Direct costs and Direct quote: Difference between pages

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''Cost and management accounting.''
A 'direct' quote is a 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.


In cost and management accounting, direct costs are costs which can be directly associated with the production of particular units or types of product.
 
<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.
 
 
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 ==
* [[Direct expense]]
*[[Base currency]]
* [[Direct production cost]]
*[[Fixed currency]]
* [[Indirect costs]]
*[[Foreign exchange rate]]
* [[Management accounting]]
*[[Indirect quote]]
* [[Markup]]
*[[Quoted currency]]
*[[USD]]
*[[Variable currency]]
 
 
== Other resources ==
[[Media:June_16_TT_Base_jumper.pdf| Base jumper - applying direct and indirect exchange rate quotes, The Treasurer]]


[[Category:Accounting,_tax_and_regulation]]
[[Category:Manage_risks]]
[[Category:The_business_context]]
[[Category:Trade_finance]]

Revision as of 15:59, 13 December 2016

A 'direct' quote is a 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


See also


Other resources

Base jumper - applying direct and indirect exchange rate quotes, The Treasurer