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What are Dollar Terms?

By Eric Tallberg
Updated: May 17, 2024

When you want to take a trip from one country to another or dabble in the currency exchange market, it would be a good idea to check foreign currency exchange rates. In the US, these exchange rates will be presented in dollar terms. Thus, a unit of foreign currency will be described as many US Dollars (USD) are equal to one unit of the foreign currency. The value of the dollar to units of foreign exchange, of course, varies widely and depends on the worth of the units to banks in the US. By nature, dollar terms are the reciprocal of European terms, whereby the value of the dollar is expressed in Euro-dollars or Euros.

As an example of the use of dollar terms, in April of the year 2011, the dollar terms of USD to Euros was 0.6928; thus one USD was worth just over half of one Euro. Obviously, the reciprocal of these dollar terms, European terms, would be 1.4434, where one Euro was worth nearly one and a half USD.

The exchange rate is the relative value or purchasing power that a unit of one nation's currency has as opposed to another nation’s currency at a given point in time. In the US, dollar terms are the way in which the purchasing power of a unit of foreign currency is expressed. A unit of currency, when used in terms of foreign exchange, is a commonly accepted standard for an exchange of one nation's currency for that of another nation. The specified details and conditions, also known as the terms of the exchange, are left to individual currency exchange outlets and vary widely depending on fees charged for the exchange service.

Foreign exchange rates are predicated on numerous factors including parity of purchasing power, the balance of trade and the cost of foreign investment. Supply and demand, however, drives the market for foreign currency and rate variations are quoted mostly by banks. For many years, most foreign currencies were predicated on their value against the US Dollar. This trend has changed somewhat with the introduction of the Euro and the shifting stability of the US Dollar.

Other financial dealings will occasionally be presented in dollar terms, although these are often called absolute terms with the implication being in terms of dollars. For instance, the yield of a bond may be expressed as a percentage in dollar terms.

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