Currency prices are determined by a number of factors, the most important of which are
economic and political conditions in the issuing country. Political stability, inflation, and
interest rates are all factored into the price of any currency. In addition, governments can
try to control the price of their currency by either flooding the market (to lower the price) or
buying extensively (to raise the price).
Because of the immense volume of FOREX, however, it is impossible for one force to
control the market for any length of time. Market forces will prevail in the long run,
making FOREX one of the most open and fair investment opportunities available.
Each world currency is given a three letter code which is used in FOREX quotes. The
most common currencies are USD (US dollars), EUR (European euros), GBP (United
Kingdom pounds), AUD (Australian dollars), JPY (Japanese yen), CHF (Swiss francs) and
CAD (Canadian dollars).
Prices of foreign exchange are indicated by FOREX quotes in pairs of currencies. The
first currency is the 'base' and the second is the 'quote' currency. In this example:
USD/EUR = 0.8419
...the currency pair is US dollars and European euros. The base currency (USD) is
always at '1' and the quote currency shows how much it costs to buy one unit of the base
currency. In this example, 1 US dollar costs 0.8419 euros.
Conversely...
EUR/USD = 1.1882
...tells us that it costs 1.1882 US dollars to buy 1 euro.
When the price of the quote currency goes up it indicates that the base currency is
becoming stronger – one unit of the base currency will buy more of the quote currency. If
the quote currency falls, however, the base currency is becoming weaker.
FOREX quotes are seen in 'bid' and 'ask' prices. Bid is the price that buyers will pay for
the base currency (while selling the quote currency), and ask is the price that sellers will
sell the base currency (while buying the quote currency).
Symbol Bid Ask
USD/CAD 1.2392 1.2397
This chart tells us that we can buy one American dollar for 1.2397 Canadian dollars, or sell
one American dollar for 1.2392 Canadian dollars. The most commonly traded currencies
pairs are the 'Majors' – GBP/USD, EUR/USD, AUD/USD, USD/JPY, USD/CHF, and
USD/CAD.
We often see exchange rates listed in cross currency charts that list many different
currencies and their values against each other. An example of such a chart is seen here:
US $ Ca $ Euro UK £
US $ 1.00000 1.24060 0.83935 0.56870
Ca $ 0.80606 1.00000 0.67657 0.45841
Euro 1.19140 1.478051.00000 0.67755
UK £ 1.758402.18147 1.47591 1.00000
In this chart, the currencies listed down the left side of the chart are the base currencies
and the currencies at the top are the quote currencies. We can convert the chart above
into currency pairs by following the row beside the base currency. Using US dollars as
the base currency we get the following currency pairs:
USD/CAD = 1.24060
USD/EUR = 0.83935
USD/GBP = 0.56870
...which tells us that one US dollar is equal to the corresponding value of the quote
currency. To find the opposite pair e.g. CAD/USD follow the Canadian dollar row to the
US dollar column - CAD/USD = 0.80606 (one Canadian dollar is worth 0.80606 US
dollars).
There is no standard for cross-currency charts – some have the base currency on the top
and some have it on the side. How to tell which is which? You need to know at least one
pair of currencies and which one of the pair is more valuable.
economic and political conditions in the issuing country. Political stability, inflation, and
interest rates are all factored into the price of any currency. In addition, governments can
try to control the price of their currency by either flooding the market (to lower the price) or
buying extensively (to raise the price).
Because of the immense volume of FOREX, however, it is impossible for one force to
control the market for any length of time. Market forces will prevail in the long run,
making FOREX one of the most open and fair investment opportunities available.
Each world currency is given a three letter code which is used in FOREX quotes. The
most common currencies are USD (US dollars), EUR (European euros), GBP (United
Kingdom pounds), AUD (Australian dollars), JPY (Japanese yen), CHF (Swiss francs) and
CAD (Canadian dollars).
Prices of foreign exchange are indicated by FOREX quotes in pairs of currencies. The
first currency is the 'base' and the second is the 'quote' currency. In this example:
USD/EUR = 0.8419
...the currency pair is US dollars and European euros. The base currency (USD) is
always at '1' and the quote currency shows how much it costs to buy one unit of the base
currency. In this example, 1 US dollar costs 0.8419 euros.
Conversely...
EUR/USD = 1.1882
...tells us that it costs 1.1882 US dollars to buy 1 euro.
When the price of the quote currency goes up it indicates that the base currency is
becoming stronger – one unit of the base currency will buy more of the quote currency. If
the quote currency falls, however, the base currency is becoming weaker.
FOREX quotes are seen in 'bid' and 'ask' prices. Bid is the price that buyers will pay for
the base currency (while selling the quote currency), and ask is the price that sellers will
sell the base currency (while buying the quote currency).
Symbol Bid Ask
USD/CAD 1.2392 1.2397
This chart tells us that we can buy one American dollar for 1.2397 Canadian dollars, or sell
one American dollar for 1.2392 Canadian dollars. The most commonly traded currencies
pairs are the 'Majors' – GBP/USD, EUR/USD, AUD/USD, USD/JPY, USD/CHF, and
USD/CAD.
We often see exchange rates listed in cross currency charts that list many different
currencies and their values against each other. An example of such a chart is seen here:
US $ Ca $ Euro UK £
US $ 1.00000 1.24060 0.83935 0.56870
Ca $ 0.80606 1.00000 0.67657 0.45841
Euro 1.19140 1.478051.00000 0.67755
UK £ 1.758402.18147 1.47591 1.00000
In this chart, the currencies listed down the left side of the chart are the base currencies
and the currencies at the top are the quote currencies. We can convert the chart above
into currency pairs by following the row beside the base currency. Using US dollars as
the base currency we get the following currency pairs:
USD/CAD = 1.24060
USD/EUR = 0.83935
USD/GBP = 0.56870
...which tells us that one US dollar is equal to the corresponding value of the quote
currency. To find the opposite pair e.g. CAD/USD follow the Canadian dollar row to the
US dollar column - CAD/USD = 0.80606 (one Canadian dollar is worth 0.80606 US
dollars).
There is no standard for cross-currency charts – some have the base currency on the top
and some have it on the side. How to tell which is which? You need to know at least one
pair of currencies and which one of the pair is more valuable.
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