When an American owned Toyota dealership in the United States buys cars from the manufacturer – Toyota, Japan the price is in Japanese Yen. The American dealership checks the current exchange rate of U.S. dollars for Japanese Yen and figures out how many U.S. dollars each car will cost. If the dealer chooses to do so he can call a Bank and enter into a foreign exchange contract. The Bank will give him the Japanese Yen he needs to buy the cars and in exchange the dealer will give the Bank the U.S. dollars. The number of Yen the dealer receives for those U.S. dollars is the exchange rate. For example, if the dealer received 112,000,000 yen for $1,000,000; the exchange rate would be 112.00 (112,000,000 Yen/ $1,000,000).
To do this identical transaction on the FXCM platform, the dealer would wait until the quoted price was 112 00-04. The dealer would sell 100 lots at 112.00; thereby selling U.S. dollars and buying Japanese Yen. We refer to this as selling USDJPY.
Without a reference exchange rate that the dealer could rely on and be able to transact at, he could not do business with Toyota, Japan. Foreign exchange rates therefore exist to facilitate trade between different countries that use different monies.
To do this identical transaction on the FXCM platform, the dealer would wait until the quoted price was 112 00-04. The dealer would sell 100 lots at 112.00; thereby selling U.S. dollars and buying Japanese Yen. We refer to this as selling USDJPY.
Without a reference exchange rate that the dealer could rely on and be able to transact at, he could not do business with Toyota, Japan. Foreign exchange rates therefore exist to facilitate trade between different countries that use different monies.
