What is an Exchange Rate - Direct and Indirect Quote
Exchange Rate
A rate at which one currency can be exchanged with the other. It is a rate at which one currency expressed in terms of the other. It is a rate at which a currency can be bought or sold.
Exchange Rate can be expressed in two ways:
- Direct Quote
- Indirect Quote
The rate at which a currency can be exchanged directly with another currency is known as Direct Quote. For example, 1 USD = 75 INR.
The rate at which a currency can be exchanged indirectly with another currency is known as Indirect Quote. For example, 1 INR = 0.013 USD.
Direct Quote and Indirect Quote
What do you mean by Direct Quote?
- In the above quoted exchange rate:
- The quote is given for 1 unit of $.
- In this given quote, $ behaves like a commodity.
- For an entity in India, $ is a foreign currency.
- The given quote is for 1 unit of foreign currency.
- This is a Direct Quote.
- In a Direct Quote, 1 unit of foreign currency is expressed in terms of local currency.
What do you mean by Indirect Quote?
- In the above quoted exchange rate:
- The quote is given for 1 unit of ₹.
- In this given quote, ₹ behaves like a commodity.
- For an entity in India, ₹ is a local currency.
- The given quote is for 1 unit of local.
- This is an Indirect Quote.
- In an Indirect Quote, 1 unit of local currency is expressed in terms of foreign currency.
Note:
In order to classify a given Exchange Rate as Direct Quote or Indirect Quote one of the currencies in the quote must be the local currency.
What is an Exchange Rate | Direct Quote & Indirect Quote
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