Please excuse me in advance, as I suspect my question is slightly off compared to the other questions on this website, but I am currently taking a class in International Finance and I have a few following questions about how to properly read currency pairs as I feel the slides provided by my professor are really confusing and counterintuitive. Thank you in advance.

First, from my general knowledge whenever I see a currency pair

$$ EUR/USD = 1.0222 $$

I always interpret it like the left side, in this case the EUR, is the base currency. Therefore, for 1 EUR I can get 1.0222 USD.

However, in the exercises I am seeing there are all sort of currency pair writings, which in some cases doesn't quite fit to what I have said above.

I will give several examples:

$$ 0.60231\;EUR/AUD $$

If the quote is on the left side, does that mean that the base has shifted to the right? Therefore, for 1 AUD I can get 0.60231 EUR?

$$ S_{0}(EUR/CND)=1.1332 $$

Can someone explain why we have S0 in front of the currency pair? Please correct me, but to my knowledge this should be read as if 1 EUR should be traded for 1.1332 CND.

$$ S_{0}^{a}(USD/EUR)=1.1045 $$ $$ S_{0}^{b}(GBP/EUR)=0.8720 $$

And this is where I am getting really confused. According to my logic the above quotes must be interpret as if 1 USD should be traded for 1.1045 EUR. However, that makes no sense, because EUR is the higher performing currency therefore it makes more sense to be that 1 EUR is traded for 1.1045 USD but then why the professor write it like this? If someone can shed some light why it's written like this I would be really thankful!


2 Answers 2


The quoting conventions are sometimes illogical for legacy/historical reasons.

"CC1/CC2" is usually supposed to mean the amount of CC2 that you'd need to pay to get 1 unit of CC1. CC's are usually ISO 4217 3-letter codes. Ignoring any bid-ask, EUR/USD=1.25 means that you'd pay USD 1.25 to receive EUR 1, and therefore USD/EUR=1/1.25=0.8 - you'd pay EUR 0.80 to receive USD 1. (Well, it's closer to 1.02 now)

CC1 is the "named" or "base" currency. CC2 is the "terms" or "quote" currency. Sometimes people write "CC1-CC2" or just "CC1CC2", but it all means the same thing.

For many currency pairs, there are historical traditions for the order in which they're quoted. For example, most currencies, are quoted "European terms" against USD - how much foreign currency (not necessarily European) is needed to get 1 US dollar. But, for example, GBP is traditionally quoted "cable" or "American terms" - how much USD is needed to get 1 pound. Some currencies traditionally quoted "cable" are surprising, e.g. the Botswana Pula (BWP). Moreover, the quoting convention for exchange-traded FX futures may differ from spot. But as long as both currencies are shown in correct order, it's all clear, e.g.


means USD 1.20 buys 1 GBP


means MXN 20 buys 1 USD. (Mexico is not a European currency, but it's called "European terms" anyway.)

Some systems (e.g. Bloomberg) try to save screen space by saying something less readable like

Quoted against USD:
GBP* 1.2
MXN 20
* means quoted cable.

In your examples, 1 EUR is worth about 1.5 AUD now. So you should be seeing AUD/EUR about 2/3=0.666 and EUR/AUD about 1.5. I've never heard of a convention of inverting a figure by placing it to the left of its currency pair label. I suggest you check with your instructor about this notation.

I don't know what he meant by $S_0$ either, but maybe he's trying to distunguish the "spot" rate (for settlement in 2 business days) from a "today" rate (if you settled T+0)?

You probably meant "CAD" not "CND". EUR/CAD is about 1.3 now.

USD/EUR is about 0.98 now. However this par is traditionally quoted "cable" as EUR/USD, which is about 1.02. Perhaps your professor is being sloppy and expects you to know that he writes USD/EUR but really means EUR/USD.

GBP/EUR is about 1.2 now, while EUR/GBP is about 0.85.

  • 1
    $\begingroup$ Just adding that MXN on Bloomberg will be identical to USDMXN (USDMXN Spot Exchange Rate - Price of 1 USD in MXN) - both work equally well. I think it is mainly for end users who know that MXN will be USDMXN and not MXNUSD that this shortcut works. $\endgroup$
    – AKdemy
    Commented Jul 11, 2022 at 9:33
  • $\begingroup$ I mean, if you run Ccy TK Go, or ask for "1" currency quote on Bloomberg and many other systems, they'll show "USDMXN" for MXN but "GBPUSD" for USD - traditionally, for compatibility with what legacy users are used to. IMVHO, it would be better if systems encouraged specifying both currencies in a pair. $\endgroup$ Commented Jul 13, 2022 at 11:08

(Too long for a comment)

Having traded spot FX, your knowledge is correct: EUR/USD at 1.0222 means that it costs 1.0222 USD to buy 1 EUR.

The first currency is always the base currency, in the sense that the currency pair always depicts how many units of the second currency you need to spend in order to buy one unit of the first currency. There are no exceptions to this rule in the Forex market in my experience.

Exercises in books are usually written by people with no trading experience: the examples you show are not the standard Forex conventions.

PS: Forex markets are very rigid in their conventions in terms of which currency is first and which is second (this is basically just for historical reasons).

For example, EUR, being a relatively new currency, is always quoted first against all other pairs by convention.

  • If you wanna buy EUR and sell USD, you would buy EUR/USD at 1.0222.
  • If you wanna buy USD and sell EUR, it would never be quoted as USD/EUR = 0.9782, instead, you'd sell EUR/USD at 1.0222 (which means you buy USD and sell EUR, however counterintuitive that might seem at first).

Another example is AUD: that always comes first, unless quoted against EUR. So...

  • buying AUD/USD means you sell USD and buy AUD...
  • whilst selling AUD/USD means you buy USD and sell AUD...

In conclusion: The way Forex markets are quoted, it's useful to think of a currency pair as one instrument, that you either sell or buy.

(Rather thank thinking of it in terms of two separate currencies).

  • 2
    $\begingroup$ "Exercises in books are usually written by people with no trading experience: the examples you show are not the standard Forex conventions." +1 $\endgroup$
    – nbbo2
    Commented Jul 10, 2022 at 11:54
  • 2
    $\begingroup$ I agree 1000%, especially regarding the people with no trading experience writign textbooks. However regarding the historical origins of currencies quoted "cable" versus USD - a long time ago, only GBP was quoted cable v USD. During 20th century many countries became independent and got their own currencies. A common patterns was that new currencies that replaced pound locally (e.g. NZD, BWP) continued to be quoted cable, while oher new currencies (e.g. UAH, CZK, HRk) were not (except that EUR is). $\endgroup$ Commented Jul 10, 2022 at 22:02

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