What is Direct Quote?

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A direct quote is a foreign exchange rate quoted in fixed units of foreign currency in variable amounts of the domestic currency. In other words, a direct currency quote asks what amount of domestic currency is needed to buy one unit of the foreign currency—most commonly the U.S. dollar (USD) in forex markets. In a direct quote, the foreign currency is the base currency, while the domestic currency is the counter currency or quote currency.This can be contrasted with an indirect quote, in which the price of the domestic currency is expressed in terms of a foreign currency, or what is the amount of domestic currency received when one unit of the foreign currency is sold. Note that a quote involving two foreign currencies (or one not involving USD) is called a cross currency quote.

Definition

A direct quote refers to an exchange rate quoted with a fixed amount of foreign currency and a variable amount of domestic currency. In other words, a direct exchange rate asks how much domestic currency is needed to purchase one unit of foreign currency, most commonly the US dollar (USD) in the forex market. In a direct quote, the foreign currency is the base currency, and the domestic currency is the counter or quote currency.

Origin

The concept of direct quotes originated with the development of international forex markets, especially after the US dollar became the world's primary reserve currency. As global trade and financial markets expanded, direct quotes became a standardized way of expressing exchange rates, facilitating currency exchange and trade settlements between countries.

Categories and Features

Direct quotes are primarily used to describe the exchange rate relationship between domestic and foreign currencies, especially in transactions involving the US dollar. Features include: 1. The foreign currency is the base currency, and the domestic currency is the quote currency; 2. Easy to understand and use, particularly in markets where the US dollar is the main trading currency; 3. Applicable to most international trade and financial transactions.

Case Studies

Case Study 1: Suppose in the US, 1 USD is exchanged for 6.5 CNY, this is an example of a direct quote. In this case, the USD is the base currency, and the CNY is the quote currency. Case Study 2: In the UK, 1 GBP is exchanged for 1.3 USD, this is also a direct quote because the USD is the quote currency, and the GBP is the base currency.

Common Issues

Common issues include: 1. Why are direct quotes more commonly used for the US dollar? Because the US dollar is the world's primary reserve currency, using it as the base currency simplifies international transactions. 2. What is the difference between direct and indirect quotes? In direct quotes, the foreign currency is the base currency, whereas in indirect quotes, the domestic currency is the base currency.

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