Direct Vs Indirect Quote
Foreign exchange rates are quoted in pairs
Example:
Dollar to Pound, Franks to Yen, Rupees to Dinar etc.
Direct Quote
A foreign exchange rate quoted as the home currency per unit of the foreign currency.
In other words, one unit of foreign currency is measured in home currency.
In Direct quote, exchange rate is represented by home currency symbol.
In Direct quote, home currency is written prior to foreign currency and home currency symbol is written just before exchange rate.
In Direct Quote, exchange rate is multiplied by the foreign currency to convert foreign currency into home currency.
Direct quote is used when foreign currency is stronger than home currency. It ease calculating foreign exchange rate by avoiding decimal places. It is used mostly used in developing countries such as Pakistan and India.
Indirect Quote
A foreign exchange rate quoted as the foreign currency per unit of the home currency.
In other words, one unit of home currency is measured in foreign currency.
In Indirect quote, exchange rate is represented by opposite currency symbol.
In Indirect quote, foreign currency is written prior to home currency and foreign currency symbol is written just before exchange rate.
In Indirect quote, exchange rate is divided by the foreign currency to convert foreign currency into home currency.
Buying & Selling Rate
Buying and selling rates are two different rates. Difference between buying and selling rate is known as spread.
Spread
Spread represents the profit to the foreign exchange dealer (broker).
Foreign exchange dealers sell at profit and buy to cause you loss.
Direct Quote
In direct quote, buying rate is higher rate and selling rate is lower rate.
Indirect Quote
In indirect quote, buying rate is lower rate and selling rate is higher rate.
Remember whichever quote you use, you should select an exchange rate for buying and selling which is loss making to you and profitable to foreign exchange dealer. Because, foreign exchange dealer is trading for profit and if they are making profit, then you should definitely be losing money.
Lower rate is written before the higher rate regardless of the type of quote in use.
Example:
Dollar to Pound Sterling rate is $1.554 – $1.557
