Direct quote: Difference between revisions
imported>Doug Williamson (Add example.) |
imported>Doug Williamson (Align with qualifications material.) |
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A foreign exchange rate quotation where the foreign currency amount is multiplied by the | A 'direct' quote is foreign exchange rate quotation where fixed amounts of the foreign currency are expressed as variable amounts of the domestic currency.<br /> | ||
This means that the amount of foreign currency is <u>multiplied</u> by the given exchange rate, to obtain the domestic currency equivalent. | |||
<b>Example 1</b><br /> | |||
Our domestic currency is USD.<br /> | |||
The exchange rate with EUR is quoted as:<br /> | |||
EUR/USD 1.0986 | |||
From the perspective of USD, this is a direct quote.<br /> | |||
It means EUR 1 = 1.0986 USD. | |||
= EUR | |||
As a USD-domiciled person, we multiply by the quoted rate of 1.0986, to work out our domestic currency (USD) equivalent. | |||
Say we need to exchange EUR 100,000. | |||
EUR 100,000 would be exchanged for:<br /> | |||
USD 100,000 x 1.0986<br /> | |||
= USD 109,860. | |||
<b>Direct or indirect</b><br /> | |||
Whether any given FX quotation is 'direct' or 'indirect' depends on our perspective. <br /> | |||
It depends what our domestic currency is. | |||
<b>Example 2</b><br /> | |||
From the perspective of a EUR-domiciled person, the quote: | |||
EUR/USD 1.0986 | |||
is an indirect quote. | |||
It means EUR 1 = 1.0986 USD.<br /> | |||
A EUR-domiciled person would divide by this rate, in order to obtain their domestic currency (EUR) equivalent of a USD amount. | |||
For example:<br /> | |||
USD 109,860 / 1.0986<br /> | |||
= EUR 100,000 | |||
<b>Example 3</b><br /> | |||
In this example we are a GBP-domiciled person.<br /> | |||
From our perspective, the rate with USD quoted as: | |||
USD/GBP 0.6539 | |||
is a direct quote. | |||
It means USD 1 = 0.6539 GBP. | |||
As a GBP-domiciled person, we would <u>multiply</u> by this rate to work out our domestic currency (GBP) equivalent of a USD amount. | |||
For example:<br /> | |||
USD 100,000 x 0.6539<br /> | |||
= GBP 65,390 | |||
== See also == | == See also == | ||
* [[Foreign exchange rate]] | *[[Base currency]] | ||
* [[Indirect quote]] | *[[Fixed currency]] | ||
* [[Quoted currency]] | *[[Foreign exchange rate]] | ||
* [[USD]] | *[[Indirect quote]] | ||
*[[Quoted currency]] | |||
*[[USD]] | |||
*[[Variable currency]] | |||
[[Category:Manage_risks]] | [[Category:Manage_risks]] | ||
[[Category:Trade_finance]] | [[Category:Trade_finance]] | ||
Revision as of 11:35, 30 May 2015
A 'direct' quote is foreign exchange rate quotation where fixed amounts of the foreign currency are expressed as variable amounts of the domestic currency.
This means that the amount of foreign currency is multiplied by the given exchange rate, to obtain the domestic currency equivalent.
Example 1
Our domestic currency is USD.
The exchange rate with EUR is quoted as:
EUR/USD 1.0986
From the perspective of USD, this is a direct quote.
It means EUR 1 = 1.0986 USD.
As a USD-domiciled person, we multiply by the quoted rate of 1.0986, to work out our domestic currency (USD) equivalent.
Say we need to exchange EUR 100,000.
EUR 100,000 would be exchanged for:
USD 100,000 x 1.0986
= USD 109,860.
Direct or indirect
Whether any given FX quotation is 'direct' or 'indirect' depends on our perspective.
It depends what our domestic currency is.
Example 2
From the perspective of a EUR-domiciled person, the quote:
EUR/USD 1.0986
is an indirect quote.
It means EUR 1 = 1.0986 USD.
A EUR-domiciled person would divide by this rate, in order to obtain their domestic currency (EUR) equivalent of a USD amount.
For example:
USD 109,860 / 1.0986
= EUR 100,000
Example 3
In this example we are a GBP-domiciled person.
From our perspective, the rate with USD quoted as:
USD/GBP 0.6539
is a direct quote.
It means USD 1 = 0.6539 GBP.
As a GBP-domiciled person, we would multiply by this rate to work out our domestic currency (GBP) equivalent of a USD amount.
For example:
USD 100,000 x 0.6539
= GBP 65,390
