A foreign currency pair simply refers to the quotation of the value of one currency relative to that of another. The currency used as the base or reference point is known as the base currency. The tender quoted relative to the base is known as the quote or counter tender.
By convention, a currency pair is written using the International Organization for Standardization (ISO) standard ISO 4217. This requires the base tender to be written first followed by the counter tender. The two units are written with a slash to separate them. For instance, the Australian dollar AUD and US dollar pair is designated as AUD/USD.
A EUR/USD 1.3250 quotation means that 1.0000 Euro (the base) is exchanged for 1.3250 US dollars (the counter). Another way of expressing the exact same value of these two currencies would be to use the US dollar as the base; in which case the notation would be USD/EUR 0.7547 indicating that 1.0000 US dollar is valued at 0.7547 Euros.
To emphasize, regardless of whether the transaction is quoted as EUR/USD 1.3250 or USD/EUR 0.7547, the value of each of these currencies with respect to each other remains the same. However, standardizing the terminology helps facilitates communications and helps avoid unnecessary confusion.
All transactions in the foreign exchange market involve the simultaneous buying of one tender and the selling of another tender. This, of course, is a truism since the tender purchased in a forex trade is itself a tender (or money) and that product is purchased with money.
All forex transactions involve buying of one tender and selling another tender at the same time. The buy rate for a pair states how much of a counter tender is needed to buy a unit of base tender. Similarly, the sell rate for a pair reflects how much of the counter unit is received for selling a unit of the base tender.
Other important traded pairs include the New Zealand dollar and the USD (NZD/USD), the GBP/JPY, the GBP/CHF, the EUR/JPY and the EUR/CHF. Other currencies, the minors, are generally quoted against one of the majors, particularly the USD. Examples of foreign currency minor pairs include the Hong Kong dollar (USD/HKD), Indonesian rupiah (USD/IDR) and the Indian rupee (USD/INR).
To recap, foreign currency trading forms the most liquid and largest market on the planet. It is truly a global market with trillions of dollars traded each day. Foreign currencies are traded always as pairs.
By convention, a currency pair is written using the International Organization for Standardization (ISO) standard ISO 4217. This requires the base tender to be written first followed by the counter tender. The two units are written with a slash to separate them. For instance, the Australian dollar AUD and US dollar pair is designated as AUD/USD.
A EUR/USD 1.3250 quotation means that 1.0000 Euro (the base) is exchanged for 1.3250 US dollars (the counter). Another way of expressing the exact same value of these two currencies would be to use the US dollar as the base; in which case the notation would be USD/EUR 0.7547 indicating that 1.0000 US dollar is valued at 0.7547 Euros.
To emphasize, regardless of whether the transaction is quoted as EUR/USD 1.3250 or USD/EUR 0.7547, the value of each of these currencies with respect to each other remains the same. However, standardizing the terminology helps facilitates communications and helps avoid unnecessary confusion.
All transactions in the foreign exchange market involve the simultaneous buying of one tender and the selling of another tender. This, of course, is a truism since the tender purchased in a forex trade is itself a tender (or money) and that product is purchased with money.
All forex transactions involve buying of one tender and selling another tender at the same time. The buy rate for a pair states how much of a counter tender is needed to buy a unit of base tender. Similarly, the sell rate for a pair reflects how much of the counter unit is received for selling a unit of the base tender.
Other important traded pairs include the New Zealand dollar and the USD (NZD/USD), the GBP/JPY, the GBP/CHF, the EUR/JPY and the EUR/CHF. Other currencies, the minors, are generally quoted against one of the majors, particularly the USD. Examples of foreign currency minor pairs include the Hong Kong dollar (USD/HKD), Indonesian rupiah (USD/IDR) and the Indian rupee (USD/INR).
To recap, foreign currency trading forms the most liquid and largest market on the planet. It is truly a global market with trillions of dollars traded each day. Foreign currencies are traded always as pairs.
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