Foreign Exchange and Interest Rates A - Z
Frequently asked questions about the foreign exchange and interest rate market.
Interest rates affect currency prices and vice versa. Find out more about interest rates and currency on this page.
What are interest rates and the NOK exchange rate?
What are interest rates?
"Interest rate" normally refers to the price of money. If you borrow money, such as a mortgage from the bank, the interest rate is the ongoing price you must pay for the loan, stated as a percentage.
If you have deposits (savings in the bank) it's the opposite; you receive a periodic percentage that is added to your savings amount.
Example of interest rates on a mortgage:
You borrow NOK 100 000 at a 4 per cent annual interest rate. This means that you need to pay NOK 4000 per year to borrow the money. When you borrow, the interest rate is an annual cost you have to pay.
For information on the difference between nominal and effective interest rates, please refer to the response under the question about this.
Example of interest rates on a savings account:
When you save in a bank account or invest in fixed-income securities, you are essentially lending out your money. The interest rate is the money you receive as payment for the deposit. The interest rate you can receive varies among different types of bank accounts or fixed-income securities.
What is NIBOR?
NIBOR is short for Norwegian Interbank Offered Rate.
NIBOR, in short, is the interest rate or price at which Norwegian banks are willing to lend money to each other. NIBOR is calculated and published every day at 12:00 PM by the Oslo Stock Exchange.
NIBOR is used as the reference when setting the rates of financial instruments and agreements in Norwegian kroner (NOK)
What does “Kronekurs”(NOK rate) mean?
"Kronekurs" refers to the exchange rate for Norwegian kroner (NOK).
The NOK rate indicates the price of Norwegian kroner in relation to another currency.
The rate of NOK varies against other currencies and is constantly fluctuating.
If the Norwegian kroner rate is against the US dollar, for example 8.5, this means that you must pay NOK 8.50 for USD 1. The price of a product that cost USD 10 at NOK rate 8.5 against USD will then be: 10 x 8.5 = 85 NOK.
The NOK exchange rate varies against other currencies and is fluctuating all the time.
What does it mean when the krone strengthens or weakens?
If the Norwegian Krone strengthens this means that you have to pay less for another currency than you had to when the krone was weaker. Let’s say that the price for a USD has weakened from NOK 8.5 to 8.0. If something costs 10 USD after the strengthening of the NOK, it means that you can purchase American goods more affordably measured in Norwegian kroner.*.
10*8 = NOK 80, for the same product as above.
If NOK weakens it means that the price of other currencies becomes higher. In other words, the Norwegian krone has weakened if the price for one dollar has increased from 8.5 to 10.0 kroner.
10*10 = NOK 100, for the same product as above.
When the exchange rate for the Norwegian krone strengthens, it means that we can purchase goods from abroad at a lower cost. When the exchange rate for the Norwegian krone weakens, it becomes more expensive to shop or conduct transactions in foreign countries.
Companies that want to sell their goods abroad prefer a weak krone so that their products are cheaper and thus more attractive to buyers.
Companies that need or want to purchase goods from abroad prefer a strong krone so that the goods are as inexpensive as possible for them.
*Everyone who wants to make a purchase in another country must transact in that country's currency. In other words, the demand for a country’s goods and services affects the exchange rates.
What is the key policy rate?
A key policy rate is an interest rate set by a central bank in order to impact the economy of a country. The interest rate can be reduced to stimulate growth or raised to curb growth in the country’s economy.
The aim of a central bank is to keep the national economy relatively stable. The interest rate is their “tool” to make this happen.
Read more about growth and inflation further down.
The central bank offers banking services to the banks of a country. They offer both loans and capital placements. Norges Bank is the central bank of Norway and offer services to Norwegian banks, such as DNB.
The key policy rate can be used to stimulate growth
The policy rate set by the Central Bank of Norway can e.g be used to stimulate growth in the business sector. By reducing the key policy rate, the banks can borrow cheaply from the central bank and then lend the money to private individuals and businesses. A lower interest rate makes it more attractive to invest in new projects and create jobs. It also makes it more appealing for consumers to borrow for housing or other capital goods.
The policy rate may also be used to reduce growth
The central bank can also increase the policy rate to curb consumption, investments and the borrowing of money. The reason for not wanting excessively high consumption is that it can lead to inflation, causing an increase in the prices of goods and services. Which, in turn, would drive up wages and the overall cost level in a country. If the cost level becomes too high compared to other countries, it is detrimental to the country's competitiveness. Another word for price increases is inflation. Read more about inflation on Wikipedia.
The central bank’s key policy rate affects the economy by influencing the interest rate in the money market, in Norway’s case the NIBOR. The money market interest rate affects the exchange rate and the interest rates that the banks offer their customers.
You can read more about the key policy rate on Norges Bank’s website.
What is the difference between effective and nominal rate?
Effective and nominal rate are terms used when you borrow money.
Nominal interest rate
The nominal interest rate is the percentage you have to pay for the loan before fees, and it is typically stated as an annual rate (per annum or p.a.).
Effective interest rate
The effective interest rate is what you pay in the end after all fees and other costs associated with the loan have been included. This is also stated as a percentage, normally somewhat higher than the nominal. In simple terms, the effective interest rate is = nominal interest rate plus other charges or fees, converted to percentage. The effective interest rate is the actual price of the loan.
Why is the effective interest rate higher on small loans than on large loans?
If you have used our Mortgage calculator you may have noticed that the effective interest rate increases the smaller the amount you enter. It might seem counterintuitive, but the reason is that the size of establishment and instalment fees remains the same regardless of whether you apply for a large or small loan. Therefore, the fee represents a larger percentage of a small loan than a large one. And that’s included in what we call the “effective interest rate”.
Always compare the effective interest rates of banks, not the nominal rates, when applying for loans!
What can affect the NOK exchange rate?
The exchange rate is influenced by the supply and demand for the Norwegian krone.
To invest or place money in Norway, foreign individuals and companies must exchange their currency for Norwegian kroner.
If there is a high demand for investing in Norway, leading to the need for purchasing Norwegian kroner, the exchange rate for the krone strengthens. And vice versa.
In simple terms, the krone price will rise when there are more buyers than sellers of NOK. If there are several sellers of the krone, the exchange rate will weaken compared to other currencies.
Higher interest rates in Norway compared to other countries can be a factor that makes it attractive for foreigners to invest in, for example, Norwegian bonds. Investments are then placed in Norway instead of in other countries with lower interest rates. High Norwegian interest rates may therefore contribute to strengthen the Norwegian krone.
The same effect can be observed with a high oil price because a high oil price will attract foreign investors to the Norwegian oil industry. Investments in Norway also means a need for Norwegian kroner.
On the contrary, a low oil price or lower interest rates in Norway compared to other countries will typically weaken the exchange rate of the Norwegian krone.
What do these words and acronyms mean in foreign exchange trading?
What is the quote currency?
The payment currency is the currency that is written last in the currency pair. Example: NOK is the quote currency in the currency pair EURNOK and the rate therefore states how many NOK you have to pay to receive one EUR.
What are "bids/offers" in connection with foreign exchange trading?
There are two prices to consider when trading currencies.
The Bid price: the price at which you are offered to sell, at a given time (the price others are willing to offer).
The Ask price: the price at which you are offered to buy, at a given time (the price others are willing to sell at).
What do the abbreviations FX and FOREX stand for?
FOREX and FX are abbreviations for Foreign Exchange or currency exchange. In other words, the FX market is another word for the currency market.
What does gearing, or gearing in foreign exchange transactions mean?
Gearing involves borrowing money from the bank in order to increase potential profits. By gearing a deposit in a margin account, it is possible to trade at higher amounts than the deposit itself. In other words, with a deposit of NOK 100 000 with a gearing factor of 25x, it is possible to take positions of up to NOK 2 500 000.
The reason that traders want to gear their investments is that the fluctuations in the currencies market are usually not as large as in the stock market, for example.
Gearing always carries a high risk. The higher the gearing, the greater the risk of losing all of the capital that has been deposited
What does “Closed position” mean in connection with foreign exchange trading?
An open position can be closed at any time by making the opposite trade (a counter transaction).
If you have bought EUR 100 000 and paid in NOK, you can sell EUR 100 000 and get paid in NOK to close the position.
When closing the position, the position is ended and the result of the closure is posted against the margin account. By closing a position you are no longer exposed to price fluctuations.
What is a "margin account" in connection with foreign exchange trade?
A margin account is an account opened by the bank when establishing a foreign exchange service. The deposit on this account acts as security for the customer's currency positions. Results of the customer's currency positions are settled against margin accounts every business day. Such accounts are normally pledged upon entering into a foreign currency exchange agreement.
How is a "Mid-rate” set?
The mid-rate, or midpoint rate is set as an average of the bid and ask price (purchase and sell price).
What is spot trading, or just spot?
A spot trade is a currency transaction that is traded today, with settlement two days in the future.
What is a “Take Profit” order?
A ‘Take Profit’ order can be used to lock in profits on an open position.
If you buy NOK 100,000 of EUR 1.22 and set a take profit of 1.24, the position will be closed in the market when it reaches this level, without you having to do anything. You therefore secure the profit without having to do anything active.
If you lie short (have sold NOK 100,000), you’ll earn money for the exchange rate deviation. In other words, you will lose money if the price increases. Therefore, "Take profit" is below the level you have sold on if your position is short.
What is a currency account?
A currency account is an account for regular incoming or outgoing payments in a foreign currency.
What is a currency pair?
Two currencies that are traded by buying one and selling the other create a currency pair.
For example: NOK EUR
The last currency in the currency pair, NOK here, indicates which currency it is purchased with. In other words the EURNOK price shows how many kroner you have to pay for a Euro.
What is base currency?
The base currency is the first one in a currency pair. For example, EUR is the base currency, the currency you buy (or sell), in the currency pair EURNOK.
What is "Bull/Bear" in connection with equity or currency trading?
A market that rises and is characterised by a positive outlook (positive sentiment) is referred to as a ‘bull’ market.
A market that is falling and is characterised by negative sentiment is called a ‘bear’ market.
Equally, a market participant can be described as being ‘bullish’ or ‘bearish’ about the market, a share, or a currency depending on whether he or she has a positive outlook or not.
What does “physical currency delivery” mean?
Foreign exchange trading is a form of spot trading. In other words, after you’ve completed a trade, you’ll receive the currency you’ve bought in an account, normally you’ll receive the currency after the trading day + two working days.
Physical delivery means that the currency you bought has been deposited into an account. If you need the currency to make a payment in foreign currency, you will need a “physical delivery”. As a rule, the delivery is not made physically in notes or coins, but into a currency account.
Speculators in the currencies market are not interested in a physical delivery of currency, but in exposure to the market in order to benefit from price fluctuations. Therefore, they close their positions and open them again on a daily basis to postpone the physical delivery. This process is called rolling of positions.
What does liquidity mean?
Liquidity describes how easy it is to access a currency. If there are few sellers and buyers, the market is thin, and can fluctuate more when participants trade. More trade volume means more liquidity. Said in another way: It is easier to buy or sell in a liquid market , and the difference between the bid and ask price is usually smaller.
The currencies market is normally referred to as very liquid.
What does "margin" mean in relation to foreign exchange trade?
Margin is a term used in connection with foreign exchange trade that is geared. In order to be able to issue a gearing, you must first make a deposit to a margin account which is charged when you take a gain or loss.
Margin is thus the equity (deposit) required in a margin account.
What is "Margin trading" in relation to foreign exchange trading?
Margin trading is trading on the basis of deposits on margin accounts. This means that you can take one or more currency positions partly by using equity and partly with borrowed money.
What is the “position overview”?
In a foreign exchange service, such as DNB MET, you will normally get a position overview. Here you will find details of executed trades, all open positions and continuously updated information on the margin account’s holdings.
What is a ‘Stop-loss’ order?
An «Stop Loss» order can be used to set an upper limit for how much you are willing to lose in a position when you trade in currency.
For example, if you buy NOK 100,000 of 1.22 and set a stop loss of 1.20, the position will be closed in the market at this level without you having to do anything.
If you lie short (have sold NOK 100,000), you’ll earn money for the exchange rate deviation. In other words, you will lose money if the price increases. Stop loss is therefore above the level you have sold on if your position is short.
We recommend our customers to actively use Stop-loss. The reason for this is that unforeseen movements can occur at any time of the day, and thus result in major losses if a stop loss order is not in place.
What does it mean that a gain or loss is "unrealised"?
Unrealised gain or loss is a positive or negative change in value “on paper”. Only when you close your position (i.e. sell or buy), will the profit or loss be real.
What is an exchange rate?
An exchange rate is a rate, or price, that indicates the exchange relationship between two different currencies.
For example: The price of USD against NOK = How many NOK (NOK) you have to pay to buy a dollar.
What is an "open position" when you shop for currency?
As you buy a pair of currencies, you get an open position, for example by buying EUR and selling NOK.
As long as you “stay in this position”, your Euros will keep, the value of the purchased currency will fluctuate with the rates. You will then have a loss or gain on this position on an ongoing basis because the exchange rate fluctuates.
Interest rate setting - market making FAQ
What is the definition of day-to-day money rate?
Day-to-Day money rate or the overnight rate, is a standardised and neutral interest rate fixing for the individual currency type. The rate is quoted daily at fixed times in the market for the currency in question.
If the bank uses a different source, this will represent a rate that is published, and which is generally used in the market for the currency type in question. For currencies where there is no official fixing or well-developed market for interest rates, the bank is obliged to set the rate itself.
See summary on this page, or here.
How often are day-to-day money rates changed?
Day-to-Day money rates, or overnight rates, are changed daily, provided it is a banking day for the currency in question.
What do SPREAD, BID and ASK mean in relation to interest rates?
BID is the rate the bank is willing to pay for a deposit for a given time period. ASK is the rate at which the bank is willing to lend money/make a deposit in another bank for a given time period. The difference between BID and ASK for the same time period is called the SPREAD.
What is a RIC code?
RIC is an abbreviation for “Reuters Instrumental Code”. A RIC code is a unique code that Reuters uses to identify market data. The code can be used by anyone who subscribes to news from Reuters to find the latest updated figures and historical information. For example, the RIC for 3M NIBOR is OINOK3MD=
What benefits does the customer get from the reference rate?
The reference rate is set neutrally (DNB has no effect on it). The customers may look up this interest rate daily, as well as extract lists of historical interest rates. The reference rate will be more stable over time.
What is public fixing?
Every banking day, in most countries with a well-developed interest rate market, a selected panel of banks quote interest rates for different time periods. These interest rates are called a “Day-to-day money rate” or “overnight rate”. Based on the interest rates provided by the banks, the panel calculates an interest rate for each of the different time periods, which then becomes the average interbank interest rate in the currency in question. For example, for the USD, the fixed-income interest rates are called EFFR.
Here is an overview of day-to-day money rates in different currencies/countries.
All currencies can be connected to the Day-to-Day money rate in principle, but not all are connected to a public fixing on a daily basis in the individual foreign exchange markets.
What is Thomson Reuters?
Thomson Reuters is an international news agency. Currently almost all news organisations subscribe to services that provide financial information. Reuters Kobra 3000 is used to find news updates, continuously updated interest rates and foreign exchange rates and to obtain historical information from public financial information.
What financial impact come into effect if you switched sources of overnight rates?
Changing the source and times/dates for fixing has no financial impact long term, not for the bank nor the customer.
Where is the basis for the overnight rate found?
The basis is available on public websites in the different countries, normally on the national central banks’ websites. Here are a few examples:
USD: https://www.federalreserve.gov/monetarypolicy/openmarket.htm
EUR: http://www.euribor-rates.eu/
SEK: http://www.riksbank.se/sv/Rantor-och-valutakurser/Sok-rantor-och-valutakurser/
GBP/ Sonia Interest Rate Benchmark SONIA is administered by the Bank of England and is published at 09:00 the following working day in London.
JPY Bank of Japan calculates and publishes TONAR. Click here for Bank of Japan: TONAR (English)
CHF: Swiss Average Rate Overnight (SARON) is an average of overnight rates that refer to Swiss francs CHF. Click here.
NZD: RBNZ OCR - Reserve Bank of New Zealand Official Cash Rate. RBNZ OCR - observations
Foreign exchange trading and international payments
Who do I contact to buy or sell foreign currency?
We offer the foreign exchange trading service DNB MET to companies who have a continuous need for buying and selling currency – read more about DNB MET - and order access.
What information is required to make an international payment?
International payments of amounts exceeding NOK 100 000 (in foreign currency or Norwegian kroner) must be reported to the tax authorities. In these cases, information must be given on what the amount relates to. In such cases, information must be provided on what the amount applies to.
The additional information is reported by supplementing the transaction with a payment type code. You must also include a short description of what the transfer is for. You must also enter a short text stating what the transfer concerns.
You will find a full summary of the codes on the Norwegian Tax Administration’s website
How can I make an international payment?
International payment orders can be made via the online bank dnb.no (log in can be found in the top right of this page).
Log in to the online bank in your usual way and find ‘international payments’ in the menu.
For transactions exceeding NOK 3 million, the exchange rate can be agreed for the assignment. If you wish to do so: Contact one of our currency brokers on +47 24 16 90 90.
Do I have to report currency transactions to the Norwegian Tax Administration?
As a bank, we are required to report this, so we’ll do it for you.
The Currency Register Act requires all banks and financial institutions to report all international transactions to the Norwegian Tax Administration. The reporting requirement applies to both corporate customers and retail customers. The reporting requirement applies to both corporate and personal customers.
For international transactions with a value of NOK 100,000 or more, a payment type code is required to supplement the transfer.
You will find a summary of the payment type codes on the Norwegian Tax Administration’s website.
Contact information foreign exchange and interest rates
Buying currency for personal purposes?
Are you looking for:
- International payments or
- opening a currency account?
Personal international payments
For payments in a different currency to a foreign country, log in to our online bank and select "International Payment" in the main menu.
For transactions exceeding three - 3 - million Norwegian kroner, the exchange rate can be negotiated for the assignment. If desired, contact one of our currency brokers at +47 24 16 90 90.
Contact information regional brokerage boards - currency
Location Phone
Oslo: +47 24 16 90 80
Bergen: +47 56 13 27 20
Bodø: +47 75 52 99 06
Innlandet: +47 62 54 14 85
Kristiansand +47 38 14 61 64
Stavanger +47 51 84 04 30
Tromsø: +47 77 64 76 35
Trondheim: +47 73 87 49 82
Tønsberg: +47 33 01 73 80
Ålesund : +47 24 16 90 80
Buying currency on behalf of a business?
Are you looking for:
- the opening of a currency account *, or
- purchase of currency in connection with transfer abroad
*A currency account is a deposit account in a currency other than NOK. The account type is offered to corporate customers who have current income and expenses in a foreign currency and where the transactions are made in the form of a payment transfer abroad. Documentation may be required.
Get in contact with DNB Bank on +47 915 04800 or by email: kundesenter.bedrift@dnb.no