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?
The interest rate can be defined as the cost of borrowing money, i.e. the price you pay to borrow.
As a rule, the interest rate is stated as a percentage of the total amount you are borrowing.
An interest rate can also be income. It’s the return you get when you save, either in an account or in fixed-income funds or other fixed-income securities.
Example of loan interest rates:
You take out a loan for 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 borrowing, the interest rate becomes an annual cost.
Example of savings interest rates:
When you save in a bank account or invest in fixed-income securities, you’re the one lending your money. As compensation for the loan, you receive a rate of interest. The interest you receive varies between different types of bank accounts, as well as different types of fixed-income securities. When you lend money, the interest becomes an income.
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 goal of a central bank is to keep the 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 loans and investments of capital. Norges Bank is the central bank of Norway and offer services to Norwegian banks, such as DNB.
For example, the key policy rate set by Norges Bank can be used to stimulate business growth. 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. Lower interest rates make it more attractive to invest in new projects and jobs.
The central bank can also increase the key policy rate to curb growth in consumption and money lending. The reason for not wanting consumption to be too high is that this can lead to price increases of goods and services that are too high. Another word for price increases is inflation. Read more about inflation on Investopedia.
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.
NIBOR is short for Norwegian Interbank Offered Rate.
In brief, NIBOR is the interest rate at which Norwegian banks are willing to lend each other money. NIBOR is calculated and published every day at 12:00 from the Oslo Stock Exchange.
NIBOR is used as the reference when setting the rates of financial instruments and agreements in Norwegian kroner (NOK)
Effective and nominal rate are terms used when you borrow money.
The nominal rate is the stated interest rate on a loan before any fees are taken into account and is normally stated as an annual interest rate (per annum, or p.a., which means per year).
The effective rate is the nominal interest rate plus fees and other costs. This tells you the actual price of the loan.
Always compare the banks’ effective rate, not the nominal rate, when looking for a loan!
The NOK exchange rate shows how many Norwegian kroner you need to pay to get one unit of another currency.
For example, if the NOK exchange rate against the US dollar is 8.5, you need to pay 8.50 kroner for every dollar you buy. The price of a product that costs 10 dollars at an NOK exchange rate of 8.5 per USD will 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 kroner strengthens this means that the price of another currency has become lower. In other words, the Norwegian krone has strengthened if the price of one dollar has decreased from 8.5 to 8.0 kroner.
If the kroner weakens this means that the price of another currency has become higher. In other words, the Norwegian krone has weakened if the price of one dollar has increased from 8.5 to 9.0 kroner.
When the krone exchange rate is strengthened, the result is cheaper products abroad. When the krone exchange rate weakens, products abroad become more expensive.
Businesses wishing to sell their products internationally prefer a weak krone. Their products then become cheaper and thus more attractive to buyers.
Businesses wanting to purchase products from foreign countries prefer a strong krone. This way products are as cheap as possible.
The NOK exchange rate is affected by supply and demand for the Norwegian krone. If there is high interest to buy kroner and fewer people want to sell, the krone strengthens.
When the interest rates in Norway are high compared to other countries, it’s beneficial for international investors to move their money to Norway. High Norwegian interest rates can therefore contribute to a stronger krone. High oil prices also have this effect – a high oil price will also attract international investors to Norway, and they will need Norwegian kroner in order to invest.
What do these words and acronyms mean in foreign exchange trading?
The quote currency is the currency at the end of the currency pair. For 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.
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.
There are two prices to consider when trading currencies.
The Bid price is the price at which you are offered to sell, at a given time (the price others are willing to offer).
The Ask price is the price at which you are offered to buy, at a given time (the price others are willing to sell at).
A market that’s rising and is characterised by positive sentiment is called 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.
FOREX and FX are abbreviations of Foreign Exchange, or currency exchange. In other words, the FX market is another term for the currencies market.
Foreign exchange trading is a form of spot trading.This means that after the completed trade, you receive the currency you’ve bought in the account after the trade date + two working days.
Physical delivery of currency is used to convey that the currency you have bought has come in to the 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 avoid physical delivery. This process is called rolling of positions.
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. Foreign exchange trade gearing can be done via the DNB FX Trader platform.
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 trading volume means more liquidity. 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.
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.
Margin is an expression used in relation to foreign exchange trading that is geared. In order to gear, you must first make a deposit into a margin account which is charged when you make profits or losses.
Margin is thus the equity (the deposit) that is needed on your margin account. On the DNB FX Trader platform, the minimum deposit is NOK 100 000.
An account created by the bank by setting up the DNB FX Trader service as security for the customer’s currency positions. Results of the customer’s currency positions are settled against the margin account every working day. The account is mortgaged when you sign the agreement for the service.
Trading based on the deposit in the margin account. This means that you can take one or more currency positions partly by using equity and partly with borrowed money.
Average of the bid and ask price.
The position summary in DNB FX Trader shows you details of executed trades, all open positions and continuously updated information on the margin account’s holdings.
A currency transaction that’s traded today, with settlement two days later.
A ‘Stop loss’ order can be used to set an upper limit to the loss on a position.
If you buy 100 000 EURNOK at 1.22 and set a stop loss of 1.20, the position will be closed in the market when it reaches this level, without you having to do anything.
If you are in a short position (have sold 100 000 EURNOK), you earn money on price weakening. In other words, you will lose money if the price strengthens. Your stop loss is therefore above the level you have sold at if your position is short.
We recommend our customers to actively use a Stop loss. The reason for this is that unforeseen movements can occur at any hour of the day, and thus result in major losses if a stop loss order is not in place.
A ‘Take Profit’ order can be used to lock in profits on an open position.
If you buy 100 000 EURNOK at 1.22 and set a take profit order at 1.24, the position will be closed in the market when it reaches this level, without you having to do anything. You therefore ensure a profit without having to do anything yourself.
If you are in a short position (have sold 100 000 EURNOK), you earn money on price weakening. In other words, you will lose money if the price strengthens. Your take profit is therefore below the level you have sold at if your position is short.
We often recommend our customers to use Take profit. It is often a good idea to lock in profits in case the market should turn again.
Profits or losses on a position that is still not closed.
A currency account is an account for regular incoming or outgoing payments in a foreign currency.
A price that indicates the exchange rate between two different currencies.
Two currencies that are traded by buying one and selling the other create a currency pair.
When you trade a currency pair, you get an open position, for example by buying EUR and selling NOK. Your position will then continuously show either a loss or a profit as the exchange rate changes.
Interest rate setting - market making FAQ
Day-to-Day Market 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.
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. 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, USD is called the LIBOR rate.
Day-to-Day Market rates are changed daily, provided it is a banking day for the currency in question.
All currencies can be connected to the Day-to-Day market rate in principle, but not all are connected to a public fixing on a daily basis in the individual foreign exchange markets.
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.
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.
Reuters Instrumental Code (RIC) is a unique code that Thomson Reuters uses to identify market data. This code can be used by anyone who subscribes to news from Reuters in order to find the most recently updated figures and historical information. For example, the RIC for 3M NIBOR is OINOK3MD=
Changing the source and times/dates for fixing has no financial impact long term, not for the bank nor the customer.
The reference rate is set neutrally (DNB has no influence over it). The customer can check the interest rate every day, and also download lists of historical rates. Besides, the rate is more stable over time.
The basis is available on the following websites:
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 the Bank of Japan: TONAR
CHF: Swiss Average Rate Overnight (SARON) is an average of overnight interest rates which refer to the Swiss franc CHF. Click here.
NZD: RBNZ OCR - Reserve Bank of New Zealand Official Cash Rate. RBNZ OCR - observations
Foreign exchange trading and international payments
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 here.
International payment orders can be made via the online bank dnb.no.
Log in to the online bank in your usual way and find ‘international payments’ in the menu.
For transactions that exceed NOK 1 million, an exchange rate can be agreed for the order. If you want to arrange this contact one of our currency brokers on +47 24 16 90 90.
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.
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.
It is our responsibility as a bank to report this, so we will do this 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.
For international transactions with a value of NOK 100 000 or more, a payment type code is required to supplement the transfer.
More information about DNB FX Trader
All trades in financial markets carry a risk. Financial contracts for difference (CFDs) in currencies are especially risky as changes in currency prices may occur without the ability to predict these in advance.
You should not enter margin trades in DNB FX Trader unless you fully understand the risk this involves. If you are in doubt, you should seek independent and professional advice or refrain from trading with us. If margin trades in financial contracts for differences aren’t suitable for you on the basis of your knowledge and experience, you should refrain from trading.
Customers are classified as Professional and non-professional customers. As a professional customer or eligible counterparty, you can lose more than your deposit on a margin account, and you may be required to make additional deposits. If we have categorised you as a Non-Professional Customer, you cannot lose more than your invested capital.
Trading in currencies involves extremely high risk and is therefore not available to everyone.
In order to access foreign exchange trading, several requirements must be met. This includes the requirement of good knowledge of relevant markets and products, what exposure (positioning and trading) in such markets and products involves, as well as financial capacity.
When access to DNB FX Trader is granted, trading can only take place by logging in to DNB’s online bank, either from a computer or mobile. The functions that give you access to trading via mobile are not identical to functions on a computer. This may restrict the information you are able to see at a given time.
You can trade currencies in DNB FX Trader around the clock from Monday morning to Friday evening.
There are no direct costs associated with setting up agreements and access to the service.
Currencies are traded at an exchange rate, which is the price of exchanging from one currency into another. However, the price of simultaneous buying and selling a specific currency combination will be different. This difference is called spread. Spreads can be seen as the transaction costs in the currencies market, where both exchange rates and spreads vary continuously. The market situation and liquidity determine which spread is offered at any time. The spread also varies depending on trading history, whether the customer is professional or retail and the size of the position.
Since all foreign exchange trading through DNB FX Trader is not based on physical delivery of currency, all open positions at day-end will be rolled over to the next day. The rolling costs are related to the interest rate differences in the different currencies, where you receive interest on the ‘Long’ position (the currency type you’ve bought) and pay interest on the ‘Short’ position (the currency position you’ve sold). The rolling costs are around 0.5-1 per cent p.a.
DNB will provide information on margins and costs related to each individual trade, as well as daily rolls
With DNB FX Trader, you can trade larger sums than the deposit in your margin account. This is often referred to as “gearing”. Gearing offers the chance of a greater return, but also involves significantly higher risk.
We recommend that the amount used to trade in foreign exchange only constitutes a very limited portion of your finances.
If you buy EURNOK, with a maximum gearing factor of 15, you’ll use the full gearing potential. In this case, you will place 6.67 per cent security for the currency position you take. This means that with a deposit in a margin account of NOK 500 000, you can take a position in EURNOK of up to NOK 7 500 000. Should an exchange rate change occur in EURNOK of just one per cent, this would produce a loss, or a gain, of 15 per cent of the deposit in the margin account, around NOK 75 000.
If the overall unrealised loss of your currency positions is higher than 50 per cent of the margin requirements, all of your open positions will be closed, active orders deleted and the unrealised loss realised. To prevent your positions from being closed as a result of the margin requirements, you must close or reduce your positions. Alternatively you may choose to add additional security to your margin account. Security can be added to your margin account via the online bank.
We will send you alerts if your margin requirements are breached, but you are responsible for monitoring all margin requirements regardless of whether you have received an alert from us or not.
Currency is always traded against another currency. For example, you buy Euro for Norwegian kroner (NOK). This makes the currency pair EURNOK. We offer 52 different currency combinations on the platform.
Below is a summary of the different currency combinations we offer in DNB FX Trader.
Currency is always traded against another currency. For example, you buy Euros for Norwegian kroner (NOK) through the currency pair EURNOK.
The platform has minimum trade amounts. The amounts vary for different pairs.
For the currency pairs EUR, USD, CHF, GBP against NOK, the minimum amount to buy/sell is 100 000, for example EURNOK 100 000.
In SEK and DKK against NOK, the minimum to buy/sell is 1 000 000.
Positions can be closed or opened through orders applicable to the service. Using orders can improve follow-up and control of the customer’s positions by limiting losses and securing profits. The order types available in DNB FX Trader are:
The currencies market is largely driven by non-commercial participants that take large currency positions. This makes the currency fluctuations unpredictable, and they often come as a surprise. Smaller currency types, such as the Norwegian kroner, are particularly vulnerable, which leads to larger movements.
Compared to the stock market, there is little or no reliable historical information that can contribute to predicting movements in the currencies market. With especially large fluctuations, situations can occur where it’s not possible to make trades at the prices placed in the market. This can lead to greater losses.
Contact information foreign exchange and interest rates
Are you looking for:
get in contact with DNB customer services on +47 915 04800 or by email at firstname.lastname@example.org
We are sorry to say that DNB does not buy or sell international bank notes.
Are you looking for:
Get in contact with DNB Bank on +47 915 04800 or by email: email@example.com
Does your business need to monitor the foreign exchange market or trade in currencies? Read more and order the DNB MET service.
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