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World 0 · Start Here · lesson 6 · level 1

Currency pairs: money priced in money

A currency pair tells you how much of the second currency one unit of the first buys, such as how many rupees or yen one US dollar buys.

In one line

How many rupees does one dollar buy? A currency pair answers in one number.

Explained simply

Different countries use different money: India uses rupees, the US uses dollars and Japan uses yen. When you travel, you swap your money for theirs, and the swap rate tells you how much you get. A currency pair like USD/INR is that swap rate: how many rupees one US dollar buys.

The lesson

A currency is a country's or region's own money, such as the Indian rupee (INR), the US dollar (USD), the Japanese yen (JPY) or the euro (EUR). A currency pair prices the first currency, called the base, in the second, called the quote, so USD/INR at 80 would mean one US dollar buys 80 rupees. If USD/INR rises from 80 to 82, the dollar has got stronger and the rupee weaker, because one dollar now buys more rupees. The market where currencies are swapped is called forex, short for foreign exchange, and it trades around the clock from Monday to Friday.

A worked example

Illustrative example: at a rate of 80 rupees per dollar (USD/INR at 80), 5 dollars swap for 400 rupees (5 times 80), and 1,000 rupees swap for 12.5 dollars (1,000 divided by 80). At USD/JPY 150, the same 5 dollars swap for 750 yen (5 times 150). If USD/INR rises to 82, 5 dollars buy 410 rupees (5 times 82), which is 10 rupees more (410 minus 400), because the dollar got stronger.

The same idea at four levels

1. Beginner. Each country or region has its own money, called its currency.
2. Foundation. A currency pair such as USD/INR shows how many of the second currency one unit of the first buys.
3. Intermediate. To convert, multiply by the rate one way and divide by it the other way: 5 dollars at 80 is 400 rupees, and 400 rupees is 5 dollars.
4. Advanced. When USD/INR rises, the dollar is stronger and the rupee weaker; when it falls, the opposite is true.
5. Expert. Currency prices move with interest rates, trade and news about each country, and the US dollar is on one side of most currency trades in the world.

Mistakes to avoid

• Reading USD/INR as dollars per rupee instead of rupees per dollar.
• Thinking a higher USD/INR means the rupee got stronger, when it means one dollar now buys more rupees.
• Multiplying when you should divide: to turn rupees into dollars, divide by the rate.

Goal of this lesson: Read a currency pair such as USD/INR or USD/JPY and convert an amount from one currency to the other.