Because currencies are traded in pairs and exchanged one against
the other when traded, the rate at which they are exchanged is
called the exchange rate. The majority of currencies are traded
against the US dollar (USD), which is traded more than any other
currency. The four currencies traded most frequently after
the US dollar are the euro (EUR), the Japanese yen (JPY),
the British pound sterling (GBP) and the Swiss franc (CHF). These
five currencies make up the majority of the market and are called
the major currencies or “the Majors”. Some sources also include
the Australian dollar (AUD) within the group of major currencies.
The first currency in the exchange pair is referred to as the base
currency. The second currency is the counter currency or quote
currency. The counter or quote currency is thus the numerator
in the ratio, and the base currency is the denominator.
The exchange rate tells a buyer how much of the counter or quote
currency must be paid to obtain one unit of the base currency.
The exchange rate also tells a seller how much is received in
the counter or quote currency when selling one unit of the base
currency. For example, an exchange rate for EUR/USD of 1.2083
specifies to the buyer of euros that 1.2083 USD must be paid to
obtain 1 euro
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