic indicator that gauges the

average change in retail prices for a fixed market basket of goods

and services.

Consumer sentiment A survey of households designed to gauge the

individual propensity for spending. There are two studies conducted

in this area, one survey by the University of Michigan, and the other

by the National Family Opinion for the Conference Board. The

confidence index measured by the Conference Board is sensitive to

the job market, whereas the index generated by the University of

Michigan is not.

Continuation patterns Technical signals that reinforce the current trends.

Cost of carry The interest rate parity, whereby the forward price is

determined by the cost of borrowing money in order to hold the

position.

Council of Ministers The legislative body of the European Economic

Community in charge of making the major policy decisions. It is

composed of ministers from all the 12 member nations. The

presidency rotates every six months by all the 12 members, in

alphabetical order. The meetings take place in Brussels or in the

capital of the nation holding the presidency.

Country (sovereign) risk A trading risk emerging from a

government's interference in the foreign exchange markets.

Covered interest rate arbitrage An arbitrage approach that consists of

borrowing currency A, exchanging it for currency B, investing

currency B for the duration of the loan, and, after taking off the

forward cover on maturity, showing a profit on the entire set of

deals.

Covered long A compound option strategy that consists of selling a

call against a long currency position. A covered long is synonymous

with a short put.

Covered short A compound option strategy that consists of shorting a

put against a short currency position. A covered short is synonymous

with a short call.

Cox, Ross, and Rubinstein pricing model An option pricing model that

takes into consideration the early exercise provision of the American

style options. As it assumes that early exercise will occur only if the

advantage of holding the currency exceeds the time value of the

option, their binomial method evaluated the call premium by

estimating the probability of early exercise for each successive day.

The theoretical premium is compared to the holding cost of the cash

hedge position, until the option's time value is worth less than the

forward points of the currency hedge and the option should be

exercised.

Credit risk The possibility that an outstanding currency position may

not be repaid as agreed, due to a voluntary or involuntary action by

a counterparty.

Cross rates Currencies traded against currencies other than the U.S.

dollar. A cross rate is a non-dollar currency.

Currency call A contract between the buyer and seller that holds that the

buyer has the right, but not the obligation, to buy a specific quantity

of a currency at a predetermined price and within a predetermined

period of time, regardless of the market price of the currency. The

writer assumes the obligation of delivering the specific quantity of a

currency at a predetermined price and within a predetermined period

of time, regardless of the market price of the currency, if the buyer

wants to exercise the call option.

Currency fixings An open auction executed in Europe on a daily basis in

which all players, regardless of size, are welcome to participate with

any amount.

Currency futures A specific type of forward outright deal with

standardized expiration date and size of the amount.

Currency option A contract between a buyer and a seller, also known

as writer, that gives the buyer the right, but not the obligation, to

trade a specific quantity of a currency at a predetermined price and

within a predetermined period of time, regardless of the market price

of the currency; and gives the seller the obligation to deliver or buy

the currency under the predetermined terms, if and when the buyer

wants to exercise the option.

Currency put A contract between the buyer and the seller that holds

that the buyer has the right, but not the obligation, to sell a specific

quantity of a currency at a predetermined price and within a

predetermined period of time, regardless of the market price of the

currency. The writer assumes the obligation to buy the specific

quantity of a currency at a predetermined price and within a

predetermined period of time, regardless of the market price of the

currency, if the buyer wants to exercise the call option.

Current account balance The broadest current dollar measure of U.S.

trade, which incorporates services and unilateral transfers into the

merchandise trade data.

Calendar combination A compound option strategy that consists of the

simultaneous call calendar spread and put calendar spread, in which

the strike price of the calls is higher than the strike price of the puts.

Calendar spread A combination option of two similar types of options,

either calls or puts, with the same strike price but different expiration

dates. The dissimilarity between the expiration dates allows this type

of spread to capitalize on both the impact of the time decay and the

interest rate differentials.

Calendar straddle A compound option strategy that consists of

simultaneous buying of a longer-term straddle and a near-term

straddle with a common strike price.

Call ratio backspread A compound option strategy that consists of

short calls with a lower strike price and more long calls with a higher

strike price. The profit is twofold. The maximum upside profit

potential is unlimited. The downside profit potential consists of the

total premium received. The maximum loss potential occurs when

the currency price reaches the higher strike price at expiration.

Candlestick chart A type of chart that consists of four major prices: high,

low, open, and close. The body (jittai) of the candlestick bar is

formed by the opening and closing prices. To indicate that the

opening was lower than the closing, the body of the bar is left blank.

If the currency closes below its opening, the body is filled. The rest

of the range is marked by two "shadows": the upper shadow

(uwakage) and the lower shadow (shitakage).

Capacity utilization An economic indicator that consists of total industrial

output divided by total production capability. The term refers to the

maximum level of output a plant can generate under normal

business conditions.

Cardinal square A Gann technique for forecasting future significant

chart points by counting from the all-time low price of the currency.

It consists of a square divided by a cross into four quadrants. The

all-time low price is housed in the center of the cross. All of the

following higher prices are entered in clockwise order. The numbers

positioned in the cardinal cross are the most significant chart points.

Channel line A parallel line that can be traced against the trendline,

connecting the significant peaks in an uptrend, and the significant

troughs in a downtrend.

Chaos theory A theory that holds that statistically noisy behavior may

occur randomly, even in simple environments. This seemingly

random behavior may be predicted with decreasing accuracy if the

source is known.

CHIPS (Clearing House Interbank Payments System) A computerized

system used for foreign exchange dollar settlements.

Christmas tree spread A compound option strategy that consists of

several short options at two or more strike prices.

Classes of options The types of options: calls and puts.

Combination spread (synthetic future) A compound option strategy

that consists of a long call and a short put, or a long put and a short

call, with a common expiration date.

Commodity Channel Index (CCI) An oscillator that consists of the

difference between the mean price of the currency and the average

of the mean price over a predetermined period of time. A buying

signal is generated when the price exceeds the upper (+100) line,

and a selling signal occurs when the price dips under the lower (-

100) line.

Commodity Futures Trading Commission (CFTC) An independent agency

created by Congress in 1974 with a mandate to regulate commodity

futures and options markets in the United States. The CFTC's

responsibilities are to ensure the economic utility of futures markets,

via competitiveness and efficiency; ensure the integrity of these

markets; and protect the participants against manipulation, fraud,

and abusive practices. The Commission, based in Washington, D.C.,

regulates the activities of 285 commodity brokerage firms; 48,211

salespeople; 8017 floor brokers; 1325 commodity pool operators

(CPOs); 2733 commodity trading advisers (CTAs); and 1486

introducing brokers (IBs).

Commodity Research Bureau's (CRB) Futures Index Index formed from

the equally weighted futures prices of 21 commodities. The

preponderance of food commodities makes the CRB Index less

reliable in terms of general inflation.

Common gap A price gap that occurs in relatively quiet periods or in

illiquid markets. It has limited technical significance.

Condor spread A compound option strategy that consists of either

four same-type options with a common expiration date—two long

options with consecutive strike prices, one short option with an

immediately lower strike price, and one short option with an

immediately higher strike price; or four same-type options with a

common expiration date—two short options with consecutive strike

prices, one long option with an immediately lower strike price, and

one long option with an immediately higher strike price.

Consumer Price Index (CPI) An economic indicator that gauges the

average change in retail prices for a fixed market basket of goods

and services.

Consumer sentiment A survey of households designed to gauge the

individual propensity for spending. There are two studies conducted

in this area, one survey by the University of Michigan, and the other

by the National Family Opinion for the Conference Board. The

confidence index measured by the Conference Board is sensitive to

the job market, whereas the index generated by the University of

Michigan is not.

Continuation patterns Technical signals that reinforce the current trends.

Cost of carry The interest rate parity, whereby the forward price is

determined by the cost of borrowing money in order to hold the

position.

Council of Ministers The legislative body of the European Economic

Community in charge of making the major policy decisions. It is

composed of ministers from all the 12 member nations. The

presidency rotates every six months by all the 12 members, in

alphabetical order. The meetings take place in Brussels or in the

capital of the nation holding the presidency.

Country (sovereign) risk A trading risk emerging from a

government's interference in the foreign exchange markets.

Covered interest rate arbitrage An arbitrage approach that consists of

borrowing currency A, exchanging it for currency B, investing

currency B for the duration of the loan, and, after taking off the

forward cover on maturity, showing a profit on the entire set of

deals.

Covered long A compound option strategy that consists of selling a

call against a long currency position. A covered long is synonymous

with a short put.

Covered short A compound option strategy that consists of shorting a

put against a short currency position. A covered short is synonymous

with a short call.

Cox, Ross, and Rubinstein pricing model An option pricing model that

takes into consideration the early exercise provision of the American

style options. As it assumes that early exercise will occur only if the

advantage of holding the currency exceeds the time value of the

option, their binomial method evaluated the call premium by

estimating the probability of early exercise for each successive day.

The theoretical premium is compared to the holding cost of the cash

hedge position, until the option's time value is worth less than the

forward points of the currency hedge and the option should be

exercised.

Credit risk The possibility that an outstanding currency position may

not be repaid as agreed, due to a voluntary or involuntary action by

a counterparty.

Cross rates Currencies traded against currencies other than the U.S.

dollar. A cross rate is a non-dollar currency.

Currency call A contract between the buyer and seller that holds that the

buyer has the right, but not the obligation, to buy a specific quantity

of a currency at a predetermined price and within a predetermined

period of time, regardless of the market price of the currency. The

writer assumes the obligation of delivering the specific quantity of a

currency at a predetermined price and within a predetermined period

of time, regardless of the market price of the currency, if the buyer

wants to exercise the call option.

Currency fixings An open auction executed in Europe on a daily basis in

which all players, regardless of size, are welcome to participate with

any amount.

Currency futures A specific type of forward outright deal with

standardized expiration date and size of the amount.

Currency option A contract between a buyer and a seller, also known

as writer, that gives the buyer the right, but not the obligation, to

trade a specific quantity of a currency at a predetermined price and

within a predetermined period of time, regardless of the market price

of the currency; and gives the seller the obligation to deliver or buy

the currency under the predetermined terms, if and when the buyer

wants to exercise the option.

Currency put A contract between the buyer and the seller that holds

that the buyer has the right, but not the obligation, to sell a specific

quantity of a currency at a predetermined price and within a

predetermined period of time, regardless of the market price of the

currency. The writer assumes the obligation to buy the specific

quantity of a currency at a predetermined price and within a

predetermined period of time, regardless of the market price of the

currency, if the buyer wants to exercise the call option.

Current account balance The broadest current dollar measure of U.S.

trade, which incorporates services and unilateral transfers into the

merchandise trade data.