- Two currencies with exchange rates that are traded in the retail forex market. The rates of exchange between foreign currency pairs are calculated as the factor by which a base currency is multiplied to yield an equivalent value or purchasing power of foreign currency. The currency exchange rates of foreign currency pairs float, meaning that they change continually based on a multitude of factors.
For example, the currency pair EUR/USD, or "eurodollar," represents the number of U.S. dollars that can be bought with one euro. As the value of the EUR increases, the currency pair exchange rate will also increase.
By going long the EUR/USD foreign currency pair, the currency trader is speculating that the value of the euro will increase in relation to the U.S. dollar. Alternatively, when a forex trader shorts the EUR/USD currency pair, he or she is speculating that the value of the U.S. dollar will increase in relation to the euro.
Investment dictionary. Academic. 2012.
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