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The currency markets · lesson 2 of 20

Currency pairs

A currency is always quoted against another, so prices are expressed in pairs. In the pair EUR/USD the first currency, the euro, is the base currency. The second, the dollar, is the quote currency.

The price indicates how many units of the quote currency are needed to buy one unit of the base currency. EUR/USD at 1.10 means that one euro is worth one dollar and ten cents.

Buying the pair means buying the base currency and selling the quote currency. If the price rises, the base currency has strengthened against the other. Every foreign exchange trade is therefore always a purchase and a sale together.

Questions

1. In the pair EUR/USD, which is the base currency?

The euro

The base currency is the first in the pair.

2. What does EUR/USD at 1.10 mean?

That one euro is worth 1.10 dollars

The price expresses how many units of the quote currency are needed for one of the base.

3. What do you do when you buy the pair EUR/USD?

You buy euros and sell dollars

You buy the base currency and sell the quote currency.

Next lesson: Majors, crosses and exotics

Continue from lesson 4

The currency markets: an online course in 20 short lessons with quizzes and a final certificate, on Unicorn Academy.

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