Appreciation
An increase in the value of one currency relative to another; if EUR/USD rises from 1.10 to 1.15, the euro has appreciated against the dollar. A unit of the strengthened currency now buys more of the other currency.
Related terms
Depreciation
A decrease in the value of a currency relative to another. If EUR/USD falls from 1.15 to 1.10, the euro has depreciated against the dollar.
Read full definitionRevaluation
An upward adjustment of a country’s currency relative to a baseline such as gold, wages or another currency. In a fixed exchange rate economy only the central bank can revalue; in a free-floating one, market forces drive it. It is the opposite of devaluation.
Read full definitionExchange Rate
The rate at which one currency can be exchanged for another, the value of one currency expressed in terms of a second. Rates fluctuate constantly in the open market and can be free-floating or fixed.
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Spot Rate
The current market exchange rate at which one currency can be bought or sold for immediate delivery. Spot trades typically settle two business days later (T+2).
Read full definitionForward Contract
An agreement to exchange a set amount of one currency for another at a fixed rate on a future date. It locks in today’s rate, protecting a business from adverse currency moves before a payment falls due.
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The simultaneous purchase and sale of the same amount of a currency for two different value dates, typically a near leg at spot and a far leg forward. It is used to roll a hedge forward or manage short-term cash-flow timing.
Read full definitionCurrency Pair
Two currencies quoted against each other, such as GBP/USD. The first is the base currency and the second the quote currency; the price shows how much of the quote currency one unit of the base is worth.
Read full definitionBid-Ask Spread
The difference between the price at which the market will buy a currency (bid) and the price at which it will sell (ask). A tighter spread means lower transaction costs.
Read full definitionPip
The smallest standard increment by which a currency pair moves, usually the fourth decimal place (0.0001). Pips are the common unit for quoting spreads and price movements.
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