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Forex Foreign Exchange Rates

In forex foreign exchange market, the value of two currencies and how they relate to one another is known as the forex exchange rate. The forex foreign exchange rate between two currencies specifies how much one currency is worth in terms of the other.

The foreign exchange or forex market is one of the largest financial markets in the world. By some estimates, about 3 trillion USD worth of currency changes hands every day and the figure is rising everyday.

Forex trading involves transaction between large banks, speculators, corporations, governments, and other financial markets and institutions. Individuals constitute a small fraction and participate indirectly through brokers or banks.

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In forex foreign exchange the difference between the buying and actual selling price is known as spread. Various factors can influence exchange rates and spread. The forex foreign exchange rates thrive so well as it is determined independently. Buyers and sellers and supply versus demand of certain currencies finally determine it.

Forex foreign exchange rates are quoted by stating the number of units of a price currency that can be bought in terms of 1 unit currency or the base currency. For example, if a quote says the EUR/USD exchange rate is 1.3, the price currency is USD and the unit or base currency is EUR.

Currency pairs are quoted with four decimal places, except JPY (Yen, Japan), which is quoted with two decimal places (EUR/USD: 1.3383 / EUR/JPY: 164.25).

Forex foreign exchange rates vary against currencies and are determined by the market forces of demand and supply. Therefore, rates are likely to change almost constantly on the basis of quotes made by large banks around the world.

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In forex foreign exchange direct quotation, rates are given using a country's home currency as the price currency, like £0.439212 = $1 in the U.K. Here, 1 unit of foreign currency unit equals to x units of home currency.

In the indirect quotation method quotes are given using country's home currency as the unit currency, where $1.46932 equals to £1 in the U.K. So, 1 unit of home currency now equals to x unit of foreign currency.

If the home currency grows strong in direct quotation, the exchange rate number will decreases. Likewise, if the foreign currency becomes stronger, the exchange rate number will increase.

Fluctuations in forex foreign exchange rates take place as a direct result of changes in the currency components. A currency becomes dearer whenever demand for it is more than the available supply.

It becomes less valuable whenever demand is more than supply. Economical and political factors affect the rates of exchange. Therefore, forex foreign exchange rate can be described as one of the strongest parameter influencing the trading practice.

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