Base and quoting currency
In a currency pair like USD/INR, the first currency is the base currency and the second is the quoting currency — the rate shows units of the quoting currency per one unit of the base currency.
In plain language
Currencies are never valued alone — they are always compared to another currency, as a pair. USD/INR is one such pair, comparing the US dollar to the Indian rupee.
In any pair, the first currency named is the base currency, and the second is the quoting currency. The exchange rate tells you how many units of the quoting currency it takes to buy one unit of the base currency.
How it works
In the pair USD/INR, the US dollar is the base currency and the Indian rupee is the quoting currency. If USD/INR trades at, say, 83, that means 1 US dollar equals 83 Indian rupees — the rate is always expressed per one unit of the base currency.
India's foreign exchange market has an interbank segment, where banks quote two-way prices to each other, and a merchant segment, where businesses, government and retail customers are price-takers who buy or sell at the rate the banks offer. Financial Benchmark India Pvt Ltd (FBIL) publishes daily reference rates for the major pairs — USD/INR, EUR/INR, GBP/INR and JPY/INR — on Mumbai business days, and these become the reference point the wider market quotes against.
A worked example
An exporter in Surat is quoted USD/INR at 83.20. Since USD is the base currency and INR is the quoting currency, this rate means 1 US dollar buys Rs 83.20.
If the exporter is paid USD 10,000 for a shipment, converting at this rate gives:
10,000 x 83.20 = Rs 8,32,000
If the rate instead moved to 84.00 by the time the payment arrived, the same USD 10,000 would convert to Rs 8,40,000 — Rs 8,000 more, purely from the base currency (USD) strengthening against the quoting currency (INR).
Why NISM asks about it
Chapter 5 (Introduction to Indian Financial Markets) introduces the base and quoting currency convention while explaining the structure of India's foreign exchange market — the interbank and merchant segments, and FBIL's daily reference rates. Expect a question that gives a currency pair and asks which currency is the base and which is the quoting currency, or asks you to read an exchange rate correctly.
Common exam traps
- The order matters: in USD/INR, USD is base and INR is quoting; reverse the pair to INR/USD and the roles reverse too, changing how the number should be read.
- The exchange rate is quoted per one unit of the base currency, never per one unit of the quoting currency — do not invert this when doing a conversion.
- Retail and business customers in the merchant segment are price-takers; only banks in the interbank segment actively make the two-way market.
Where this is taught
Free preparation for NISM Series X-ARelated terms
- Base currencyThe first currency in a pair, fixed at one unit and priced in the second (quotation) currency. In USDINR the base is USD, so the quote is the rupee price of one dollar.
- Currency futuresA standardised exchange-traded contract to buy or sell one currency against another on a future date at a price fixed today; in India, cash-settled in rupees, USD 1,000 a lot for USDINR.
- FBIL reference rateThe daily USD/INR (and EUR, GBP, JPY vs INR) benchmark rate published by Financial Benchmarks India Pvt Ltd around 1.30 pm; it is the final settlement price of INR currency futures and options.
- Vehicle currencyA common third currency — most often the US dollar — through which two other currencies are traded, instead of trading them directly against each other.
- Exchange Rate RiskThe risk that an investment’s value, measured in the home currency, changes because foreign exchange rates move. A falling rupee raises returns on foreign assets; a rising rupee cuts them.
- Interbank segmentThe part of India's spot foreign exchange market where banks quote two-way buy-sell rates to each other, as against the merchant segment, where businesses and retail customers take the price banks offer.
- Currency pairEvery trade in the foreign exchange market, expressed as one currency bought against another currency sold — the unit in which all currency derivatives are quoted and traded.