Understanding International Currency Exchange Rates: A Comprehensive Guide

The international currency exchange rate is used by major banks and financial intermediaries around the world. Also known as the foreign exchange market, or international monetary market, it exchanges more in one day than any other market in the world. The currency exchange rate quotes can be a spot rate or the forward rate. The forward rate normally is higher priced than the spot rate, taking into account near future exchange rate factors including supply, demand, and interest comparative interest rates.

Currency Pairs

Because the currency exchange rate is quoted as a "currency pair" there are many different exchange rates available to the banks and ultimately the public. The 5 major currency pairs for the U.S. are the Swiss franc, the Euro, the Canadian dollar, the Japanese Yen and the British pound.

Other Rates

Other rates are available, formerly called cross rates. For example, the Euroyen cross pair. This essentially buys the Euro while selling the Japanese yen simultaneously.

Bid Price

The rate in the marketplace is quoted as a bid and ask. The bid being the best offering price to sell, and the ask being the highest asking price buy. Note, that retail exchanges will quote a bid price which is well above the spot rate.