Exchange rate definition

An exchange rate is the value of one currency expressed in another: the price at which you swap one for the other. In a currency pair it is the price relationship between the base currency and the quote currency.

The base currency is the first in the pair, and the quote currency is the second. The exchange rate tells you how much of the quote currency it takes to buy one unit of the base currency.

Exchange rates move as currency supply and demand shift in the foreign exchange market, driven by interest rates, inflation, economic data, central bank policy, political risk, and sentiment. The rate splits into a bid, where you can sell, and an ask, where you can buy.

Exchange rate Example

You look at EUR/USD = 1.1000, so one euro equals 1.1000 US dollars.

If EUR/USD rises to 1.1200, the euro has gained against the US dollar. If it falls to 1.0800, the euro has lost ground against the US dollar.