2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16
In finance, a currency quote (also known as an exchange rate) is the value of one particular currency relative to another. For example, 91 Japanese yen can be exchanged for one US dollar, which means that their quote is 91:1. This value is determined in the Forex market, which operates 24 hours a day, excluding weekends.
Thus, speaking about what quotes are, we can define them as the ratio of one currency to another in their pair. In this case, the monetary unit that is used as a reference is called the quote currency, and the second one is the transaction currency.
Such money pairs are sometimes written by concatenating ISO (ISO 4217) codes separated by a slash. The most widely traded currency pair is the EUR/USD ratio, denoted as EUR/USD. An example of what quotes are, therefore, is the EUR/USD ratio. In this example, euro is the base currency, USD is the counter currency.
Currency quotes have generally accepted abbreviations provided by the International Organization for Standardization (known as ISO). By virtue of the ISO 4217 standard, the main monetary currencies and their values are indicated as follows - US dollar (USD), British pound(GBP), euro (EUR), Australian dollar (AUD), Japanese yen (JPY), Canadian dollar (CAD) and finally the Swiss franc (CHF).
The quote marked EUR/USD 1.2500 indicates that one euro is exchanged for 1.2500 US dollars. If it changes, for example, from 1.2500 to 1.2510, the euro exchange rate will increase its relative value. In turn, this means that the dollar has weakened, while the euro has strengthened. On the other hand, if the EUR/USD ratio changes from 1.2500 to 1.2490 - then the euro becomes relatively weaker than the dollar.
When talking about what quotes are, one should remember the rules set by the European Central Bank. According to his requirements, the euro has priority in the currency pair. Thus, all couples with his participation must use him as their base indicated at the beginning. For example, the US dollar exchange rate is defined as EUR / USD.
However, in some regions, monetary units may change places or not have an exact designation. In order to determine what is the base currency in such a pair, the unit is taken as the basis, which has an exchange rate greater than 1000. This avoids rounding problems - exchange rates are quoted with more than 4 decimal places. There are some exceptions to this rule, for example, Japan often quotes its own currency as a base to others. Speaking about what quotes are, it should be noted that the display of the value of a currency as a base is used in most countries of the world andcalled a direct quote. Displaying such a ratio in reverse is called an indirect quotation and is common in Australia, New Zealand and some Eurozone countries. Thus, specifying USD 1.35991=1.00 EUR does not display the value of the dollar quote, but the value of the euro.
When using a direct quote, an increase in the base currency indicates its strengthening and an increase in the value of the quoted one. In other words, an increase in the exchange rate means an increase in the value of a particular currency unit
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