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| Quotation Mode of Exchange Rate | ||||||
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In foreign exchange market, the exchange rates between two country currencies exist in pairs. The base currency goes first and the target currency follows with a "/” in between. It refers to the amount of target currency the base currency can be changed into. For example, USD/JPY means USD is the base currency and JPY is the target currency; EUR/USD means EUR is the base currency and USD is the target currency and EUR/JPY means EUR is the base currency and JPY is the target currency. We call the quotation mode in which USD is the base currency as direct quotation, the quotation mode in which USD is the target currency as indirect quotation and the quotation mode in which USD is neither the base nor the target currency as cross quotation. Most currencies adopt direct quotation mode while EUR, GBP and AUD adopt indirect quotation. Exchange rate quotation is divided into Offer price and Ask price; both start from the angle of trading bank and are aimed at base currency in quotation. Offer price means the price offered by a trading bank to buy a base currency unit from you, while Ask price means the price at which a trading bank sells a base currency unit to you. For example,
Currency Name Bid Ask EUR/USD 1.5353 1.5356 As stated above, EUR is the base currency and USD is the target currency. When you want to buy a EUR unit, you take the Ask price of the trading bank and pay 1.5356USD; when you want to sell a EUR unit, you take the Offer price and get 1.5353USD. |
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