**The Price and Base Currencies:** The **base currency** is the denominator of the exchange rate and it is **priced** in terms of the numerator.

**Bid/Asked Rules:** Currencies are quoted with a **bid/offered** or **bid/asked price**. By convention, the smaller number is written first and the larger number is second. However, both the bid and the asked can be interpreted as the sale of one currency versus the purchase of the other currency. The difference is the dealer’s profit margin to buy or sell the currencies. The customer pays the bid/ask spread, paying more and/or receiving less in the transaction.

**Spot Versus Forward: Spot exchange transactions** are for immediate settlement and a **forward transaction** is a price agreed to on a transaction date for delayed (longer than spot) settlement. The forward quote can be given directly or in forward points (an adjustment from the spot quote).

**Offsetting Transactions and Mark to Market:** While forward contracts do not require market to market cash flow exchanges prior to settlement, it is often desirable or required for regulatory purposes to mark the position to market value. The mark-to-market value is the present value of any gain or loss that would be realized if the contract were closed early with an offsetting contract position.

**An FX Swap:** The FX swap is not a currency swap or even a swap as that term is otherwise used. The FX swap rolls over a maturing forward contract using a spot transaction into a new forward contract. An existing forward is “swapped” for another forward transaction.

**Option Basics:** A call option is a right to buy the underlying and gains value as the underlying rises above the strike price; its delta approaches 1.00 (a 100-delta). The call loses value as the underlying falls below the strike price and its delta approaches 0.00 (a 0-delta).

A put is the right to sell the underlying and gains value as the underlying falls below the strike price; its delta approaches –1.00 (this can also be referred to as a 100-delta, the negative sign is assumed and not written). The put loses value as the underlying rises above the strike price and the delta approaches 0.00 (a 0-delta).

For a call and a put with identical parameters (time to expiration, strike price, and price of the underlying), the sum of the absolute deltas is 1.00 or 100-delta.

**Currency Option Basics:** Currency options require two currencies and a call on one currency is a put on the other currency. Unless otherwise specified, the option is from the base currency perspective.