What is Primary and Counter Currency?
Let’s learn more about Primary and Counter Currency. In every exchange rate quotation there are two currencies. The currency being priced is known as the primary currency. The exchange rate is usually quoted so that one unit of the primary currency is expressed in terms of a variable number of units of the other currency. The other currency is known as the counter currency.
In the exchange rate quotation GBP 1 = 1.6012, the primary currency being priced is the pound sterling. One pound is expressed as 1.6012 units of the US dollar.
In the exchange rate quotation USD 1 = CAD 1.0195, the USD dollar is the primary currency and the Canadian dollar is the counter currency. The US dollar is priced in Canadian Dollar terms.
In the forex market, currency unit prices are quoted as currency pairs. The base currency – also called the transaction currency – is the first currency appearing in a currency pair quotation, followed by the second part of the quotation, called the quote currency or the counter currency. For accounting purposes, a firm may use the base currency as the domestic currency or accounting currency to represent all profits and losses.
Practice Questions
1. What is the primary currency in a currency pair?
A) The currency being sold
B) The currency being bought
C) The currency in which the transaction is conducted
Answer: B
2. What is the counter currency in a currency pair?
A) The currency being sold
B) The currency being bought
C) The currency in which the transaction is conducted
Answer: A
3. In the currency pair EUR/USD, what is the primary currency?
A) EUR
B) USD
C) Both currencies are equal in value
Answers:
1. B
2. A
3. A
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