Question

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* What are the reasons why a country uses direct or indirect quotation?

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Answer 1

Direct quote

A direct quote is a foreign exchange rate quoted as the domestic currency per unit of the foreign currency. In other words, it involves a quote in fixed units of foreign currency against variable amounts of the domestic currency. Example 1 EUR = 1.17 USD

Indirect quote

The term indirect quote is a currency quotation in the foreign exchange market 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. Example I USD = 0.85 Euros.

Reasons

• The concept of direct quotes versus indirect quotes depends on the location of the speaker, 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.
• The direct quotations are very simple and straightforward to understand. It makes it easier for the person to grasp the direct quote.
• Indirect Quotes are a bit hard to understand and to grasp immediately.
• A lower exchange rate in a direct quote implies that the domestic currency is appreciating in value.
• A lower exchange rate in an indirect quote indicates that the domestic currency is depreciating in value as it is worth a smaller amount of foreign currency.