Commonly Used Currency Transfer Terminology
Initiating an international money transfer might appear complex, particularly when navigating unfamiliar terms in another country. Should you encounter an unclear word, consult this resource for clarification. By learning the specific jargon, you'll enhance your overall grasp of the money transfer process.
Navigating International Money Transfer Terms
All
A
Anti-Money Laundering (AML)
Anti-Money Laundering (AML) encompasses laws and procedures intended to prevent criminals from passing off illegally obtained money as legitimate. These regulations are essential in the financial sector, especially in international money transfers, to maintain the integrity of financial systems. Key aspects of AML include verifying the identity of clients, monitoring transactions for suspicious activities, and mandatory reporting of these activities to regulatory authorities. These measures help deter financial crimes globally.
A
Ask Rate or Ask Price
The exchange rate at which a foreign exchange provider will sell a currency to you. Also known as the offer rate. For a customer, a lower ask rate is preferable since it means you will pay less to purchase a currency.
A
Appreciation
An increase in the value of a currency.
A
Agent
An intermediary or person hired to carry out a transaction on behalf of another person or entity.
A
ACH Transfer or ACH Payment
A direct deposit or direct debit transfer processed within the United Sates via the ACH network. May take up to three working days to clear, depending on the banks’ operating schedules. Multiple payments can be processed in batches. Similar to BACS in the UK and EFT in Canada. Also known as an ACH direct deposit, ACH direct payment, or ACH direct debit.
A
ACH – Automated Clearing House
An electronic banking network used for direct deposit and direct debit transfers in the United States.
A
ABA Routing Number
A unique nine-digit identification number assigned to financial institutions within the United States by the ABA. The first four digits are the federal reserve routing symbol, the next four are the ABA institution identifier, and the last is a check digit. Also commonly referred to as an ABA number, (ABA) Routing Transit Number, Routing Number, Bank Transit Number, or Transit Number.
A
ABA – American Bankers Association
A network of bankers and financial institutions responsible for creating and maintaining standardized best practices within the United States’ banking system.
B
Buyer
The party that is buying a currency pair in a foreign exchange transaction.
B
Buy Rate
The exchange rate at which a foreign exchange provider will buy a currency from you. Also known as the bid rate. For a customer, a higher bid rate is preferable since it means you will receive more for the currency you are selling.
B
Branch Identifier
The component of a BBAN and IBAN that indicates a specific branch of a financial institution.
B
BPay
An Australian bill payment system where a customer may pay a business or other organization who is registered with the BPay system. The customer initiates a direct credit transfer via his bank, which must include the recipient company’s biller code and reference number. BPay transfers are processed same day if submitted by the cut-off time. Otherwise, they are typically processed next business day.
B
Bill Pay or Bill Payer
An American service where a bank account holder can set up a recipient in their online banking system in order to send them direct deposits.
B
BIC – Business or Bank Identifier Code or BIC/SWIFT Code
A globally recognized eight to eleven-character identifier used to represent a financial institution for interbank transfers. A BIC contains an eight-character business party identifier (i.e. the bank) and may be followed by an optional three-character branch identifier. The business party identifier consists of a four-character bank code, a two-letter country code, and a two-character location code. A list of these operational standard identifiers is maintained by SWIFT. Also known as a SWIFT code. See IBAN Calculator for more details.
B
Bid/Ask Spread
The difference between the bid rate and the ask rate. Often referred to as simply the spread.
B
Bid Rate
The exchange rate at which a foreign exchange provider will buy a currency from you. Also known as the buy rate. For a customer, a higher bid rate is preferable since it means you will receive more for the currency you are selling.
B
Big Figure
Refers to the first number to the left of the decimal point in an exchange rate quote, which changes so infrequently that FX providers often omit them in quotes. XE.com always includes the entire number in an exchange rate for clarity and transparency.
B
BBAN – Basic Bank Account Number
A globally recognized unique bank account number that includes details about the financial institution and possibly also a branch location and check digits. Each country is responsible for its respective BBAN structure. Not all countries have adopted the BBAN.
B
Beneficiary
The party receiving a money transfer. Also known as the recipient.
B
Bank Routing Number or Bank Transit Number
A unique nine-digit number used in Canada and the United States to identify financial institutions. Canadian transit numbers start with a leading zero, followed by a three-digit institution code and a five-digit branch code. See ABA Routing Number for the American routing number structure.
B
Bank Identifier
The component of a BBAN and IBAN that indicates the bank. A bank identifier can be alpha or numeric digits, or a combination of the two.
B
Bank Charge or Bank Fee
A fee charged by a bank in order to hold an account or to process a payment. These include but are not limited to: transfer fees, wires fees, and foreign exchange commissions. Also known as service fees.
B
Bank Account
An account held at a bank that a customer may use to manage their money. The account can be used to hold customer deposits as well as allow them to make payments. Other forms of accounts are held with non-bank financial institutions, such as credit unions.
B
Basis Point (bp)
One hundredth of a percentage point, 1bp = 0.01%% = 0.0001. A basis point is a common unit of measurement in FX rates and interest rates. Often referred to simply a point.
B
Base Currency
The first currency in a currency pair. The value of the base currency is set at 1 in a quote and the price at which the two currencies can be exchanged is reflected in the quote currency. For example, if the EUR/USD rate is 1.10 then 1 euro costs 1.10 U.S. dollars.
B
BACS – Bankers’ Automated Clearing Services
A direct credit and direct debit clearing service offered within the UK where transfers take three working days to clear. BACS payments are either free or substantially cheaper than CHAPS payments but are losing popularity to FPS. BACS is similar to ACH in the United States and EFT in Canada.
C
Currency Risk
Risk associated with fluctuations, particularly a depreciation, in the value of a currency.
C
Currency Pair
Currencies are quoted in pairs, such as EUR/USD or USD/JPY. The first currency is known as the base currency, while the second is called the counter or quote currency. The base currency is the ‘basis’ for the buy or the sell.
C
Cross Rate
An exchange rate between two currencies that is calculated based on a third currency. Often refers to an exchange rate that does not include a country’s domestic currency.
C
Cross Border Transfer
An EFT that sends funds from an account in one country to another. Also known as international transfer.
C
Credit Transfer
A money transfer initiated by a bank account holder to be sent directly to a recipient’s account.
C
Credit Card
A method of payment where a cardholder pays for goods and services by borrowing from the card issuer, with the promise of paying the card issuer for all funds owed by a certain date.
C
Counter Currency
The second currency in a currency pair, it is the price for purchasing one unit of the base currency. Also known as the quote currency.
C
Confirmation
A written (electronic) document verifying the completion of a transaction. It includes details like dates, commissions and/or fees, settlement terms and the exchange rate.
C
Commission
A fee or service charge imposed by a financial institution or FX provider for carrying out instructions from a customer, which may also involve advice given by the financial institution or FX provider. Commissions may be a flat rate charge or a percentage value of the contract in question.
C
Cheque or Check
A document that tells a financial institution to pay a recipient a specified amount from a particular account. The party writing the cheque must hold an account at the financial institution from which they are requesting the payment and must sign the cheque to make it valid.
C
Check Digit or Check Sum
A check digit is a number added into a bank account number for error detection via a mathematical calculation. It helps validate the information and to protect against errors in the account number such as transpositions and missing digits. Check digits are the responsibility of the bank servicing the account. A check digit does not verify the account number is correct, it only checks whether it is possible for the account number to exist for a particular financial institution.
C
CHAPS – Clearing House Automated Payment System
A UK service that provides same day electronic sterling transfers. CHAPS payments are expensive so are typically used for high value payments where the funds must be cleared right away, such as the purchase of a new car or home. If funds are not required immediately, more cost effective options are BACS or FPS payments.
C
Central Bank
A national bank or banking organization, usually independent of government, that provides banking and other financial services to its country or member states. The central bank helps implement the government’s monetary policy, which includes setting interest rates and issuing currency.
D
Draft
Similar to a cheque but funds are pre-cleared and the account holder does not have to sign a draft.
D
Direct Credit or Direct Deposit
An EFT initiated by the bank account holder to be sent directly to a recipient account. Also known as a credit transfer.
D
Direct Debit
An EFT that is initiated by the recipient of the payment. The recipient sends the instructions to the account from which the payment is withdrawn. Pre-authorized instructions must be provided on the account prior to the sender’s financial institution’s processing the transfer.
D
Destination Country
The country in which the bank account to which an EFT is sent is held.
D
Depreciation
A decrease in the value of a currency.
D
Deposit
To put money into a bank account. The term also refers to a percentage of a contract that must be provided as collateral on some contracts, such as a forward contract.
D
Delivery
The exchange of both traded currencies by the buyer and seller. In the case of a customer booking a transaction through an FX provider, it means the customer has paid the provider and the provider has paid the recipient.
D
Debit Transfer
A money transfer initiated by a recipient’s financial institution. The recipient’s bank instructs the payer’s bank to send funds to the recipient’s account from the payer’s account. These instructions are pre-approved by the payer. Methods of debit transfers include cheques, drafts or electronic direct debit.
D
Debit Card
A card that debits the amount owing directly from a bank account. It be used to withdraw cash or to process an EFT via online banking.
E
Exchange Rate
Indicates how much of the quote currency it would cost to purchase one unit of the base currency. Often called a foreign exchange rate, FX rate or rate.
E
Eurozone
The EU countries that have adopted the Euro as their official currency. Currently consists of 19/28 EU member states.
E
EU – European Union
A political and economic union of 28 countries in Europe. The EU’s ongoing goal is to develop a single market that standardizes rules around settlement, employment and trade and ensures free movement of people, capital, goods and services within the region. Only some of its member states use the euro as their currency.
E
EFTA – European Free Trade Association
Intergovernmental organization that promotes free trade and economic integration for its 4 member states: Iceland, Liechtenstein, Norway, and Switzerland.
E
EFT – Electronic Funds Transfer
A term used to describe any form of money transfer that involves electronic processing; no physical cheques, drafts, money orders or cash are involved. These can include direct debit, direct deposit, credit and debit transfers, as well as wires. EFT is also a term used in Canada to refer to ACH or BACS.
F
FPS – Faster Payments Service
A payment clearing service for direct credit and direct debit sterling transfers within the UK. The recipient can typically access the funds on the same day the transfer is initiated. These transfers cost about the same as BACS payments. FPS requires both the sending and receiving banks to be members of the FPS network in order to send a payment.
F
Forward Points
Refers to the points that are added to or subtracted from the current exchange rate to obtain the forward price or rate. Forward points are based on an industry standard formula that takes into account the difference in the interest rates between the two currencies between the time of committing to the contract and its maturity date.
F
Forward Contract
A contract for which the buyer and seller agree to an exchange rate today but the settlement date is more than two business days in the future. If the price of the currency pair changes between when the contract is formalized and when it settles, the parties are still committed to the rate specified in the contract.
F
Foreign Exchange (FX) Provider
A company that offers currency exchange and international payments. Although it can be a bank, the term typically refers to non-bank financial institutions. The majority of FX providers also focus on currency conversion with the intention of delivering a payment to a recipient, as opposed to speculative trading.
F
Foreign Exchange (FX) Rate
Indicates how much of the quote currency it would cost to purchase one unit of the base currency. Also referred to more simply as the exchange rate or rate.
F
Foreign Exchange (FX or Forex)
The trading of one currency for another.
F
Fee
A charge imposed by a financial institution or FX provider for foreign exchange or a money transfer. Also known as a bank fee or charge, service fee and transfer fee.
H
Hedge
A hedge is an investment that is used to offset potential gains or losses associated with the risk of another investment. Companies often used a forward contract to hedge against currency rate fluctuations in the future.
I
Inverse Rate or Inverse Exchange Rate
A quote for which the base currency and counter currency are switched. An inverse rate is calculated by dividing one by the exchange rate.
I
ISO – International Organization for Standardization
An independent, non-governmental organization that works in conjunction with SWIFT to ensure IBANs are standardized.
I
Intra Bank Transfer
The transfer of funds from one account to another within the same bank. Also known as a same bank transfer.
I
International Transfer
An EFT that transfers funds from one country to another. Also known as a cross border transfer.
I
Interbank Transfer
The transfer of funds from an account at one bank to another at a different bank.
I
Interac e-Transfer
Canadian banking service that allows anyone with an account at a participating financial institution to send a direct credit transfer to a recipient securely via their email address. The recipient receives an email notification for the pending transfer that directs the recipient to deposit the funds directly into their account via their respective online banking.
I
IBAN Registry (also known a s SWIFT IBAN Registry)
The SWIFT IBAN Registry is considered the official registry for ISO-compliant IBANs.
I
IBAN – International Bank Account Number
An account number that contains unique bank account information in a standardized format to improve validation when making an international money transfer. It consists of a two-letter country code, two check digits and a BBAN. An IBAN can contain up to thirty-four alphanumeric characters depending on the country’s agreed upon structure. See IBAN Calculator for more details.
L
Limit Order
A transaction where the customer sets the price and the order is open until the market reaches that price. At that point, the order is filled as a spot transaction.
M
MSB – Money Services Business
A non-bank company or financial institution that processes money transfers. MSB’s may not hold deposits but are subject to many of the same regulations as banks.
M
Money Transfer
A payment that does not involve cash. Methods include: wire, EFT, draft, and cheque, money order.
M
Money Order
A certificate that acts like a cheque, which a recipient can exchange for a specified amount of cash on-demand in return. Money orders are often used by individuals who do not own a chequing account.
M
Mid-Market Rate
The mid-point between the buy rate and the sell rate from the global currency markets.
M
Maturity (Date)
The date on which a contract is due to be settled. See also settlement date.
M
Mass Payments
The ability to send payments to many recipients all at once.
M
Mark Up
Additional increase on the price or exchange rate of a currency. This is how banks and FX providers typically make a profit when dealing in foreign exchange.
M
Margin Deposit
A deposit required on forward contracts as collateral to cover the risk associated with potential exchange rate movements.
M
Margin Call
A call by an FX provider to raise the margin deposit requirement of an account. The call is typically made after a currency has significantly depreciated in value.
M
Margin
A deposit required on forward contracts as collateral to cover the risk associated with potential exchange rate movements. Also used to refer to the mark up on a transaction.
O
Offer Rate
The rate at which a foreign exchange provider will sell currency to you. Also known as the ask rate. For a customer, a lower ask rate is preferable since it means you will pay less to purchase a currency.
P
Point
A common unit of measurement in FX rates and interest rates, a point is one hundredth of a percentage point, 1bp = 0.01%% = 0.0001. Technically called a basis point but typically referred to simply as a point.
P
Pip – Point in Percentage or Percentage in Point or Price Interest Point
A unit of change in an exchange rate. A pip is equal to a point for most of the major currency pairs since they are priced to four decimal places in the FX market. The Japanese yen is an exception since it is priced to only two decimal places.
P
PIN – Personal Identification Number
A password, often three to eight characters in length for financial systems.
P
Payer
The party issuing a money transfer.
P
Payee
The party receiving a money transfer. For money transfers and FX, typically known as the recipient or beneficiary.
Q
Quote Currency
The second currency in a currency pair, it is the price for purchasing one unit of the base currency. Also known as the counter currency.
Q
Quote
A price or exchange rate someone offers to buy or sell a currency pair.
R
RTN – Routing Transit Number
See ABA Routing Transit Number.
R
Routing Number
Number used to redirect payments within a financial institution. Also known as ABA routing number in the United States, transit number in North America, sort code in the UK and Ireland.
R
Remittance
A money transfer sent home by someone who is working abroad. The transfer typically involves exchanging funds from the foreign country in which the person is working to the domestic currency of their country of origin.
R
Reference Number
A numeric or alphanumeric unique identifier used to track a money transfer.
R
Recipient
The party receiving the money transfer. Also known as the beneficiary.
R
Rate
The price of one currency in terms of another currency. Also known as exchange rate.
S
SWIFT Code
A globally recognized eight to eleven-character identifier used to represent a financial institution for interbank transfers. A SWIFT code contains an eight-character business party identifier (i.e. the bank) and may be followed by an optional three-character branch identifier. The business party identifier consists of a four-character bank code, a two-letter country code, and a two-character location code. A list of these operational standard identifiers is maintained by SWIFT. Also known as a BIC or BIC code or BIC/SWIFT Code. See IBAN Calculator for more details.
S
SWIFT – The Society for Worldwide Interbank Financial Telecommunication
A cooperative organization that promotes standardization for financial transactions.
S
Spread
The difference between the bid rate and the ask rate of a currency pair. Also known as the bid-ask spread.
S
Spot Price or Spot Rate
The current market price for a currency pair.
S
Spot Contract or Spot Transaction
A foreign exchange contract based on the spot rate and the settlement date is within two business days.
S
Speculative Trading or Spec Trading
Entering into a foreign exchange contract with the intent of profiting off the movement of a currency value.