Inversion: Difference between revisions
imported>Doug Williamson (Expand explanation of base currency, for clarity.) |
imported>Doug Williamson (Improve calculations.) |
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Consider the historical FX quote: | Consider the historical FX quote: | ||
1 | GBP 1 = 1.4598 - 1.4602 USD. | ||
The base currency is GBP. | The base currency is GBP. | ||
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The inversion of this FX quote means expressing the same price, but with the other currency as the base currency (USD here): | The inversion of this FX quote means expressing the same price, but with the other currency as the base currency (USD here): | ||
1 | USD 1 = (1 / 1.4602) - (1 / 1.4598) GBP | ||
1 | USD 1 = 0.6848 - 0.6850 GBP. | ||
Revision as of 20:24, 15 January 2016
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).
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).
