Agio

The agio is defined as a profit, commission or profitability obtained with the currency exchange or the discount of means of payment such as promissory notes. In relation to the stock market, it is the difference between the parity and market value of a security.

The word agio actually has several definitions. We have focused on the two most important, the one related to the foreign exchange market or the stock market. In this way, it would be a kind of prize that is obtained for the difference between the real value of the paper money or a security and its market value. There is another word "drain" that is the opposite of the previous one. It consists of taking advantage of the depreciation of certain values ​​to pay a lower price for them.

We should not confuse any of these concepts with exhaustion. The latter is aimed at abusive financial speculation. In this case, third parties are harmed and privileged information is used for their purposes. Therefore, the difference is from an ethical and even legal point of view.

Origin of agio

Its etymological origin is Italian, Celtic and German. On the one hand, the Italian word "aggio" which means exchange of coins, although another meaning is added, from the verb add. On the other, the Celtic and Germanic root "azh" or "az", which means something that is easy or comfortable.

Regarding the historical origin, it all started with the gold standard, which began in the 19th century and was a revolution. The notes and coins had a reference in this precious metal and this allowed to issue paper money. In this way, gold was given in exchange for banknotes. This was the origin of money that we know today. This exchange rate was relatively constant and this index was known as the "perfect benchmark pair."

In the mercantile capitalism of the 19th century, commerce was the main activity. In this way, the market exchange rate of the currencies of two countries was established by means of the trade balance. This used to be different from the perfect pair, standing above or below and allowing a profit or premium to be made. From here, the term was generalized for currency transactions or securities, among others.

Examples of agio

To finish we show you some examples of agio, according to its two main definitions. The one related to the money market and the stock market.

• In the 19th century, the market value of the currency of the two great European powers (England and France) did not usually coincide with the reference value of the gold standard. In the end, it was the, as we have already mentioned, it was the trade balance that established the exchange rate and its fluctuations caused the appearance of a risk premium called agio.
• In the stock market, the difference between the market value and the parity gives rise to the appearance of the goodwill. This is expressed in percentages. For example, if the market value of is 1,000 currency units and the parity value of 1,100, the premium is 10%.