''Agio'' (
Italian ''aggio'') is a term used in
commerce
Commerce is the large-scale organized system of activities, functions, procedures and institutions directly and indirectly related to the exchange (buying and selling) of goods and services among two or more parties within local, regional, nation ...
for
exchange rate
In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of ...
,
discount or
premium
Premium may refer to:
Marketing
* Premium (marketing), a promotional item that can be received for a small fee when redeeming proofs of purchase that come with or on retail products
* Premium segment, high-price brands or services in marketing, ...
.
Exchange rate
The variations from fixed par values or rates of exchange in the currencies of different countries. For example, in most countries that used the
gold standard
A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the la ...
, the standard
coin
A coin is a small, flat (usually depending on the country or value), round piece of metal or plastic used primarily as a medium of exchange or legal tender. They are standardized in weight, and produced in large quantities at a mint in order t ...
was kept up to a uniform point of fineness. In particular, a freshly minted English
sovereign
''Sovereign'' is a title which can be applied to the highest leader in various categories. The word is borrowed from Old French , which is ultimately derived from the Latin , meaning 'above'.
The roles of a sovereign vary from monarch, ruler or ...
was in a fixed relation to freshly minted coins of other countries: 1
£ = 25.221 francs = 20.429 marks = US$4.867, etc.
This rate, known as the mint par of exchange, did not necessarily coincide with the corresponding market exchange rates. The
balance of trade
The balance of trade, commercial balance, or net exports (sometimes symbolized as NX), is the difference between the monetary value of a nation's exports and imports over a certain time period. Sometimes a distinction is made between a balance ...
between the countries determined the actual rate of exchange. If England has a negative balance of trade with France, for instance, currency of equal magnitude is remitted to France, which thus creates a demand for French currency. Procurement of that currency involves payment of a premium referred to as agio. It refers to exchange rate.
Exchange rate differential
The term was also used to denote the difference in exchange between two currencies in the same country where silver coinage was the
legal tender. An agio was sometimes allowed for payment in the more convenient form of gold or where the paper currency value of a country fell below the
bullion
Bullion is non-ferrous metal that has been refined to a high standard of elemental purity. The term is ordinarily applied to bulk metal used in the production of coins and especially to precious metals such as gold and silver. It comes from t ...
that it ostensibly represented.
Premium
In the process of use, coinage deteriorates over time, and its value falls below the nominal value. To illustrate, suppose that this reduction in the value of the pound is 5%. Reflecting their nominal value, 100 sovereigns in England would be accepted as a payment in full for £100 debt. Payment of debt outside England is based, however, on the physical state of the coin. In this case each coin is valued as £0.95, and payment of £100 debt requires £100 / £0.95 = 105.26 coins thence an agio of 5.26 sovereigns.
See also
*
Currency
A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins.
A more general def ...
*
Exchange rates
In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of t ...
Notes
References
*
{{Authority control
Foreign exchange market