Direct quote
Foreign exchange.
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
- Base currency = fixed currency
- Foreign exchange rate
- Indirect quote
- Quoted currency
- USD
- Variable currency
Other resource
Base jumper - applying direct and indirect exchange rate quotes, The Treasurer
