What Is a Buck?
Buck is an informal reference to $1 that may trace its origins to the American colonial period when deerskins (buckskins) were commonly traded for goods. The buck also refers to the U.S. dollar as a currency that can be used both domestically and internationally.
Understanding Bucks
The earliest written use of the word "buck" is from 1748. Conrad Weiser, a Pennsylvania Dutch pioneer who had frequent contact between colonists and Native Americans, wrote in his journal that someone was robbed of 300 bucks' worth of items. He further clarified that five bucks were worth a cask of whiskey at the time. Once American currency replaced animal skins as a way to pay for goods, the term "buck" remained as a slang term for one dollar.
Expressions Using "Buck"
Several idioms and expressions use the word "buck." When someone wants to "make a fast buck," it means a person wants to make money in a short amount of time with little effort. A "quick buck" refers to a quick and easy profit. Making a fast buck or a quick buck may refer to scams or cheats. "Making an honest buck" refers to someone who makes money in an honest, legal way.
A person who gets "more bang for the buck" has a very favorable cost-to-benefit ratio or greater value for the money. For example, a computer for $200 gets more bang for the buck compared to a similar computer for $300. Conversely, a person who buys a 15-year-old vehicle may not get a lot of bang for the buck if the car breaks down shortly after buying it and the repairs cost more than the purchase price.
On foreign exchange trading desks, a buck commonly refers to a trade worth $1 million. If a client needs a price on a half-a-buck of a currency transaction, it's a $500,000 notional amount.
The Value of a Buck
The buck also refers to the U.S. dollar exchange rate versus other currencies in the world. An exchange rate is the value of a country's currency versus the value of another country's currency.For example, if the buck is trading at $1.15 versus the euro, it means it costs U.S. consumers $1.15 to buy one euro's worth of goods. If the buck is strengthening, it means that U.S. consumers can get more for their buck. A strengthening dollar would mean the euro exchange rate to the dollar would be lower such as $1.10, for example.
If a family is planning a trip to Europe from the U.S., they would want the buck to strengthen, meaning the euro exchange rate would be cheaper or lower in value (i.e., $1.05). However, if the family were returning to the U.S. from Europe and needed to exchange euros for dollars, they would want the buck to be weaker and the euro to be stronger (i.e., $1.25). In other words, the euro exchange rate to the buck would be higher meaning they'd receive more dollars for each euro exchanged.
Breaking the Buck
"Breaking the buck" refers to the net asset value (NAV) of money market funds that fall below one dollar. The net asset value is the value of a fund such as a mutual fund; it equals the net value of the assets (the securities) minus the total value of its liabilities and the costs to run the fund.Breaking the buck occurs when the money market fund's investments fail to cover the operating expenses or any investment losses.
Key Takeaways
- Buck is an informal reference to $1 that may trace its origins to the American colonial period.
- "Making a fast buck" means a person wants to make money in a short amount of time.
- The buck also refers to the U.S. dollar exchange rate versus other currencies in the world.
- On foreign exchange trading desks, a buck refers to a trade worth $1 million.
Real-World Example of the Buck
Money market funds tend to "break the buck" during times of low interest rates or high risk since investors tend to sell their funds for higher-yielding or safer investments. The first time this occurred in the United States was in 1994, according to The New York Times, when investors liquidated the Community Bankers U.S. Government Money Market Fund at 94 cents due to large losses.
At the time, the fund was considered to be invested in the safest short-term securities available. The first loss of its kind shocked the investment world since money market funds were considered extremely safe investments.
