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 U.S., these exchange rates will be presented in dollar terms. Thus, a unit of foreign currency will be described as how much of the unit will equal one U.S. dollar. 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 U.S. By nature, dollar terms are the reciprocal of European terms, whereby the value of the dollar is expressed in Euro-dollars or, simply Euros.

As an example of the use of dollar terms, in January of the year 2000, the dollar terms of Euros to U.S. dollars (EURUSD) was 0.9794, thus one Euro was worth just over one dollar. Obviously, the reciprocal of these dollar terms, European terms, would have been 1.0210, where one dollar was worth just under one Euro in January of 2000.

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 U.S., 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 U.S. dollar. This trend has changed somewhat with the introduction of the Euro and the shifting stability of the U.S. 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.