DEFINITION of 'Numeraire'

Numeraire is an economic term that represents a unit of account. A numeraire is usually applied to a single good, which becomes the base value for the entire index or market. By having a numeraire, or base value, it allows us to compare the value of goods against each other. In essence, the numeraire acts as a set standard of value across an exchange. 

The word numeraire is French, and can translate as "money," "coinage," or "face value."

BREAKING DOWN 'Numeraire'

An example of a numeraire arises when we look at how currencies were valued under the Bretton Woods system during the mid-twentieth century. The U.S. dollar was priced at one-thirty-fifth the price of an ounce of gold. All other currencies were then priced as either a multiple or a fraction of the dollar. In this situation, the U.S. dollar acted as the numeraire because it was fixed to the price of gold.

Today, the U.S. dollar remains the numeraire for most commodity prices. Denominating commodity prices in U.S. dollars gives the price a set standard to work off, and as the U.S. dollar is the most-traded and most liquid currency in the world companies, that engage in oil transactions can easily convert payments or receipts in a timely manner. 

Also, by setting oil prices in U.S. dollars, it allows a country to compare the value of oil prices in its own currency. For example, a country that is a net importer of oil and its currency is weakening against the U.S. dollar will be paying more for its oil (in local currency terms) than it did in the past. 

 

 

 

 

RELATED TERMS
  1. USD

    The USD is the abbreviation for the U.S. dollar.
  2. USD (United States Dollar)

    USD is the currency abbreviation for the United States dollar, ...
  3. Standard of Value

    A standard of value is the understood worth of a commodity used ...
  4. International Currency Exchange ...

    An international currency exchange rate is the rate at which ...
  5. Currency

    Currency is a generally accepted form of money, including coins ...
  6. Dollar Bull

    A dollar bull is an investor or speculator who is optimistic ...
Related Articles
  1. Tech

    Why Did This Hedge Fund Move from Bitcoin to Ethereum?

    Numerai, the South African AI hedge fund, has shifted its focus from Bitcoin to Ethereum.
  2. Trading

    Profiting From a Weak U.S. Dollar

    Learn how to allocate your investments when the U.S. dollar is down.
  3. Trading

    Play Foreign Currencies Against The U.S. Dollar And Win

    Don't panic when the dollar drops. Learn to exploit the greenback's decline and profit from it.
  4. Trading

    3 factors that drive the U.S. dollar

    We look at three important factors that affect U.S. dollar value, and how to determine when it's the right time to buy currency.
  5. Investing

    How gold affects currencies

    There is a strong correlation between gold's value and the strength of currencies trading on foreign exchanges.
  6. Trading

    The U.S. Dollar: What Every Forex Trader Needs To Know

    The U.S. dollar is by far the most significant currency in the global market. Find out what you need to know if you want to trade it.
  7. Trading

    Forex: World's Biggest Market A Relative Newcomer

    Unlike the stock markets, the forex market is a truly new market. We’ll take a brief look at its origins and how it works today.
  8. Investing

    Gold: The Other Currency

    Throughout history, gold has held its value against paper currencies. Learn how it can help offset market risks.
  9. Trading

    What Would It Take for the U.S. Dollar to Collapse?

    Quantitative easing raised concerns about the dollar's vulnerability, but a review of the dollar's strengths and weaknesses suggests that a currency crisis is unlikely.
RELATED FAQS
  1. How are international exchange rates set?

    Knowing the value of your home currency in relation to different foreign currencies helps investors to analyze investments ... Read Answer >>
  2. What do the terms weak dollar and strong dollar mean?

    Weak dollar and strong dollar are general terms used in FX markets to describe the relative value and strength of the U.S. ... Read Answer >>
  3. What is the correlation between U.S. stock prices and the value of the U.S. dollar?

    The correlation between American stock prices and the U.S. dollar comes down to the two variables having a correlation coefficient ... Read Answer >>
  4. How do national interest rates affect a currency's value and exchange rate?

    Generally, higher interest rates increase the value of a given country's currency, but Interest rates alone do not determine ... Read Answer >>
Hot Definitions
  1. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  2. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  3. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  4. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  5. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  6. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
Trading Center