Glossary

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Appreciation

An increase in the value of a currency with a variable exchange rate.

 

Balance of payments

A statistical account of a country’s economic transactions with the rest of the world.

 

Basis point

One-hundredth of a percentage point (0.01 per cent).
NOTE: Thus, 100 basis points are equal to one per cent and 25 basis points to one-quarter of one per cent.

 

CPI (Consumer price index)

A measure of price movements, produced by Statistics Sweden and obtained by comparing the retail prices of a representative "shopping basket" of goods and services. 

Current account

Component of the balance of payments, showing transactions with the rest of the world for goods and services, wages, investment income and current transfers.

 

Deflation

A fall in the general level of prices; opposite of inflation.

 

Deposit rate

Overnight rate of interest paid by the Riksbank on money held in accounts with banks.

 

Depreciation

A fall in the value of a currency with a variable exchange rate.

 

Devaluation

Write-down of a currency’s fixed exchange rate.

 

Devaluation cycle

A process whereby persistently high inflation necessitates a series of devaluations.

 

Dirty float

A floating exchange rate that is not completely free because in practice the central bank intervenes to keep it within certain limits.

 

Discount rate

The discount rate was abandoned on 30 June 2002 and replaced by the reference rate.  From April 1992, the discount rate was used as a reference rate but had no connection to monetary policy. The discount rate reflected the general level of interest rates and was invoked, for example, in the Interest Act, which contains provisions on penalty interest.

 

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ECB

European Central Bank, established at mid 1998, the joint central bank for member states of the EMU.

 

Effective interest rate

Percentage return for a given period, calculated as compound interest.

 

EMU

European Economic and Monetary Union; the third and final stage started on 1 January 1999, when the exchange rates of currencies in the euro area were irrevocably locked and responsibility for monetary policy was transferred from the national central banks to the ECB.

 

ERM

Exchange Rate Mechanism, system for fixed exchange rate cooperation in the European Community.

 

ESCB

European System of Central Banks, composed of the ECB and the national central banks of EMU member states.

 

Euro

The single currency in the European Economic and Monetary Union (EMU).

 

Exchange rate

Price of a currency expressed in another currency.

 

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Financial account

Component of the balance of payments, showing transactions with the rest of the world for financial assets and liabilities; it includes direct investment, portfolio investment, loans and other items, including the Riksbank’s foreign reserves.

 

Finansinspektionen

The Swedish Financial Supervisory Authority.

 

Fixed exchange rate

The central bank undertakes to ensure that the value of the currency is stable in relation to some other currency or currencies.

 

Floating exchange rate

Rate determined in the market by the demand for and supply of the currency in question; also called a variable exchange rate.

 

Foreign exchange flow

Change in the foreign reserves.

 

Foreign exchange market

Market for trading in currencies.

 

Foreign exchange policy

Conducted by the central bank to influence the exchange rate.

 

Foreign reserves

Reserves of foreign currencies, used when buying and selling the national currency. Booked as an asset on the Riksbank’s balance sheet.

 

Gold standard

Fixed exchange rate system based on gold.

 

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Inflation

An increase in the general level of prices; opposite of deflation.

 

Interest

Price of money, usually expressed as a percentage.

 

Interest rate corridor

The Riksbank has three key interest rates: the deposit rate, the lending rate and the repo rate. The first two form the upper and lower ends of an interest rate corridor in which the third is situated. The repo rate is the Riksbank’s most important signalling rate and policy rate. The Bank uses it to indicate its intentions for the overnight rate one week ahead.

 

Interest rate stairs

The “interest rate stairs” (räntetrappa) was abandoned when the Riksbank’s marginal rate was replaced by the repo rate in June 1994. The interest rate stairs determined the interest rate paid by a bank when borrowing from the Riksbank. The rate rose gradually as borrowing increased. The interest rate stairs was used as a part of the Riksbank’s monetary policy. Through market operations the Riksbank controlled liquidity in the banking system so that banks were forced to borrow a certain amount. In this way the Riksbank was able to exert a strong influence on money market rates in particular. See Marginal rate.

 

Interest, long-term

Interest on loans with a maturity of more than one year.

 

Interest, short-term

Interest on loans with a maturity of up to one year.

 

Intervention

Open market purchases or sales of the national currency by the central bank with a view to influencing the exchange rate.

 

Key interest rates

Interest rates that are set by the central bank: the deposit, lending and repo rates; the most important is the repo rate.

Lending rate

Overnight rate of interest paid by banks on money borrowed from the Riksbank.

 

Long-term interest rate

Interest on loans with a maturity of more than one year.

 

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Marginal rate

The marginal rate was the Riksbank’s policy rate from December 1985 until May 1994. It was replaced in June 1994 by the repo rate, the deposit rate and the lending rate. The marginal rate was determined by the level in the interest rate stairs that the Riksbank applied on a daily basis. Thus, it was a marginal rate of interest at which banks borrowed or deposited funds at the Riksbank.

 

Mid-price

An exchange rate that is determined during foreign exchange trade (at 09.30 in Sweden). Bid and ask rates in both the spot and forward markets are determined on the basis of the mid-price.

 

Monetary policy

Conducted by the central bank to influence the level of prices via interest rates.

 

Money market

Market for trading in short-term interest-bearing securities.

 

Open market operations

Market transactions (buying or selling) in securities by the central bank.

 

Payment system

Infrastructure for making payments.

 

Penalty interest

The interest payable by a debtor who has not settled a claim within the stipulated time. Pursuant to the Interest Act, penalty interest is payable in an amount equal to the Riksbank's reference rate plus eight percentage points. Penalty interest is governed by the Interest Act, which is a discretionary Act. This means that parties can agree to disregard the Act and instead apply terms agreed upon amongst themselves.

 

Price stability

As a central bank, the Riksbank is responsible for monetary policy. The objective of monetary policy is price stability, i.e. to maintain the average rate of price increases (inflation) at a low, stable level. More specifically the aim is to keep inflation at 2 per cent, with a permitted deviation of +/- 1 percentage point.

 

Primary dealer

Counterparties of the central bank in the money, bond and currency markets.

 

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Real interest rate

Nominal interest rate less the rate of inflation.

 

Reference rate

On 1 July 2002 the reference rate replaced the discount rate, which used to be set by the Swedish National Debt Office. The reference rate is determined by the Riksbank semi-annually and is based on the repo rate that applies at the end of the past six months rounded up to the nearest whole or half percentage point.

 

Repo

A repo, or repurchase agreement, is a transaction in which the Riksbank sells securities and simultaneously agrees to repurchase them at a specified date and price.

 

Repo rate

The Riksbank’s most important policy rate, which is used to influence short-term market rates. The repo rate is the rate that banks receive or pay when depositing or borrowing funds at the Riksbank for a period of seven days.

 

Revaluation

Write-up of a currency’s fixed exchange rate.

 

Reverse repo

Repurchase agreement between the Riksbank and the banks whereby the former agrees to buy and subsequently resell securities at a specified date and price.

 

Riksdag

The Swedish parliament.

 

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Settlement

Transfer of money from one bank’s account to the account of another bank.

 

Short-term interest rate

Interest on loans with a maturity of up to one year.

 

Simple interest

Rate of interest for a given period, calculated as a straight rate (in contrast to compound interest).

 

Statistics Sweden

The central government authority for official statistics.

 

STIBOR

Stockholm Interbank Offered Rate. The interest rate banks pay when borrowing from other banks at maturities other than overnight.

 

TARGET

The common payment system in the EMU, to which the national payment systems of the member states are linked.

 

Transmission mechanism

The process by which measures by the central bank act on the economy and the price level.

 

Treasury bill (T-bill)

A short-term debt instrument issued by a government in large denominations and sold at a discount. 

 

Variable exchange rate

Rate determined in the market by the demand for and supply of the currency in question; also called a floating exchange rate.

 

Volatility

Fluctuations in interest rate or exchange rates.

 

Yield curve

Curve showing the relationship between interest rates and maturities.

 

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CONTENT EXPERT
Picture on a letter General Secretariat

LAST REVIEWED
02/03/2008