Plain-language glossary
Currency exchange terms explained
Use this glossary when a bank, card issuer or transfer provider uses terminology that makes a quote harder to compare.
- Reference rate
- A neutral rate used as a comparison baseline. It is informational and may not be an executable bank, card or transfer quote.
- Exchange rate
- The amount of one currency that can be expressed in units of another currency, such as 1 EUR = 1.10 USD.
- Base currency
- The first currency in a pair. In EUR/USD, EUR is the base currency.
- Quote currency
- The second currency in a pair. In EUR/USD, USD is the quote currency.
- Spread
- The gap between two rates, often between a neutral reference level and the rate offered by a provider.
- Markup
- An amount or percentage added by a provider. In currency conversion it can be embedded inside the exchange rate.
- Mid-market rate
- A commonly used label for the midpoint between market buy and sell prices. Retail providers do not necessarily transact at that midpoint.
- Fixed fee
- A set charge that does not change with the amount converted, such as a €3 transfer fee.
- Percentage fee
- A fee calculated as a percentage of the amount, such as 0.5% of the transfer value.
- Foreign transaction fee
- A card-issuer fee that can apply when a purchase is processed in a foreign currency or country, depending on the card agreement.
- Dynamic currency conversion (DCC)
- A service where a merchant or ATM offers to convert a purchase into the cardholder’s home currency before the card issuer processes it.
- Settlement
- The stage at which a transaction is finalized between the institutions involved. The settlement date can differ from the purchase or authorization date.
- Authorization
- The initial approval step for a card transaction. The final posted amount can still differ if currency conversion occurs later.
- Remittance
- A transfer of money, often across borders, to another person or household.
- Payout method
- How the recipient receives money, for example a bank deposit, mobile wallet or cash pickup.
- Liquidity
- How easily a currency can be bought or sold without causing a large price change. Lower liquidity can contribute to wider spreads.
- Historical rate
- A previously observed reference rate. Historical values provide context but do not predict future rates.
- Rate lock
- A provider promise to hold a quoted rate for a stated period or under stated conditions.
- Effective rate
- The real conversion result after accounting for the provider rate and relevant fees.
- Intermediary bank fee
- A charge that can be deducted by a bank involved in routing an international payment between sender and recipient.