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FX & Commodities terms
Currencies, gold, oil, metals and the forecasts that move them.
Carry trade Borrowing in a low-interest-rate currency to invest in a higher-yielding one, profiting from the rate gap unless the exchange rate moves against it. Contango and backwardation The two shapes a futures curve can take, contango slopes upward with time to delivery, backwardation slopes downward. Crack spread The price gap between crude oil futures and refined product futures like gasoline, used to gauge refining profit margins. Forward points The difference between a currency's spot and forward exchange rate, driven by the interest rate gap between the two currencies. Futures curve The set of prices for futures contracts on the same underlying asset across different expiration dates, plotted together. Purchasing power parity (PPP) A theory that exchange rates should adjust so identical goods cost the same amount across countries once converted to a common currency. Real effective exchange rate (REER) A currency's exchange rate against a trade-weighted basket of other currencies, adjusted for relative inflation.