FX: What’s the price of a dollar?
FX means foreign currency. An exchange rate describes how many units of one currency equal one unit of another currency.
In the pair USD/ILS the dollar is the base currency and the shekel is the quote currency: the number tells how many shekels one dollar costs. EUR/USD shows how many dollars one euro costs. A rise in the pair means the base currency strengthened relative to the quote currency. FOREX is the foreign exchange market; converting money for travel is not the same product as trading leveraged derivatives.
For example only, USD/ILS = 3.60: buying 100 dollars costs 360 ₪ before costs. If the rate falls to 3.40, the same 100 dollars are worth 340 ₪.
State which currency is being bought, what you are paying with, and what will happen if its rate falls.
Bank of Israel · Exchange Rates ↗Check your understanding
USD/ILS = 3.60 means…
- One dollar equals 3.60 ₪
- One shekel equals 3.60 dollars
- A guaranteed profit of 3.60%
Answer and explanation
One dollar equals 3.60 ₪. The first currency is the base. The number describes units of the second currency per one unit of the first.
The rate falls from 3.60 to 3.40. What happened to 100 dollars in shekels?
- Worth more
- Worth 20 ₪ less
- The number of dollars doubled
Answer and explanation
Worth 20 ₪ less. 100×3.60=360; 100×3.40=340. The number of dollars did not change.
Continue learning
Spot rate, buy rate and sell rate — The quoted (spot) rate is an informational indicator. It is not a promise of the price at which a bank or currency service will execute a transaction.
FOREX: Currency risk and leverage — Currency risk is a change in value because of an exchange rate movement. Leverage increases exposure relative to the money invested.