Indirect Quote
What Is an Indirect Quote?
The term indirect quote is a currency quotation in the foreign exchange market that expresses the variable amount of foreign currency required to buy or sell one unit of the domestic currency. An indirect quote is otherwise called a "quantity quotation," since it expresses the quantity of foreign currency required to buy units of the domestic currency. All in all, the domestic currency is the base currency in an indirect quote, while the foreign currency is the counter currency.
Figuring out Indirect Quotes
An indirect quote is the inverse, or reciprocal, of a direct quote, otherwise called a "price quotation," which expresses the price of one unit of a foreign currency in terms of a variable number of units of the domestic currency.
As the U.S. dollar ([USD](/usd-US dollar)) is the prevailing currency in global foreign exchange markets, the convention is to generally utilize direct quotes that have the U.S. dollar as the base currency and different currencies — like the Canadian dollar (CAD), Japanese yen (JPY) and Indian rupee (INR) — as the counter currency. Exemptions for this rule are the euro and Commonwealth currencies like the British pound (GBP), Australian dollar (AUD) and New Zealand dollar (NZD), which are regularly quoted in indirect form (for instance GBP 1 = USD 1.30).
Consider the case of the CAD, which we accept for a moment that is trading at 1.2500 to the U.S. dollar. In Canada, the indirect form of this quote would be C$1 = US$0.8000 (for example 1/1.2500). Nonetheless, the conventional quotation in foreign exchange markets is 1.2500, which is an indirect quote from the U.S. point of view since it shows the amount of a foreign currency (CAD) is required to get 1 USD. On the other hand, USD 0.8000 would be a direct quote.
In an indirect quote, a lower exchange rate suggests that the domestic currency is deteriorating, or becoming more fragile. Continuing with the above model, if the USD/CAD quotation presently changes to US$1 = C$1.2300 (indirect quote), then, at that point, that means the USD (domestic currency) has gotten more fragile as less CAD would be expected to get 1 USD. The direct quote, which is 0.8130 (1/1.2300), shows that 1 CAD will get you USD 0.8130, instead of 0.8000.
Currency Crosses
What might be said about cross-currency rates, which express the price of one currency in terms of a currency other than the U.S. dollar? A trader or investors ought to initially find out which type of quotation is being utilized — direct or indirect — to accurately price the cross-rate.
For instance, if USD/JPY is quoted at 100, and USD/CAD is quoted at 1.2700, what is the quotation of CAD/JPY from both the Canadian and Japanese points of view.
CAD/JPY (conventional quote) = USD/JPY \u00f7 USD/CAD
In this way, in the event that domestic currency is CAD,
1 CAD (indirect) = 100 \u00f7 1.2700 = 78.74 JPY
what's more,
in the event that domestic currency is JPY,
Along these lines, 1 JPY (indirect) = 1.2700 \u00f7 100 = 0.0127 CAD
Features
- An indirect quote in the foreign exchange markets expresses the amount of foreign currency required to buy or sell one unit of the domestic currency.
- An indirect quote is otherwise called a "quantity quotation," since it expresses the quantity of foreign currency required to buy a unit of the domestic currency.
- Something contrary to an indirect quote is a direct quote which expresses the price of one unit of a foreign currency in terms of variable number of units of the domestic currency.
