Exchange-rate terms in plain English: a 40-word glossary

Currency talk comes with a lot of shorthand. Most of it describes simple ideas, and once you’ve met a term properly, you tend to spot it everywhere: on a transfer quote, a card statement, a bank’s fee page, a news item about a central bank.

Here’s a quick way to use this page. Look the word up. Read the two or three sentences. If it points to a related term, jump to that one next. And if you only need a handful, the ones most likely to affect what you pay are ask, bid, spread, mid-market rate, markup, DCC and OUR/SHA/BEN.

Where a term needs numbers, the numbers below are made up for illustration. For live rates on a pair, try EUR to USD or the rate grid. Rates refreshed hourly.

The terms, A to Z

Appreciation

When a currency becomes worth more against another one because of market forces, it has appreciated. If a pound buys 1.25 dollars one month and 1.30 the next, the pound has appreciated against the dollar. The opposite is depreciation.

Ask

Ask: the price at which a dealer will sell you the base currency of a pair. It’s the higher of the two prices you see on a quote, and it’s what you effectively pay when you buy. Also called the offer.

Base currency

In a pair such as EUR/USD, the first currency is the base. The quote tells you how much of the second currency one unit of the base is worth. If EUR/USD is 1.10, one euro costs 1.10 dollars.

BIC

A Business Identifier Code is an international code, defined by the ISO 9362 standard, that identifies a bank or other institution. It is eight characters long, or eleven when a branch identifier is added. People often call it a SWIFT code, because Swift issues them.

Bid

Bid: the price at which a dealer will buy the base currency from you. It is the lower of the two prices on a quote. Sell to a dealer and you get the bid; buy from one and you pay the ask.

Capital controls

Rules that limit how money moves across a border as an investment or a loan, such as caps on buying foreign assets or on taking profits out. The IMF talks about “capital flow management measures” and says its framework allows them only in a limited way. Capital controls and exchange controls overlap, and people often use the words interchangeably.

Central bank intervention

This is when a central bank buys or sells its own or foreign currency in the market to push the exchange rate in a direction, or to calm a sharp move. It can also be a warning in words rather than action. Intervention can slow a move without necessarily reversing it.

Convertibility

Convertible means you can exchange it for others without needing official permission. Many are fully convertible. Others are only partly so, for example allowing trade payments while restricting other uses, which is where exchange controls and parallel markets come in.

Correspondent bank

A correspondent bank holds accounts for, and provides payment services to, another bank, usually in a different country. That lets a bank send money to places where it has no branch. A correspondent that sits in the middle of your payment may also act as an intermediary bank.

Cross rate

A cross rate is an exchange rate between two currencies worked out through a third, usually the US dollar. Say EUR/USD is 1.10 and USD/JPY is 150 (illustrative). Multiply them and EUR/JPY comes out at 1.10 × 150 = 165. Real quotes add a bid and ask on top.

DCC

Dynamic currency conversion, or DCC, is the offer at a card terminal or ATM to pay in your home currency instead of the local one. The conversion is done by the company providing the DCC service rather than by your own bank, and part of the revenue is often shared with the merchant. The Conversation cites an unnamed study putting the average DCC charge at 7.6%, so treat that as a rough indication, since it varies by merchant. Card foreign-transaction fees are usually far lower, often up to about 3%, and many cards charge none. If given the choice, choose the local currency.

Depreciation

Depreciation is the market-driven fall in a currency’s value against another. Nobody announced it; supply and demand did it. Compare devaluation, which is a decision.

Devaluation

Devaluation is an official, deliberate cut in the value of a currency that is pegged or otherwise managed. A government or central bank resets the peg lower. The result for you looks like depreciation, but the cause is a policy decision.

Exchange control

Exchange controls are government rules on buying, selling, holding or moving foreign currency. They can mean limits on how much you can send abroad, requirements to use approved dealers, or paperwork for large transfers. They differ widely by country and change, so check local rules.

Float

A floating currency has its value set mostly by the market, without a fixed target. Central banks may still step in occasionally. Floating is the alternative to a peg, and plenty of currencies sit somewhere between the two.

Forward rate

A forward rate is agreed today for a swap of currencies on a set future date. They are not a forecast of where the spot rate will go. They are mainly shaped by the gap between interest rates in the two currencies.

FX swap

FX swaps are two linked trades done at once: you buy a currency on one date and sell the same amount back on a later date, at rates agreed upfront. Banks use them to borrow one currency against another and to roll positions forward. It’s a different instrument from a bank’s “swap fee” or other uses of the word.

Hedging

Hedging means taking a step that reduces your exposure to a currency moving against you, such as agreeing a forward rate for a payment due in three months. It doesn’t make money; it makes an outcome more predictable. It usually costs something.

IBAN

International Bank Account Numbers follow a standard format for identifying an account, used to automate cross-border payments. Each country has its own national format, set under the ISO 13616 standard. An IBAN identifies the account; a BIC identifies the bank.

Interbank rate

This is the rate at which large banks trade currencies with one another. It sits close to the mid-market rate and isn’t available at the counter. By the time it reaches you, a margin has usually been added.

Intermediary bank

An intermediary bank sits between the sender’s bank and the recipient’s bank in a payment chain. It may deduct a fee from the amount passing through, which is why a recipient can get slightly less than you sent. Whether that happens depends on the route and on the OUR/SHA/BEN choice.

Limit order

A limit order tells a dealer or platform to exchange currency only at your chosen rate or better. If the market never reaches it, nothing happens. Useful when you’re willing to wait for a particular rate, and not useful when you must pay by a deadline.

Margin

Margin is the profit a provider builds into the exchange rate it quotes you, often expressed as a percentage. The word is used loosely, and sometimes means the same as markup. Ask providers what they mean.

Markup

Markup is the amount added to the wholesale rate before it’s offered to you. A worked example, with made-up numbers: the mid-market rate is 1.1000 dollars per euro and a provider offers 1.0780. That is 2.0% worse, because (1.1000 − 1.0780) ÷ 1.1000 = 0.02. On €1,000 you’d get $1,078 instead of $1,100, a gap of $22 with no fee shown anywhere.

Mid-market rate

Mid-market means the midpoint between the bid and ask in the wholesale market. It’s the fairest reference point for comparing what you were offered, though you usually can’t trade at it. Our own US dollar page lists mid-market rates against other currencies.

Nostro/vostro

Two names, one account, seen from opposite sides. A bank’s nostro account (“ours”) is the account it holds at another bank, often in a foreign currency. The bank holding that account calls it a vostro account (“yours”). They’re how banks settle payments across borders.

OUR/SHA/BEN

Three options decide who pays the fees on an international bank transfer. With OUR, the sender covers all the fees so the recipient gets the full amount. With SHA, the fees are shared and some may be taken out before the money arrives. With BEN, the recipient pays and may receive less.

Parallel market

A parallel market is unofficial places where a currency trades at a rate different from the official one. They tend to appear when official access to foreign currency is limited. Trading there can be illegal in some countries, so know the local rules.

Peg

A peg ties a currency’s value to another currency, or to a basket, at a fixed rate or within a narrow band. The central bank defends it by buying or selling currency. It can hold for decades, and it can also break.

Pip

A pip is the smallest standard step in a quote. For most pairs it is the fourth decimal place, 0.0001. For pairs involving the Japanese yen, it’s usually the second, 0.01. Say EUR/USD has a bid of 1.0848 and an ask of 1.0852 (illustrative): the gap between them is 4 pips, and the midpoint is 1.0850.

Quote currency

Quote currency means the second one in a pair, the one the price is expressed in. In GBP/USD at 1.30, the dollar is the quote currency and the figure says how many dollars one pound costs.

Remittance

A remittance is money sent across a border, typically by a person working abroad to family at home. The word covers anything from a small monthly transfer to a one-off payment. Receipts and fees for remittances are regulated in some countries.

Reserve currency

A reserve currency is one that central banks and institutions hold in quantity and that is widely used in trade and finance. The US dollar is the best-known example. Holding it makes international payments easier but doesn’t protect anyone from its movements.

Settlement

Settlement is the point at which a currency trade is completed and the two sides have actually delivered what they owed. A trade can be agreed in seconds and settled later. Between banks, that gap carries a risk that one side doesn’t deliver.

Spot rate

Spot is the price for exchanging currency now, or with settlement a short time later. The delay is commonly a couple of business days between banks, though conventions differ by pair. Spot is what most people mean by “today’s rate”.

Spread

Spread means the gap between the bid and the ask. A narrow spread means a cheaper trade. In the pip example above, the spread was 4 pips. Many consumer quotes show a single rate with the spread hidden inside it.

Stop order

A stop order turns into a trade when the rate reaches a trigger level you set, usually to limit a loss or to buy in if the rate rises past a point. Once triggered, it can fill at a worse rate than the trigger if the market is moving fast.

SWIFT

Swift is a secure messaging network that banks use to send payment instructions to each other. It carries the instructions rather than holding your money; the money moves through the banks’ accounts with each other. People often say “SWIFT transfer” for any bank wire sent this way.

Value date

Value date: the day a payment is treated as made, when the funds are exchanged and become available. It can differ from the day you press send. Weekends and bank holidays in either country push it later.

Volatility

Volatility is how much and how quickly a rate moves up and down. High volatility means bigger swings, in either direction, and says nothing by itself about where the rate is heading.

Sources

Checked: November 2026