What is an exchange rate? Bid, ask, cross rates and what moves them

An exchange rate is the price of one currency expressed in another. In the pair USD/TRY the first currency, the dollar, is the base and the second, the lira, is the quote. A rate of 40 means one dollar costs 40 lira.

Rates matter whenever money crosses borders: travel, imports, salaries paid abroad and any investment in foreign assets.

Every quote has two prices. The bid is what a dealer pays when you sell the base currency, and the ask is what you pay to buy it. The difference is the spread, which is the dealer's margin and a cost to you.

EUR/TRY = EUR/USD × USD/TRY

A cross rate is derived from two other rates, usually through the dollar, when a pair is not quoted directly:

Higher interest rates tend to attract capital and support a currency, while higher inflation erodes its purchasing power over time. Trade balances, central bank decisions, growth, politics and risk sentiment also matter.

In Turkey, the lira has weakened against the dollar over many years as inflation ran above that of the United States, which is why many people follow USD/TRY closely.

Rates can move sharply on news, so a transfer or trade can lose value before it settles. Compare the real market rate with what a bank or exchange office offers, as spreads and fees differ.

Avoid judging a currency by one day of movement, and remember that holding foreign currency carries exchange rate risk of its own.