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How Exchange Rate is Important to the Traders?

  • September 2014
  • Posted By Ninoslav

Do you know what is Exchange Rate? It explains how much domestic currencies are required to purchase one unit of foreign currency. You can trade after knowing an exact value of your local as well as a foreign currency. Trading can easily be done from anywhere in the world. You just need to get proper information about a currency pair for which you want to trade with.

What terms should you know?
The Exchange Rate has two sides as base currency and counter currency. You should know how much counter currencies will be required to deal with a base currency. Sometimes the local currency is not used in trading this is known as cross currencies. Many small countries and banks use cross currencies for trading.

If you trade, then current exchange rate is known as a spot exchange rate. Sometimes you can trade today, but can deliver payment on any particular date in the future, and then it is known as forward exchange rate.

What do you mean by quotation?
Direct and indirect quotations are determined for the convenience of the traders. When one unit of foreign currency is quoted with domestic currency then it is known as direct quotation. When one unit of domestic currency is determined in terms of foreign currencies then it is known as indirect quotation.

Maximum countries trade for US dollar as a base currency. The difference between the price of a base and counter currency is known as its profit. The Exchange Rate of a currency is determined by the expert economists on the basis of last 24 hour trading report. You will also know “What is the need of Linked Exchange Rate?


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