Foreign Exchange Rate – How to Calculate?

Foreign Exchange Rate – How to Calculate?

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The foreign exchange rate is the value of two different currencies and how they relate to each other. It is calculated based on information provided by reputable market data contributors.

The foreign exchange rates used by financial institutions, tax authorities, auditing firms and banks. If you want to buy 1 unit of another currency with your currency, the Forex exchange rate determines how much currency you have to pay.

The exchange rate is basically a price. And you can analyze the rate in the same way just like the other market prices.

Foreign Exchange Rate and Internet

If you are familiar with the internet, you can find several websites that offer exchange rates of various currencies. It is easy to use the website to get the exchange rates.

Just go to the website and select the currency pair that you want to find out, then click the mouse you get the foreign exchange rate.

You can also convert a specific amount for a certain currency. Additionally, you can convert using the historic rate for a specific date.

Foreign Exchange Rate – Basic Calculation

Thus the exchange rates are prices for different currencies. When you see in the newspaper or the internet, the exchange rate of the US to Japan on that day is 117 yen. It means you can buy or convert 1 U.S dollar in exchange for 117 Japanese Yen.

You can create a simple formula if you know the exchange of currency pairs. And you can calculate the exchange rate for every currency pair.

For example:

If the exchange rate of 1 US dollar is 117 Yen Japan, you can create a formula as follow:

1 US dollar = 117 Yen Japan

Japan to U.S. exchange rate = 1 / U.S. to Japan exchange rate

Japan to U.S. exchange rate = 1 / 117 = .00855

Then one Japanese yen is equal to 0.00855 US dollars

Foreign Exchange Rate – Additional Information

Your knowledge about basic currency exchange will help you to start in understanding Forex trading. The majority of the currencies are traded against the US dollar (USD).

And the next most traded currencies are the euro (EUR), the Japanese yen (JPY), British pound sterling (GBP), and the Swiss franc (CHF). It calls the “the Majors” for these five currencies.

And, sometimes the Australian dollar (AUD) also include in this group.

Pairs

The foreign exchange rate is always quote in pairs. The first currency refers to the base currency and the second as the counter or quotes currency.

The base currency is the denominator and the counter currency is the numerator in the ratio. The value of the base currency is always 1. The Forex exchange rate tells a buyer how much of the counter currency they have to pay to get one unit of the base currency.

On the other hand, the Forex exchange rate tells the seller how much he is going to receive in the counter currency while selling the base currency.

Cross Rates

The ratio in the Forex exchange rate is known as ‘cross rates’. This term use when it does not involve US dollars and involves any other two foreign currencies. The concept of pip is also very important in the foreign exchange rate.

The Forex exchange rate is determined independently. It involves buyers and sellers, also the supply and demand of certain currencies.