Which way around should you read an exchange rate?

What does the exchange rate represent? Is the rate the amount of currency you have to pay or the amount of currency you will receive? How do you know which way around to read it?

Typically, when you buy or sell a good or service, you only need to think about its price, but when you buy a foreign currency, you are selling one type and purchasing another. This means the price of a foreign currency is expressed as an exchange rate between the two currencies.
 
Exchange rates are quoted as currency pairs based on their three letter ISO codes. The first currency in the pair is called the base currency and the second is the terms currency. The exchange rate is the amount of the terms currency you can buy for one unit of the base currency.
 
For example, what does a GBP/USD rate of 1.4567 mean? You may read it as " 1.4567 GBP per USD" because GBP comes first and USD kind of looks it is the divisor right? That would be wrong! The first currency is the base currency and the second is the terms currency, so the rate is 1.4567 USD per GBP.
 
Most exchange rates are quoted with the US Dollar as the base currency, except when the US Dollar is quoted against Sterling (GBP/USD), the Euro (EUR/USD) and some others. Currency pairs not involving the US Dollar may be referred to as a cross-currency pair.

Note that this means every currency pair can have two possible rates! A rate where one currency is the base and the other is the terms currency or vice versa.
 
For example, in the GBP/USD example above we saw that 1 GBP could be sold or exchanged for 1.4567 USD. How many GBP can be exchanged for USD? i.e. What is the USD/GBP rate? The USD/GBP rate will be the reciprocal of the GBP/USD rate (1/1.4567) i.e. 0.6865. 1 USD can be sold for 0.6865 GBP.
 
Exchange rates are quoted to 5 significant figures.
 
The Moneydero user interface always shows you which currency you are buying and the currency that you are selling. It clearly displays the rate and the amounts of each currency you will be exchanging.
 
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