Interbank Rate
The rate at which banks transact foreign currency with other banks. Interbank rates are typically better than those offered to retail customers and are used as the basis for setting them; like all FX rates, they fluctuate constantly.
Related terms
Mid-Market Rate
The mid-point between the bid and offer rates; customers buy currency at the offer rate and sell at the bid rate.
Read full definitionDealer
A financial institution, typically a bank, that trades foreign currencies on its own behalf in volumes large enough to help maintain market liquidity and regulate bid and ask quotes.
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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