How to Read Currency Exchange Rates
The value of a currency is determined by its comparison to another currency. The
first currency of a currency pair is called the "base currency", and the second
currency is called the "terms currency" (or "quote currency"). The currency pair
indicates how much of the terms currency is needed to purchase one unit of the base
Foreign Exchange market convention is such that most currencies are quoted directly
against the US dollar. A "direct quote" always indicates the amount of foreign currency
to buy or sell one US dollar. Other common direct currencies include USDJPY (Japanese
yen), USDCHF (Swiss franc), and USDMXN (Mexican peso). Currencies quoted indirectly
include GBPUSD (British pound), EURUSD (Euro), AUDUSD (Australian dollar), and NZDUSD
(New Zealand dollar). There is no particular reason why a currency is quoted directly
or indirectly, it is a standard market convention that has evolved over time.
If you want to see the rate in terms of Singapore dollars (the SGD rate) as opposed
to US dollars (the USD indicative rate) you must find the indirect rate. Indirect
rates are shown with the USD listed second. For example, SGD rates are indirect
rates and are formatted as SGDUSD, i.e. the value of one Singapore dollar in USD
terms. USD rates are direct quotes and are formatted as USDAUD.
A US company needs to pay 50,000 SGD to their supplier in Singapore today.
The quoted rate for SGDUSD is 1.5699
This means that it will cost (not including margins) 1.5699 US dollars for each
SGD that they need to purchase today.
50,000 x 1.5699 = 78,495
So 50,000 SGD will cost the company $78,495 US dollars today.
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