What Is a Direct Quote?
A direct quoteis a foreign exchange rate quoted in fixed units of foreign currency in variable amounts of the domestic currency. In other words, a direct currency quote asks what amount of domestic currency is needed to buy one unit of the foreign currency—most commonly the U.S. dollar (USD) in forex markets. In a direct quote, the foreign currency is thebase currency, while the domestic currency is thecounter currency or quote currency.
This can be contrasted with an indirect quote, in which the price of the domestic currency is expressed in terms of a foreign currency, or what is the amount of domestic currency received when one unit of the foreign currency is sold. Note that a quote involving two foreign currencies (or one not involving USD) is called a cross currency quote.
Key Takeaways
- A direct quote is a currency pair quote where the foreign currency is expressed in per-unit terms of the domestic currency.
- A direct quote gives you the quantity of local currency needed to purchase one unit of foreign currency.
- Because the U.S. dollar is the most traded currency in the world, the USD generally serves as the base currency in most direct quotes. Some major exceptions to this rule include the British pound and the euro.
Understanding Direct Quotes
The use of direct quotes versus indirect quotes depends on the location of the trader asking for the quote, as that determines which currency in the pair is domestic and which is foreign. Non-business publications and other media usually quote foreign exchange rates in direct terms for the ease of consumers. However, the foreign exchange market has quoting conventions that transcend local borders.
A direct quote can be compared to an indirect quote as its inverse, or by the following expression:
DQ = 1/IQ
Where:
- DQ = Direct Quote
- IQ = Indirect Quote
In a direct quote, a higher exchange rateimplies that the domestic currency is depreciating or becoming weaker since the price of the foreign currency is effectively rising—and vice versa. Thus, if the USD/JPY (direct) quotation changes from 100 to 105, it indicates the yen is weakening against the dollar because it would take 5 more yen (the local currency) to buy 1 USD (the foreign currency).
U.S. Dollars
The U.S. dollar (USD) is the most actively traded currency in the world. In the context of trading rooms and professional publications, most currencies are quoted as the number of foreign currency units per dollar. This means that the dollar serves as the base currency, whether the speaker is in the United States or elsewhere.
An example of a direct quote using U.S. dollars might be stating $1.17 Canadian per U.S. dollar, rather than 85.5 U.S. cents per Canadian dollar, which would be the indirect quote.
British Pounds
A major exception to the dollar-base quote rule is when the British pound (GBP) is quoted against other currencies, including the dollar, but with the exception of the euro. This reflects the fact that the pound was the world's dominant currency in the years leading up to World War II and before the ascendancy of the U.S. economy.
The exchange rate for the pound would thus be quoted as $1.45 per £1, regardless of whether this is considered direct (in the United States) or indirect (in the United Kingdom).
Euros
The euro (EUR) came into existence on Jan. 1, 1999 as the unit of account for participatingEuropean Union (EU) member nations; notes and coins were first issued on Jan. 1, 2002. The euro replaced many major traded European currencies, including the German mark, the French franc, and the Dutch guilder.
The European Central Bank (ECB), which oversaw the conversion, intended the currency to be the financial market's dominant currency. It specified that the euro should always be the base currency whenever it is traded, including against both the U.S. dollar and the British pound. For this reason, quotes are always the number of dollars, pounds, Swiss francs, or Japanese yen needed to buy €1.
FAQs
A direct quote is a currency pair quote where the foreign currency is expressed in per-unit terms of the domestic currency. A direct quote gives you the quantity of local currency needed to purchase one unit of foreign currency.
What is a direct quote currency? ›
Direct quotation is where the cost of one unit of foreign currency is given in units of local currency, whereas indirect quotation is where the cost of one unit of local currency is given in units of foreign currency. Note. Your local currency is EUR: - Direct exchange rate: 1 USD = 0.92819 EUR.
What is a direct quote in simple terms? ›
A direct quotation is when you take another person's words and place them in your own document. These must always be placed inside quotation marks and given appropriate attribution (MLA, APA, Chicago, etc).
What is the indirect quote of 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.
How do you calculate currency quotations? ›
Steps to Perform a Direct Currency Calculation
- If Indirect: Amount / Bid Price = Number of units of Target currency.
- If Direct: Amount * Bid Price = Number of units of Target currency.
Direct Quote = 1/ Indirect Quote
Where indirect quote will be given as the amount of foreign currency required for the 1 unit of the domestic currency.
How do you know if a quote is direct or indirect? ›
Both direct and indirect quotes use the information from the original; The direct quote also uses the exact words, while the indirect quote does not. Both direct and indirect quotes need to be cited in the text and listed in the Works Cited / References page. What is a paraphrase?
How do you directly quote a definition? ›
To cite a definition within the text, you would place the institution or organizations and the date of publication in parentheses after the relevant phrase and before the punctuation mark. If the definition is quoted, you must also add the page number.
How do you write a direct quote example? ›
Examples
- The author said, “I need to sell more books to make my quota!” OPENING QUOTATION MARKS.
- “The problem is,” the author stated, “that no one has money anymore to buy books.” CLOSING QUOTATIONS.
A direct quotation reproduces word-for-word material taken directly from another author's work, or from your own previously published work. If the quotation is fewer than 40 words, incorporate it into your paragraph and enclose it in double quotation marks. Place it before the full stop.
In forex, currency pairs are written as XXX/YYY or simply XXXYYY. Here, XXX is the base currency and YYY is the quote currency. EUR/USD and USD/CAD are two examples of this format. The abbreviations used for currencies are prescribed by the International Organization for Standardization (ISO).
What is an example of a quote currency? ›
The quote currency is the second currency in both a direct and indirect currency pair and is used to value the base currency. An example of a currency pair is EUR/USD, the most traded pair. Currency quotes show investors how many units of the quote currency they will need to exchange for one unit of the base currency.
What is an indirect quote example? ›
In writing a narrative essay, for example, you might recount a time your mother gave you advice by using a direct quotation, like so: Mom said, “Always brush your teeth before bed.” Or you could use an indirect quotation, like so: Mom said that I should always brush my teeth before bed.
What is an example of a direct quotation currency? ›
For example, if the exchange rate between the US dollar and the Chinese yuan is 0.56 yuan per US dollar, it is a direct quote for China, as the domestic currency for China is represented per unit of the US dollar (foreign currency). Similarly, the exact currency quote above is an indirect quote for the USA, as a USD1.
What is the formula to calculate currency? ›
If "a" is the money you have in one currency and "b" is the exchange rate, then "c" is how much money you'll have after the exchange. So a * b = c, and a = c/b.
What is the formula for currency profit? ›
The actual calculation of profit and loss in a position is quite straightforward. To calculate the P&L of a position, what you need is the position size and the number of pips the price has moved. The actual profit or loss will be equal to the position size multiplied by the pip movement.
Is EUR USD a direct quote? ›
Most pairs using the U.S. dollar are direct quotes. However, for an American trader, a EUR/USD quote is an indirect one. So, for example, a quote of 0.80 EUR/USD means that 1 EUR would cost you $0.80.
What is a direct quote currency CFA? ›
A direct currency quote considers domestic currency as the price currency and foreign currency as the base currency. For instance, a French investor will view EUR/USD as the direct euro-US dollar exchange rate quoted in terms of the number of euros per dollar.
How do you quote currencies? ›
Major Currency Pairs
1 The quotation EUR/USD = 1.2500 means that one euro is exchanged for 1.2500 U.S. dollars. In this case, EUR is the base currency and USD is the quote currency (counter currency). This means that 1 euro can be exchanged for 1.25 U.S. dollars.
