How to Quote Forex rate

Keyword - Forex rate

Quoting of forex rates is essential as it impacts the international trade and also the
economy. As a matter of fact the domestic bank plays the role in the determination of the
forex rates which is completely based on the financial market based internationally.
There are two ways through which a rate can be quoted, direct and the indirect quote.
Direct Quotation
The direct quotation is also known by the name price quotation. In this scenario the
exchange rate of the home currency is expressed into an equivalent number of units of
foreign currency. This is generally an expression which simply states that how much
amount of the home currency can be exchanged in comparison to 1 or 100 units of a
foreign currency. It is noted that higher the value of the domestic or home currency then
smaller amount of domestic currency will be needed to exchange for a foreign currency
and hence a lower exchange rate is determined. On the contrary when the domestic
currency becomes less valuable or depreciates then larger amount of home currency will
be required to get the foreign currency.
In case of direct quotation the variation which takes place in the exchange rate will be
related inversely to the changes which take place in the value of the home currency. It
simply denotes that when the domestic currency falls the exchange rate rises and vice
versa. Most of the country uses the direct quotation process such as USD/RMD,
USD/JPY are using the direct quotation.
Indirect Quotation
This is also known by the name quantity quotation. In this case the exchange rate of a
foreign currency is shown in respect to a certain number of units of a domestic currency.
This is opposite to the process of direct quotation. Here it is expressed what amount of
foreign currency is needed to exchange 1 or 100 units of the domestic currency. If the
domestic currency is more valuable then the greater amount of foreign currency can be
exchanged. On the other hand if the home currency is less valuable then smaller amount
of foreign currency can be exchanged.
Under the process of indirect quotation the rise and the fall of the exchange rates are
related directly to the changes which takes place in case of domestic currency. It is seen
that when the value of the home currency increases then the forex rate increases on the
contrary when the value of the home currency falls then the forex rate also falls. The
commonwealth countries use the concept of indirect quotation such as Australia, New
Zealand and United Kingdom.
Quoting of forex rate varies from one country to another. Hence this concept is very
useful in determining the value of foreign currency as well as home currency. This
concept is beneficial to establish the relationship.
Quoting of forex rate is done in two ways which is the direct and indirect quote and it
helps to establish the relationship between the home and foreign currency.