Forex Rates

Written by Jacey Harmon
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The Forex market, or foreign currency exchange market, operates 24 hours a day, nearly six days a week. Trading centers are located around the globe in large cities like Sydney, Hong Kong, London and New York. The Forex market helps facilitate global trade, international investment, and speculative trading.

Currency Exchange Rates

The main purpose of the Forex market is to establish an exchange rate between currencies. The exchange rate is what one currency can be "exchanged" into another. In a world with national currencies, exchange rates are essential to the global economy. The U.S. dollar (USD) is the most active currency in the world. As such, most currencies are valued against the dollar. Only the Australian Dollar (AUD), Euro (EUR), and British Pound (GBP) have the dollar valued against them.

To figure the exchange rate, you need to know what the base currency is. As noted above, in most cases it will be the USD. The base currency is always one and is the first currency quoted in the exchange pair. For example, in the GBP/USD pair the base currency is the pound. A quote of GBP/USD 1.9110 indicates you can exchange $1.911 for one pound. To calculate how many pounds you need for one dollar simply divide one by the quote. In this case you would need .5233 pounds to buy one dollar.

As the quote moves higher, the base currency is getting stronger. This means you can get more of the foreign currency than before. If the GBP/USD moved up to 2, you would get 2 dollars for every pound. The currency market is very active and exchange rates can change thousands of times a day. Unless you're trading large sums of money, daily price fluctuations are rather minimal.


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