Indirect quote: Difference between revisions
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An 'indirect' quote is foreign exchange rate quotation where fixed amounts of the domestic currency are expressed as variable amounts of the domestic currency.<br /> | An 'indirect' quote is a foreign exchange rate quotation where fixed amounts of the domestic currency are expressed as variable amounts of the domestic currency.<br /> | ||
This means that the amount of foreign currency is <u>divided</u> by the given exchange rate, to obtain the domestic currency equivalent. | This means that the amount of foreign currency is <u>divided</u> by the given exchange rate, to obtain the domestic currency equivalent. | ||
Revision as of 12:04, 30 May 2015
An 'indirect' quote is a foreign exchange rate quotation where fixed amounts of the domestic currency are expressed as variable amounts of the domestic currency.
This means that the amount of foreign currency is divided by the given exchange rate, to obtain the domestic currency equivalent.
Example 1
Our domestic currency is USD.
The exchange rate with JPY is quoted as:
USD/JPY 124.15
From the perspective of USD, this is a indirect quote.
It means USD 1 = 124.15 USD.
As a USD-domiciled person, we divide by the quoted rate of 124.15, to work out our domestic currency (USD) equivalent.
Say we need to exchange JPY 12,500,000.
JPY 12,500,000 would be exchanged for:
USD 12,500,000 / 124.15
= USD 100,684.66.
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 JPY-domiciled person, the quote:
USD/JPY 124.15
is a direct quote.
It means USD 1 = 124.15 JPY.
A JPY-domiciled person would multiply by this rate, in order to obtain their domestic currency (JPY) equivalent of a USD amount.
For example:
USD 100,684.66 x 124.15
= JPY 12,500,001
