A detailed example to understand

Beginner Questions
1

Hi,

  1. In this forexpedia it says:

    “As the rate in a currency pair increases, the value of the quote currency decreases.”

  2. I would like to better understand the sentence above, so I need a detailed example.

    First, I made some calculations based on the example from this forexpedia.

    Also, please correct me if I made a mistake in the calculations or the words used.

    So:

    “If the British pound is trading at $1.20, that simply means 1.2 U.S. dollars will buy you a pound.
    1 / 1.20 = 0.833
    £0.833 will buy you one U.S. dollar.”

    a. For me, the rate is “$1.20” and the value of base currency is “0.833”.
    Also, the “rate” can be called the value of the currency pair ?

    b. If the rate increases from $1.20 to $1.30, means the value of base currency decreases from 0.833 to 0.769 ( = 1 / 1.3).
    Is the reasoning okay ? I think it’s strange for me too, although the calculations say otherwise.

    c. However, what about the value of quote currency ?

Thank you.

2

If the exchange rate rises, the value of the quote currency falls. But only against that particular base currency: against other base currencies it might be rising.

But the passage is confusing because it starts from the premise that you and I are buying and selling currency. I suppose its possible some of us might be buying and selling currency, it depends on the brokerage account. But I am definitely not buying and selling currency - I am betting on the exchange rate between pairs of currencies. My broker does not handle currency, they just take bets against the exchange rate.

In the same way they take bets on the value of other markets, such as copper. The reality is no matter how long I keep a trade open and how successful I am, a lorry carrying 5 tons of copper is never going to turn up at my house or the broker’s offices.

3

I liked this explanation / insight.