Inversion: Difference between revisions
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1. | 1. | ||
A term used in foreign exchange rate quotation. | A term used in foreign exchange rate quotation. | ||
Consider the historical FX quote | |||
'''Example''' | |||
Consider the historical FX quote: | |||
GBP 1 = 1.4598 - 1.4602 USD. | |||
The base currency is GBP. | The base currency is GBP. | ||
The inversion of this FX quote means expressing the same price, but with the other currency as the base currency (USD here). | 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): | |||
USD 1 = (1 / 1.4602) - (1 / 1.4598) GBP | |||
USD 1 = 0.6848 - 0.6850 GBP. | |||
In the inverted FX quote, USD is the currency there is a single unit of (to be exchanged for a variable number of GBP). | |||
The term FX ''inverse quote'' is also used to refer to an FX inversion. | |||
2. | 2. | ||
In any market, the reversal of a normal - or commonly expected - relationship. | 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). | 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). | ||
3. | |||
More broadly, any reversal of a normal or expected relationship. | |||
For example, a tax inversion. | |||
== See also == | == See also == | ||
* [[Base currency]] | * [[Base currency]] | ||
* [[Foreign exchange]] | * [[Foreign exchange]] (FX) | ||
* [[Inverse yield curve]] | * [[Inverse yield curve]] | ||
* [[Reciprocal]] | |||
* [[Tax inversion]] | |||
[[Category:Manage_risks]] | |||
Latest revision as of 08:58, 6 July 2022
1.
A term used in foreign exchange rate quotation.
Example
Consider the historical FX quote:
GBP 1 = 1.4598 - 1.4602 USD.
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):
USD 1 = (1 / 1.4602) - (1 / 1.4598) GBP
USD 1 = 0.6848 - 0.6850 GBP.
In the inverted FX quote, USD is the currency there is a single unit of (to be exchanged for a variable number of GBP).
The term FX inverse quote is also used to refer to an FX inversion.
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).
3.
More broadly, any reversal of a normal or expected relationship.
For example, a tax inversion.
