What the Exchange Rate Means Key Concepts
The base currency is the term for the first currency in the pair. The counter currency is the term for the second currency in the pair. The exchange rate represents the number of units of the counter currency that one unit of the base currency can purchase. In a foreign exchange trade, clients are speculating on the exchange rate between two currencies. The exchange rate measures the relative value of a currency -- meaning it measures how much one currency is worth in terms of another currency. For example, let’s suppose the exchange rate for the GBP/USD (Great British pound/United States dollar) is 1.8455. This means that 1 British pound (the first currency in the pair, also known as the base currency) is the equivalent of 1.8455 US dollars (the second member of the pair, known as the counter currency). This is the standard quoting convention for exchange rates; the exchange rate represents how much 1 unit of the base currency (first currency in the pair) can purchase of the counter currency (second currency in the pair). So, if the GBP/USD exchange rate were to rise from 1.8455 to 1.8555, that would mean that 1 GBP would have gone from being able to purchase 1.8455 US dollars to being able to purchase 1.8555 US dollars.
The base currency is the term for the first currency in the pair. The counter currency is the term for the second currency in the pair. The exchange rate represents the number of units of the counter currency that one unit of the base currency can purchase. In a foreign exchange trade, clients are speculating on the exchange rate between two currencies. The exchange rate measures the relative value of a currency -- meaning it measures how much one currency is worth in terms of another currency. For example, let’s suppose the exchange rate for the GBP/USD (Great British pound/United States dollar) is 1.8455. This means that 1 British pound (the first currency in the pair, also known as the base currency) is the equivalent of 1.8455 US dollars (the second member of the pair, known as the counter currency). This is the standard quoting convention for exchange rates; the exchange rate represents how much 1 unit of the base currency (first currency in the pair) can purchase of the counter currency (second currency in the pair). So, if the GBP/USD exchange rate were to rise from 1.8455 to 1.8555, that would mean that 1 GBP would have gone from being able to purchase 1.8455 US dollars to being able to purchase 1.8555 US dollars.
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