Exchange rate

Exchange rate

The exchange rate refers to the amount of one currency you need to purchase another; in other words, you exchange them.

The exchange rate is often called the forex rate or simply the FX rate.

There are two rates for trading:

  1. The spot rate, which is the current rate at any given moment in time.
  2. The forward exchange rate, which is a rate quoted today, but used for delivery and payment at a specific future date.

Because currencies are always bought and sold in pairs, the exchange rate will always affect their relative value to each other. If the price of the base currency (the one you want to buy) rises, then the value of the quote currency (the one you pay with) falls relative to it.

For example if you want to buy euros with US dollars (the currency pair called EUR/USD) and the exchange rate is €1/$1.25, you will need $1.25 to buy €1. If the value of the euro rises, then the exchange rate may become, say, €1/$1.30 meaning the value of the euro has increased and you now need $1.30 to buy €1 – the euro is more expensive in relation to the US dollar.

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