What are the major currencies? Definition and examples
The Major Currencies are those in which most of the world’s foreign transactions are denominated. They are also the currencies that countries most commonly value their own currency against.
- US Dollar.
- Pound Sterling (British Pound).
- Japanese Yen.
- Swiss Franc.
- Canadian Dollar.
- Australian Dollar.
- Swedish Kronor.
- New Zealand Dollar.
Major currencies not only dominate trading in the foreign exchange markets but also act as the principal medium of exchange in international trade and cross-border investments.
Major currencies – the majors
People also refer to the currencies we trade with the most as the majors. The majors make up approximately 85% of the foreign exchange market, and therefore exhibit very high market liquidity.
Liquidity refers to how quickly we can convert an asset into cash. The most liquid asset is cash. A very liquid currency is one that we can easily convert into local currency or from local currency.
An illiquid currency, on the other hand, is difficult to cash in or convert into local currency. The Venezuelan Bolivar, for example, is very illiquid.
A currency pair is the quotation of two currencies in the foreign exchange market (Forex). We value one currency being quoted against the other.
We call the two currencies in currency pairs the counter/quote and base/transaction currency.
Counter or quote currency
This is the currency that we are using as a reference. In other words, the currency against which we are comparing the base currency.
Base or transaction currency
This is the currency that we quote in relation to the counter currency.
With currency pairs, we usually write them using the ISO currency codes (ISO 4217) of the base and counter currencies. We separate the two codes with a slash. Some people place a dash or a dot instead of the slash.
The most widely quoted currency pair is EUR/USD. A quotation of EUR/USD 1.19 means €1 = US$1.19. (€ = Euro, $ = Dollar). Below is a list of the most common currency pairs:
Major currencies often serve as benchmark rates for smaller economies, influencing their exchange rates and monetary policies due to their stability and global acceptance.
Below are some example sentences containing the words “major currencies” to help you see how we can use the term in context:
- “Investors often seek assets in a major currency to hedge against the volatility of their local currency.”
- “During the fiscal crisis, the central bank intervened to stabilize the exchange rate by trading in major currencies.”
- “Multinational corporations conduct their business in major currencies to streamline operations across different countries.”
- “The fluctuation of a major currency can have a cascading effect on commodity prices due to its widespread use in international transactions.”
- “Tourists may face additional expenses when traveling to a country with a major currency stronger than their own.”
- “Developing countries sometimes peg their currency to a major currency to maintain economic stability and encourage foreign investment.”
- “The global forex markets are dominated by trading in major currencies, which are considered more liquid and reliable than other currencies.”
Video – What are the Major Currencies?
This video presentation, from our sister channel on YouTube – Marketing Business Network, explains what the meaning of ‘Major Currencies’ is using simple and easy-to-understand language and examples.