Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
What is the difference
between direct and indirect quotations?
Expert Solution
Step 1
Introduction:
Exchange rate for a pair of currencies is quoted in two ways. They are,
- Direct quote, and
- Indirect quote
Assume that USD is the domestic currency and Euro (EUR) is the foreign currency.
Step 2
Direct quote:
It shows how many foreign currency units per domestic currency unit can be purchased. Within a direct quote, the quoted currency is domestic one and base currency is foreign currency.
The currency to the left of the cut is the base currency and counter currency is considered the currency on the right. The based currency is always 1 unit. The quotation means that on the particular moment in time 1 EUR is equal to 1.12USD.
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