Glossary
Navigate the complex world of currency management with our comprehensive dictionary of financial terms and definitions.
In the terminology of Currency Management Automation, a Stop Loss order is triggered whenever an adverse movement in the exchange rate automatically triggers the execution of a forward contract aimed at protecting the exposure against further unfavourable movements. When protecting the budget, Stop Loss orders are often set by management when the firm faces a scenario of unfavourable forward points. In such a situation, delaying hedges makes sense. When the market rate reaches the ‘tolerance level’ set by the firm’s risk managers, the Stop Loss order is triggered and the hedge is executed. Because it is triggered only if a certain level of the exchange rate is met, a Stop Loss order is said to be a conditional order. In Currency Management Automation, Stop Loss orders are paired with Take Profit orders (another type of conditional order) aimed at locking-in favourable exchange rate movements. In order to avoid duplicating the volume of hedging, Stop Loss and Take Profit orders automatically cancel each other. For this reason, they are known as ‘OCOs’, or One-Cancels-the-Other.
A subsidiary is a company, corporation or limited liability company whose controlling interest is owned by another company.The company with a controlling interest (more than 50% of the subsidiary's voting stock) is known as the parent company.The subsidiary, which is recognised as a legal entity in its own right, must comply with the national laws, and any local laws if necessary, of where it is located, regardless of where the parent company is based.One of the dilemmas faced by any company going international and setting up a subsidiary in a country with a different currency to that of the parent company is currency management. The equities, assets and liabilities of the subsidiary are subject to foreign currency risk if they need to be converted into the parent company's functional currency for accounting reasons.Depending on the company’s internationalisation strategy, it may be more advantageous to finance the subsidiary directly from the parent company, or for the subsidiary to bank locally.
