What is a direct quote
A direct quote is an exchange rate involving trading in fixed units of foreign currency against variable amounts of the domestic currency. In February 2020, a direct quotation of the US dollar against the Canadian dollar in the United States was 0.79394 $ US = 1 $ CAN while in Canada, a direct quotation for would be 1.25953 $ CAN = 1 $ US.
Basics of Direct Submission
The concept of direct quotes versus indirect quotes depends on the location of the speaker, as this determines which currency of the pair is national and which is foreign. Non-commercial publications and other media generally cite the exchange rate in direct terms for ease of consumers. However, the forex market has trading agreements that transcend local boundaries.
A direct quote can be calculated using the following formula:
DQ = 1 / IQ
- DQ = Direct quote
- IQ = indirect Work
The US dollar is the most traded currency in the world. In the context of market facilities and professional publications, most currencies are indicated as the number of foreign currency units per dollar. This means that the dollar is the base currency, the speaker or the United States or elsewhere. A standard trading price would be $ 1.17 Canadian per US dollar rather than 85 cents US per Canadian dollar.
A major exception to the basic dollar rule is when the pound is quoted against other currencies, including the dollar, but with the exception of the euro. This reflects the fact that the pound was the dominant currency in the world in the years before World War II and before the rise of the American economy.
The pound’s exchange rate would thus be evaluated at $ 1.45 for £ 1, whether it is considered direct (in the United States) or indirect (in the United Kingdom).
The euro was launched on 1 January 1999 as a unit of account for the member countries; banknotes and coins were first issued on January 1, 2002. The euro replaced many of the major European currencies traded, including the German mark, the French franc and the Dutch guilder. The European Central Bank, who oversaw the conversion, wanted the currency to be the dominant currency in the financial market. For this reason, he clarified that the euro should always be the base currency when trading, including against the US 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 €.
Key points to remember
- A direct quote is a currency quote for a foreign currency in terms of unit of a national currency.
- Because it is the most traded currency in the world, the US dollar is generally used as base currency in most direct quotations. The main exceptions to this rule are the British pound and the euro.