What Is an Exchange Rate?
In short
An exchange rate is the price of one currency expressed in another currency; in a pair written A/B it states how many units of B one unit of A costs.
A currency pair has a base currency and a quote currency. In EUR/USD the euro is the base and the US dollar the quote, so the rate says how many dollars one euro costs. Currencies are identified by three-letter ISO codes, such as USD for the US dollar, TRY for the Turkish lira and EUR for the euro.
Sources publish rates in different ways. Central banks publish reference or indicative rates once a day for information: the European Central Bank quotes its euro reference rates as units of foreign currency per euro and publishes them for information only, and the Federal Reserve's H.10 release quotes most currencies as units per US dollar, with exceptions such as the euro and the pound, which are quoted as dollars per unit. Banks and exchange offices quote separate buying and selling rates with a spread between them, so the rate a customer gets differs from a reference rate.
Rates move when the supply of and demand for a currency change, which can reflect interest rates, inflation, trade, capital flows and policy decisions. A rate is a price at one moment: the same pair has different values at different times and at different venues, and a figure without its time and source is incomplete. Inverting a rate, which means dividing 1 by it, gives the price of the other currency in terms of the first.
Formula
A/B rate = units of B per 1 unit of A
Inverse = 1 / (A/B rate) = B/A rateThe formula is shown as code; N stands for the number of bars or periods.
Figures used in this guide
- 1
- one unit of the base currency; also the numerator when a rate is inverted
- 10
- number in the name of the Federal Reserve H.10 statistical release
- 100
- unit size of the Japanese yen and Korean won pairs as labelled on Lzzo.com
Each number in the text is a definition, a convention or a stated value of the source, not a market observation.
How Lzzo.com shows it
Lzzo.com shows exchange rates as pairs, in units of the quote currency per unit of the base currency, with the time of the last observation. They are reference rates and not bank or exchange office prices, and the currency converter shows the inverse rate. Pairs quoted per 100 units, for example the Japanese yen and the Korean won, are labelled as such.
Related guides
Sources
- European Central Bank, Euro foreign exchange reference rates
- Federal Reserve Board, Foreign Exchange Rates (H.10)
- ISO, ISO 4217 currency codes
Primary and official sources, named as plain text.