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A. What is Foreign Exchange?

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Foreign-exchange rate between two currencies specifies how much one currency is worth in terms of the other. It is the value of a foreign nation’s currency in terms of the home nation’s currency.

Currencies always trade in pairs. You never simply buy the euro or sell the dollar. You trade them as a pair. If you believe the euro is gaining strength compared to the U.S. dollar, you buy Euros and sell U.S. dollars at the same time. If you believe the U.S. dollar is gaining strength compared to the euro, you buy U.S. dollars and sell Euros at the same time.

The first currency listed in the currency pair is called the base currency and the second currency listed in the currency pair is called the quote currency. Quotation is given by stating the number of units of "quote currency" that can be exchanged for one unit of "base currency". For example, in a quotation says the EUR/USD (quote currency is USD and the base currency is EUR) exchange rate is 1.3500 means 1.3500 USD equals to 1 EUR

Using a country's home currency as the price currency (e.g., EUR 0.740741= USD 1.00 in the euro zone) are known as direct quotation or price quotation (from that country's perspective) and are used by most countries.

Using a country's home currency as the unit currency (e.g., EUR 1.00 = USD 1.3500 in the euro zone) are known as indirect quotation or quantity quotation and are used in British newspapers.