3
$\begingroup$

I found this answers: https://www.quora.com/Why-is-the-EUR-USD-traded-like-that-and-not-like-USD-EUR, but I'm not quite satisfied, I still do not understand how arranging them according to "most dominant" will help anyone at all?

By not using the mathematical notation it's a nightmare to compare exchange rates, so why is everyone still doing it?

Edit: I think I wasn't clear enough, what I would like to understand is why or how the dominant notation came to be the conventional way?, who did it?, and if people agree it's confusing, then why not change it?

Improve this question
$\endgroup$
2
  • 2
    $\begingroup$ I agree with you, it is confusing at first. It is best to write EURUSD (with no slash between them) and to understand this as a price quotation for the commodity 'EUR' (the first triplet) expressed in or paid by means of 'USD' (the second triplet). This is the language that FX traders use. In the International Economics literature it is written $\frac{USD}{EUR}$ (which you can read as 'dollars per euro'). You just have to be familiar with both notations and be able to switch between them. $\endgroup$
    – Alex C
    Jun 25, 2018 at 17:41
  • 2
    $\begingroup$ That / symbol doesn’t represent division here, any more than it does in, say dd/mm/yyyy date notation. To remember the convention for how to interpret an FX quote, I find it helpful to thing of an amount of money “moving” from the left to the right via multiplication. E.g we “move” 500 EUR into the USD equivalent amount by multiplying 500 by the EURUSD rate. I still have to think about it though, and I’ve been working with this stuff for some 13 years now. $\endgroup$
    – MattBecker82
    Jun 27, 2018 at 21:16

2 Answers 2

Reset to default
2
$\begingroup$

I can give an answer the second part of your edit. In my experience terminology, once established and active with a critical mass tends to propagate and then remain. It doesn't really change much. Particularly in trading, terminology has evolved around the central points of liquidity, and becomes embedded in many systems; computerised, vocal and written contracts. Often it forms based on the fastest way to express something when agreeing a trade. In the cross-currency swap market for example I speculate that the sole reason that the voice broker market quotes "euro-dollar" (in that order of currencies) as opposed to "dollar-yen", when they are technically the same similar product, is simply the nature that it rolls off a western tongue faster and easier than the converse. And in the dollar-yen case it avoids having to have notionals like "1.1 trillion yen please", cause you default to USD.

As a concrete example, some terminology that appeared in the EUR IRS interdealer market 2y ago is the name of the price "10Y gadget", which is the yield differential between 10Y bond futures and 10Y swaps. I found this an awful name and lobbied to change it to "10Y spread", which is common in GBP and USD. But when you find there is no real (simultaneous) will to change it doesn't get much traction and as long as everyone uses it and understands it you just have to go with it.

Perhaps there is no legitimate explanation for the appearance of the '/', and after battling the initial confusion no one cares anymore.

Improve this answer
$\endgroup$
2
$\begingroup$

You ask how the notation EUR/USD = 1.2 originated. To put it more bluntly how could anyone have thought up to write the exchange rate in such an illogical fashion, which seems backwards.

You can think of it not as an exchange rate between currencies but as a comparison of the "strength" of one currency to the other. In the old days 'strength' might have been based on a comparison of the amount of gold backing one unit of each currency (so eur/usd = 1.2 says that a euro has 20% more ounces of gold in it than a dollar). Or, when gold ceased to be used, 'strength' might be based on a basket of goods which a unit of currency can purchase (Gustav Cassel's Purchasing Power theory). So EUR/USD = 1.2 says with one EUR you can buy 1.2 times the consumer goods basket than you can buy with 1 USD. Or 1.2 times as many barrels of oil, if you prefer.

Then it makes sense. And dm63 made a similar point here in a comment. But I am not sure if this will help or confuse things further.

Improve this answer
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

Not the answer you're looking for? Browse other questions tagged or ask your own question.