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.
Related terms
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.
Read full definitionSoft Currency
A currency whose value fluctuates and is mostly lower than other currencies due to weaker demand, usually caused by economic or political uncertainty. Many developing-country currencies are soft, sometimes worsened by pegs to major currencies that leave exchange rates unfavourably high for investors.
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.
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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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