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Where a rate for a currency pair is quoted as CCY1/CCY2 = X,
X represents the number of units of CCY2 that one unit of CCY1 is worth. In other words:
CCY1 amount x Rate = CCY2 amount
CCY2 amount ÷ Rate = CCY1 amount (when trading a CCY2 amount)
There is a market convention that determines for any currency pair which currency is CCY1 and CCY2, based on the value of each currency and a hierarchy of exceptions. For example, a rate between CHF (Swiss Franc) and JPY (Japanese Yen) will be quoted as CHF/JPY because one Swiss Franc is worth more than one Japanese Yen. The less valuable currency is typically CCY2 (giving a rate higher than 1) except for the currencies listed on the left, which are always CCY1. If any of these currencies are quoted against each other, then the currency higher in this list will be CCY1.
For example, a rate between GBP (Pound Sterling) and AUD (Australian Dollar) will be quoted as GBP/AUD because GBP appears first in the above list. Certain currency pairs not in this exception list have a rate below 1 because of the high value of the currency, e.g. USD/BHD, USD/CYP and USD/KWD.
In certain local markets, however, many corporates prefer their own domestic currency always to be CCY1 or CCY2. Swiss corporates, for example, prefer CHF always to be CCY2, so they ask their banks to give them a JPY/CHF rate rather than a CHF/JPY rate. This is not market convention but a local market practice.
Until recently, GBP was always quoted as CCY1 because one unit of GBP is worth more than one unit of any other major currency. Likewise, the same rule applies to some other currencies with historically close connections with GBP (most notably AUD and NZD and formerly IEP and MTL). During the advent of the euro in 1998, the European Central Bank stipulated that EUR should always be CCY1, even against GBP. There was some opposition to this, particularly amongst London banks, as the proposal was against the historical convention that GBP should always be quoted as CCY1. When trading in the euro started on 4th January 1999, the automated brokers (EBS and Reuters 3000 Spot Matching) supported both EUR/GBP and GBP/EUR so that the market could decide which quotation method should evolve as the market standard. Very quickly, EUR/GBP was established as the accepted convention.
CCY1 is sometimes known as “base currency” and CCY2 is sometimes known as “terms currency”. “Base currency” is also used to describe a bank’s domestic or accounting currency, hence expressions such as “rate-to-base”. For example, if a British bank, whose “base currency” (accounting currency) is GBP, is trading EUR/GBP, the “base currency” (CCY1) of the trade nevertheless is EUR. Therefore be careful when using the term “base currency” and avoid ambiguity.
There is no organisation that decides what market convention should be for any aspect of foreign exchange trading. This list and explanation is therefore merely a logical representation of the practices that are followed in the market.