Inversion: Difference between revisions
imported>Doug Williamson (Standardise appearance of page) |
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The base currency is GBP. | The base currency is GBP. | ||
This is the currency there is a single unit of, to be exchanged for a variable number of USD. | |||
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1 USD = GBP 0.6848 - 0.6850. | 1 USD = GBP 0.6848 - 0.6850. | ||
In the inverted FX quote, USD is the currency there is a single unit of (to be exchanged for a variable number of GBP). | |||
Revision as of 16:02, 16 March 2015
1.
A term used in foreign exchange rate quotation.
Example
Consider the historical FX quote:
1 GBP = USD 1.4598 - 1.4602.
The base currency is GBP.
This is the currency there is a single unit of, to be exchanged for a variable number of USD.
The inversion of this FX quote means expressing the same price, but with the other currency as the base currency (USD here):
1 USD = GBP ( 1 / 1.4602 ) - ( 1 / 1.4598 )
1 USD = GBP 0.6848 - 0.6850.
In the inverted FX quote, USD is the currency there is a single unit of (to be exchanged for a variable number of GBP).
2.
In any market, the reversal of a normal - or commonly expected - relationship.
For example the situation of an Inverse yield curve, where longer maturities of funds are trading at LOWER yields than shorter-dated maturities (being the opposite of the normally expected upward-sloping relationship).
