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Target Currency – What Is a Target Currency?

What is Target a Currency?

A target currency or the quote currency is the denomination exchanged to obtain the currency or another country or region. For example, if you have some money saved up in U.S. dollars, $100, and you want to convert it into Indian Rupees (INR) because you are going on a trip there, you will need to know the foreign exchange rate or what 100 USD equals to INR. The amount of INR you will receive in exchange for these USD 100 is the source currency. 

With fixer.io, you can get real-time information about current and historical currency exchange at your fingertips.

What Is Target a Currency?

The target currency dimension’s source elements are target currencies. According to ISO 4217, recognized currencies must be denoted by a code consisting of three capital letters. In addition, all source currencies must be descendants of all target currencies’ total element.
For each pairing of source currency (e.g., INR) and target currency, several components in the currency dimension are required: a conversion element must be present for each combination of source currency (e.g., INR) and target currency (e.g., GBP).

  • In the filename for the conversion element, the source currency code is followed by the sequence “blank – greater sign – blank” and the target currency code (e.g., INR > GBP).
  • A conversion component is not required for a straightforward conversion where the source and target currencies are the same.
  • To change the national currency to each target currency, another conversion element (e.g., USD > GBP) is necessary.
  • Each target currency must have a total of all conversion factors. This sum is named using the string “greater sign – blank” and the target currency code (e.g., > USD).
    This element includes the following:
  • The non-currency component (ABC)
  • The source currency element to the target currency (e.g., USD > GBP) or the conversion element of the local currency to the target currency (e.g., INR)
  • All conversion elements from any reference currency (e.g., INR > GBP) are converted to the target source currency (e.g., INR).

What Are Target Currencies?

Currency pairings target currency price per unit in the currency market. The source currency (also known as the purchase currency) is the first currency mentioned in a currency pair quotation, preceded by the target currency (also known as the counter currency). A firm may use the currency pair as the home currency or bookkeeping currency to reflect all cash flows for accounting reasons.

The currency value in forex is the amount of the currency in exchange required to obtain one unit of the source currency. For instance, the Canadian dollar would be the base or source currency, and the U.S. dollar is the target currency in the CAD/USD currencies.

The International Organization for Standardization determines the currency abbreviations (ISO). The ISO 4217 standard provides these codes. These three-letter identifiers are used to denote a specific currency in two currencies. A slash character is sometimes used to divide currencies into a currency pair. A period, a dash, or nothing can be used in place of the slash.

Because investors purchase and sell currencies simultaneously, forex targets are expressed as pairs. For instance, when a buyer buys EUR/USD, an investor essentially trades euros and gets U.S. dollars simultaneously. Investors purchase the pair if they believe the source currency will appreciate relative to the target currency.

Fixer.io’s powerful currency exchange API offers real-time forex exchange tools such as currency converters, smartphone applications, and financial technology.

Why Do We Need a Target Currency?

Currency pairs are used as trading assets when individuals trade forex. They are made up of two multiple currencies: the source currency is the first pair, while the target currency is the second. The currencies are often designated by three-letter identifiers such as USD (U.S. Dollar), GBP (Great Britain Pound), and so on, and their pairs are denoted by a slash (GBP/USD).

Pairings are essentially an evaluation of the two currencies’ pricing values. They work like this: a Forex pair tells how much of the second currency (the target) is required to buy a single entity of the first (the source). For instance, how much U.S. currency is required to buy 1 GBP.

When a forex pair’s price is low, traders are more likely to buy it. Conversely, traders sell them when the price is high, and the difference between the reselling prices provides the profit.

So, what precisely is a currency target in forex, and what does it imply when someone purchases one? When dealers buy at an exchange rate, they purchase the first currency and simultaneously sell the second currency. Even though two separate currencies are involved, a forex pair is still considered one asset in the exchange.

How to Use a Target Currency?

The bid and the asking price are two different prices for a currency pair. The bid price is the sum of the dollar exchange rate required to purchase the source currency, and the sum of target currency obtained from trading the source currency is the asking price. The bid price is generally lower, and the difference provides a spread, the most popular payment method for service providers.

The major and minor currency pairs are the two types of currency pairs. The main pairings are the most liquid and frequently exchanged, as they feature the U.S. dollar as a target currency.

The minor ones don’t involve the U.S. dollar and are less liquid, although not by much. Exotic pairs, which comprise the currencies of developing countries, are a third type that falls under the minor category.

What About Enterprise Usage of a Target Currency?

The appeal of forex pairs versus other assets is one of the most significant contrasts between them and other assets. And here’s what it implies: when a trader purchases a currency pair—both the source and target currency—they always trade one currency and purchase a new one, so their account only has one currency.

In other marketplaces, such as stocks, a trader must first purchase the stock and then exchange it for currency; the trading procedure here involves two different assets. As a result, currency trading is much simpler than other types of trading.

The forex market is open to target currency exchanges 24 hours a day, five days a week, due to the attractiveness of its trading assets (not counting some holidays). That is why forex trading has the highest daily traded volume: about 6.6 trillion dollars.

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