The difference between these prices is called the spread.Īll popular currencies are traded on the foreign exchange (Forex) market. This means there is always the seller's price (Ask) and the buyer's price (Bid). In other words, the Euro is up against the US Dollar.Įxchange rates in financial markets are determined by the market forces of supply and demand. It means that the Euro has risen in price, and now you will need to pay 1.30 US Dollars to buy 1 Euro. If the Euro grows, the exchange rate can become equal, let's say, to 1 Euro / 1.30 US Dollars. If the price of the base currency (the currency which you want to buy) is growing, the value of the quoted currency (for which you buy the base currency) falls in relation to the base one.įor example, if you want to buy Euros for US Dollars (in the EUR/USD currency pair) at a rate of 1 Euro / 1.25 US Dollars, you need to pay 1.25 US Dollars to buy 1 euro. Usually, the forward rate differs from the current one, as it covers many risk factors and reflects the expectations of the foreign exchange market participants.Ĭurrencies trade against each other as exchange rate pairs and thus the exchange rate always affects the value of the currencies in pairs with respect to each other. This rate is calculated for the current day but is used for future calculations. This rate is utilized to convert currencies during current operations, for example, during online shopping or when trading currencies on financial markets.įorward exchange rate. There are two types of exchange rates:Ĭurrent exchange rate. One currency will be exchanged for another at this rate. The exchange rate is the amount in one currency that you need to pay to buy another currency.

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