The term exchange rate between two currencies (or foreign-exchange rate, forex rate or FX rate) means the value of one currency in terms of the other one.
 For instance, the exchange rate of 120 Japanese yen (JPY, ¥) to the United
States dollar (USD, $) means that JPY 120 is worth USD 1.
Foreign exchange market is the biggest market in the world. Experts say
that every day currency measured approximately 2 trillion US dollars is
exchanged here everyday.
The spot exchange rate is the same as the current exchange rate. The
exchange rate that is quoted and traded today but will be delivered and
paid on a precise future date is called the forward exchange rate.
QUOTATIONS
To establish an exchange rate quotation it is necessary to determine the number of units of a price currency that can be bought in terms of 1 unit currency. For instance, in a quotation of EUR-USD the exchange rate is 1.2 USD per EUR, USD is the price currency and EUR is the unit currency.
Direct quotation occurs when the quotes are using a country's home currency as the price currency (e.g., £0.574744 = $1 in the UK) and are used by most countries.
Quotes that use a country's home currency as the unit currency (e.g., $1.73990 = £1 in the UK) are referred to as indirect quotation and are common in Great Britain, Australia, New Zealand and Canada.
• direct quotation: 1 foreign currency unit = x home currency units
• indirect quotation: 1 home currency unit = x foreign currency units
When the domestic currency is appreciating and the direct quotation is used, the number of the exchange rate decreases. And, on the contrary, in case if the foreign currency is appreciating, the exchange rate number enhances and the domestic currency is depreciating.
In a currency pair, for example, EUR/USD, the first component (EUR in this case) is very often referred to as the base currency. The second one is referred to as the counter currency. For instance: EUR/USD = 1.2836, means EUR is the base currency and USD is the counter currency, so 1 EUR = 1.2836 USD.
In a currency pair four digits are used always except au JPY that has two digits (EURUSD : 1.2836 - EURJPY : 150.17)
FREE OR PEGGED
A currency can be free-floating, and in that case its exchange rate may vary against foreign currencies and is constantly determined by the supply and demand of the market. The financial markets and world banks are always quoting exchange rates for such currencies. The exchange rate can be also regulated by a movable or adjustable peg system – a system that fixes exchange rates but provides a possibility for a currency to devaluate.
| 
