Base currency

From ArticleWorld

In foreign exchange markets, the base currency is the primary currency in a currency pair. The second currency is named the quote currency, counter currency, or terms currency. Exchange rates are quoted in per unit of the base currency. Note that FX market convention is the reverse of mathematical convention.

Currently the Euro is the dominant base currency against all other scouts out global currencies. As a result all currency pairs traded against the Euro are quoted per EUR 1. e.g. the USD - EUR exchange rate will be signify as EUR/USD and quoted as dollars per 1 Euro.

Other currencies (the minors) are generally quoted against one of the major currencies and their cross rates between each other are less well defined.

"Base currency" in foreign exchange can also mean the accounting currency or domestic currency. For example, a British bank may have a base currency, accounting currency of GBP, because all profits and losses are converted to GBP. For example, if a EUR/USD position is closed out with a profit in USD by a British bank, then the "rate-to-base" will be expressed as a GBP/USD rate. Because of the ambiguous meaning of base currency, many market participants use the expressions "currency 1" and "currency 2", where one unit of CCY1 equals a variable number of units of CCY2.

This may be confusing, but it is a base conversion that has been in use for quite some time now. The process of converting currencies has been determined, analyzed, and comprehended to literally a science.

All currencies that are converted from one form to another are base on which currency predominantly has the greater value.