A:

When reading currency quotes, you have probably noticed that there is only a single quote for a pair of currencies. Currency pairs are quoted as such because a currency is only valuable in relation to another currency. The value of a domestic good in an open market is very easy to determine - just look at the current market price. In this instance, the value of the good is essentially being compared to the currency. Therefore, when quoting the value of a currency, it must also be valued against something else.

When looking at a currency quote, there is only one quoted number after a currency pair. For example, let's examine the currency pair CAD/USD with a quote of 0.9111. Before we can understand what this means, we must first understand how the quote works.

As you can see, the first currency in the pair is the Canadian dollar and the second currency is the U.S. dollar. In this quote, the Canadian dollar is referred to as the base currency, while the U.S. dollar is the quoted currency. In all cases, the base currency will always be worth one unit in relation to the quoted currency, regardless of whether the quote is indirect or direct. In our example, one Canadian dollar is worth 0.9111 U.S. dollars. Another way this currency pair could be quoted is the inverse; the quote for USD/CAD would be 1.0976 (1/0.9111). This quote tell us how many Canadian dollars can be purchased with one U.S. dollar.

As mentioned above, currencies are quoted in pairs because there must be something of value against which to measure them. They are also quoted in pairs because currencies are often exchanged for one another.

To learn more, read A Primer On The Forex Market and Dual And Multiple Exchange Rates.

RELATED FAQS
  1. Why isn't the EUR/USD currency pair quoted as USD/EUR?

    In a currency pair, the first currency in the pair is called the base currency and the second is called the quote currency. ... Read Answer >>
  2. Why is the U.S. dollar shown on the top of some currency pairs and on the bottom ...

    All currencies are traded in pairs. The first currency in the pair is called the base currency while the second is called ... Read Answer >>
  3. How do you make money trading money?

    Investors can trade almost any currency in the world. Investors, as individuals, countries, and corporations, may trade in ... Read Answer >>
  4. How can I trade in cross currency pairs if my forex account is denominated in U.S. ...

    The forex market allows individuals to trade on nearly all of the currencies in the world. However, most of the trading is ... Read Answer >>
  5. How is spread calculated when trading in the forex market?

    First, remember that in the forex markets investors trade one currency for another. Therefore, currencies are quoted in terms ... Read Answer >>
Related Articles
  1. Trading

    What is an Indirect Quote?

    An indirect quote expresses the amount of foreign currency required to buy or sell one unit of the domestic currency in the foreign exchange markets.
  2. Trading

    How Do You Make Money Trading Money?

    Making money in the foreign exchange market is a speculative process. You are betting that the value of one currency will increase relative to another.
  3. Trading

    Understanding The Spread in Retail Currency Exchange Rates

    Understanding how exchange rates are calculated and shopping around for the best rates may mitigate the effect of wide spreads in the retail forex market.
  4. Trading

    Drastic Currency Changes: What's The Cause?

    Currency fluctuations often defy logic. Learn the trends and factors that result in these movements.
  5. Trading

    Top 6 Most Tradable Currency Pairs

    The most frequently traded currency pair is the euro/U.S. dollar. The euro is the base currency in the pairing, while the dollar is the quote currency.
  6. Trading

    What Makes the EUR/USD A Risky Trade Now?

    What are the current risks of trading the EUR/USD pair? The Fed may raise interest rates this summer and the ECB has begun a quanitative easing program.
  7. Trading

    How to Calculate an Exchange Rate

    Struggling to get a grasp on exchange rates? Here's what you need to know.
  8. Trading

    A Primer On The Forex Market

    Moving from equities to currencies requires you to adjust how you interpret quotes, margin, spreads and rollovers.
  9. Trading

    Popular Forex Currencies

    Learn about the most traded currencies and the strategies used to trade them.
RELATED TERMS
  1. Quote Currency

    The second currency quoted in a currency pair in forex. In a ...
  2. Currency Pair

    The quotation and pricing structure of the currencies traded ...
  3. Base Currency

    The first currency quoted in a currency pair on forex. It is ...
  4. Reciprocal Currency

    In the foreign exchange market, a currency pair that involves ...
  5. Direct Quote

    A foreign exchange rate quoted as the domestic currency per unit ...
  6. Indicative Quote

    In forex trading, a currency quote that is provided by a market ...
Hot Definitions
  1. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  2. Money Market

    A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. ...
  3. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network is permanently recorded.
  4. Fintech

    Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century.
  5. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
  6. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
Trading Center