Indirect Quote

AAA

DEFINITION of 'Indirect Quote'

A currency quotation in the foreign exchange markets that expresses the amount of foreign currency required to buy or sell one unit of the domestic currency. An indirect quote is also known as a “quantity quotation,” since it expresses the quantity of foreign currency required to buy units of the domestic currency. In other words, the domestic currency is the base currency in an indirect quote, while the foreign currency is the counter currency. An indirect quote is the opposite or reciprocal of a direct quote, also known as a “price quotation,” since it expresses the price of one unit of a foreign currency in terms of the domestic currency.

INVESTOPEDIA EXPLAINS 'Indirect Quote'

As the US dollar is the dominant currency in global foreign exchange markets, the convention is to generally use direct quotes that have the US dollar as the base currency and other currencies – like the Canadian dollar, Japanese yen and Indian rupee – as the counter currency. Exceptions to this rule are the euro and Commonwealth currencies like the British pound, Australian dollar and New Zealand dollar, which are typically quoted in indirect form (for example GBP 1 = USD 1.50).

Consider the example of the Canadian dollar (C$), which we assume is trading at 1.0400 to the US dollar. In Canada, the indirect form of this quote would be C$1 = US$0.9615 (i.e. 1/1.0400).

In the direct quote, a lower exchange rate implies that the domestic currency is appreciating or becoming stronger, since the price of the foreign currency is falling. Conversely, for an indirect quote, a lower exchange rate implies that the domestic currency is depreciating or becoming weaker, since it is worth a smaller amount of foreign currency. Continuing with the above example, if the Canadian dollar (direct) quotation now changes to US$1 = C$1.0600, the indirect quote would be C$1 = US$ 0.9434 = 94.34 US cents.

What about cross-currency rates, which express the price of one currency in terms of a currency other than the US dollar? A trader or investors should first ascertain which type of quotation is being used – direct or indirect – to price the cross-rate accurately.

For example, if the Japanese yen is quoted at US$1 = JPY 100, and US$1 = C$1.0600, what is the price of yen in Canadian dollars (both direct and indirect quotations)?

In Canada, the indirect quotation would be: C$1 = US$0.9434 x 100 (yen per USD) = 94.34 yen.

The direct quotation would be: JPY 1 = C$1.0600/100 = C$ 0.0106.

RELATED TERMS
  1. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  2. Currency Peg

    A country or government's exchange-rate policy of pegging the ...
  3. Covered Interest Rate Parity

    This term refers to a condition where the relationship between ...
  4. Cross Currency

    A pair of currencies traded in forex that does not include the ...
  5. Currency Pair

    The quotation and pricing structure of the currencies traded ...
  6. Triangular Arbitrage

    The process of converting one currency to another, converting ...
Related Articles
  1. A Primer On The Forex Market
    Options & Futures

    A Primer On The Forex Market

  2. How Currency Works
    Economics

    How Currency Works

  3. The Effects Of Currency Fluctuations ...
    Forex Fundamentals

    The Effects Of Currency Fluctuations ...

  4. The Impact Of Currency Conversions
    Forex Education

    The Impact Of Currency Conversions

Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  3. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  4. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  5. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  6. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
Trading Center