Currency and Different Types of Currency

It is essential for a person who is fresh in the field of the foreign exchange business to know the crucial vocabulary that is used every day in the market. Some important terms are given below. The Knowledge about these terms is must because it is a key for efficiency and a full armor to battle.

Currency:

Currency is the common money or other items used to facilitate transactions and accepted for exchange of goods in an economy. The popularity of a currency over another arises, usually, when a government designates through pronouncement that the government shall accept only particular notes and coins in payment for taxes. A specific symbol represents a currency in a foreign exchange business. Common currency symbols are $ (U.S. dollar), € (Euro), £ (British Pound), and Â¥ (Japanese Yen).
Some major currencies are as follows:
Euro
Pound sterling
Australian dollar
New Zealand Dollar
United States dollar
Canadian Dollar
Swiss franc
Japanese Yen

Currency pair:

Mostly two currencies are used in a foreign exchange contract. . When you trade, you will always trade a combination of two currencies. For example, you will buy US dollars and sell Japanese Yen or buy euro and sell Swiss Francs or any other combination of dozens of wide range of currencies. The currency pair consists of a base currency and a counter currency. The value of the currency pair is determined by the rate at which one unit of the base currency is converted into units of the counter currency e.g. a currency pair consist of U.S. dollars/Japanese Yen or Swiss Francs/British pounds. Some currency pairs are as follows.
Euro/ U.S. Dollar
US Dollar/ Japanese Yen
US Dollar/ Swiss Franc
US Dollar/ British Pound

Base currency &counter currency:

In foreign exchange markets, the term base currency is used for the first currency in a currency pair and the second currency is called counter currency. In a currency exchange, the exchange rate is quoted as the units of the counter currency in terms of a base currency. For example, in a currency exchange of Japanese Yen for British pounds, the Yen is the counter currency also called quote currency or in Euro/ U.S. Dollar currency pair, Euro is base currency and U.S. Dollar is counter currency.

Soft currency & Hard currency:

The currency of a country which is not up to standard in exchange for currency of other countries, due to unrealistic exchange rates is called soft currency while the currency of an economically and politically stable country is referred as hard currency because investors have confidence on its stability.