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Articles

Calculation of Forex Exchange Rate

The Forex exchange rate means the value of two separate currencies and how they relate to each other. The amount of one currency needed to buy a unit of another is called Forex rate.

Understanding the relation between Forex rates and currency projections will make it simpler. Let’s take an example and compare the United States dollar with the Japanese Yen to have a better understanding of how Foreign exchange rate can work along with currency projections.

The currency projections may show a ratio (known as pairing) of 1:110 for the day. So according to currency projections, it shows how many US dollars equal to a single unit of Japanese yen. When pairing of any other currencies other than U.S dollar, such currency projections are called ‘cross rates’.

Forex exchange rate requires two currencies, meaning they are quoted as 'two tier' rates. The price basis is called a bid/ask.

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In currency projections, the difference between the buying and actual selling price is called a ten pip 'spread' and is secured. This term is used in currency projections to that there are lot of factors that can change the spread and thus affecting it.

The factors include the strength of certain currencies depending on market conditions and traders' instincts. So currency projections fluctuate daily.

Official quoted rates can only be licensed by Forex brokers in a Forex market and hence cannot be accessed by all. This means that only the Forex traders can take part in the currency projections.

The small investors can also receive a good rate but they need to go through the commercial banks and can’t take part individually.

Forex exchange rate is determined independently. The buyers and sellers and their supply and demand depend on currency projections. Individual governments and banks do not determine currency projections.

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