An exotic currency is a foreign exchange term for a thinly traded currency from a smaller or emerging market economy. Examples include the Thai Baht, Turkish Lira, and South African Rand. Exotic pairs tend to have wider spreads and higher volatility.
Example
“The trader avoided holding USD/TRY positions overnight because the exotic Turkish Lira was prone to sudden 3-5% moves on political headlines, and the swap costs were extremely high.”