EXCHAGE RATE

EXCHAGE RATE


(also known as the foreign-exchange rate, forex rate or FX rate) between two

currencies specifies how much one currency is worth in terms of the other. For example an exchange

rate of 123 Japanese yen (JPY, ¥) to the United States dollar (USD, $) means that JPY 123 is worth

the same as USD 1. The foreign exchange market is one of the largest markets in the world. By some

estimates, about 2 trillion USD worth of currency changes hands every day.

The spot exchange rate refers to the current exchange rate. The forward exchange rate refers to an

exchange rate that is quoted and traded today but for delivery and payment on a specific future

date.
An exchange rate quotation is given by stating the number of units of a price currency that can be

bought in terms of 1 unit currency (also called base currency). For example, in a quotation that says

the EUR/USD exchange rate is 1.3 (USD per EUR), the price currency is USD and the unit currency is

EUR.

Quotes using a country's home currency as the price currency (e.g., 0.50593 = $1 in the UK) are

known as direct quotation or price quotation (from that country's perspective) ([1]) and are used by

most countries.

Quotes using a country's home currency as the unit currency (e.g., $1.97656 = £1 in the UK) are

known as indirect quotation or quantity quotation and are used in British newspapers and are also

common in Australia, New Zealand and the eurozone.

* direct quotation: 1 foreign currency unit = x home currency units
* indirect quotation: 1 home currency unit = x foreign currency units

Note that, using direct quotation, if the home currency is strengthening (i.e., appreciating, or

becoming more valuable) then the exchange rate number decreases. Conversely if the foreign

currency is strengthening, the exchange rate number increases and the home currency is

depreciating.

When looking at a currency pair such as EUR/USD, many times the first component (EUR in this

case) will be called the base currency. The second is called the counter currency. For example :

EUR/USD = 1.33866, means EUR is the base and USD the counter, so 1 EUR = 1.33866 USD.

Currency pairs are given with four decimal places, except JPY with two decimal places (EUR/USD :

1.3386 - EUR/JPY : 165.29). In other words, quotes are given with 5 digits. Where rates are below 1,

quotes frequently include 5 decimal places.