Foreign Exchange Markets Trade Currencies

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Foreign exchange markets trade currencies around the world. Traders in large banks in
North America, Europe, and Asia carry out the majority of the buying and selling of foreign exchange. A foreign exchange rate is the price of a country 's currency in terms of another currency. Exchange rates are determined in the foreign exchange market. Foreign exchange rates are figured in either U.S. dollars per unit of foreign currency or in units of foreign currency per
U.S. dollar; they have both domestic and foreign currency components, which can be quoted either directly or indirectly (Hubbard & O’Brien, 2013). When using a country 's domestic currency as the quoted price currency, it is known as direct (price) quotation; most countries use this quotation. An indirect (quantity) quotation is when a country 's domestic currency is quoted as the unit currency.
Exchange rates also have a base currency and a counter currency. In a direct quotation, the foreign currency is the base and the domestic currency is the counter (InvestorGuide, 2013).
An indirect quotation is just the opposite. The U.S. dollar is the base currency used the most, and the other currencies are used as the counter currency except for the euro, the British pound, the Australian dollar and New Zealand dollar. The base currency is determined by market convention and by using the currency that gives an exchange rate greater than 1.000. This helps prevent rounding issues and quoting exchange

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