Price quote when a currency is quote, then it relates in relation to another currency so that the value of one reflects the value of another.
Therefore, if you are trying to determine the exchange rate between the (EUR).
And the U.S. dollar, the Price quote would look like this: EUR/USD= 1.06325.
The currency to the left of the slash is the base currency while the currency on the right is the quote or counter currency.
The base currency (in this case, the EUR) is always equal to one unit (in this case, 1 EUR).
and the quote currency (in this case, the USD) is what that one base unit is equivalent to in the other currency.
The price means that 1 EUR = $ 1.06325, In other words, EUR 1 can buy $ $ 1.06325.
Direct Price Quote vs. Indirect Price Quote
There are two ways to price in a currency pair, either directly or indirectly.
A direct price quote or currency quote is simply a currency pair in which the domestic currency is the base currency.
while an indirect price quote or quote is a currency pair where the domestic currency is the quoted currency.
So if you are looking at the EURO as the domestic currency and U.S. dollar as the foreign currency, a direct quote would be EUR/USD.
while an indirect quote would be USD/EUR.
The direct quote varies the foreign currency and domestic currency remains fixed at one unit.
For example, if EURO is the domestic currency, a direct price quote would be 1.2728 EUR/USD which means with EUR 1, you can purchase US$1.2728
The indirect price for this would be the inverse (1/1.2728), which is 0.785 USD/EUR and means that USD$1 will purchase £ 0.785.
In these cases, it is then a direct price.
This would apply to the above GBP/USD currency pair, which indicates that GBP1 is equal to 1.3300 USD.
However, not all currencies have the U.S. dollar as the base.
Those currencies that historically have had a tie with Britain, such as the British pound, Australian Dollar, and New Zealand dollar – all quoted as the base currency against the U.S. dollar.
euro, which is relatively new, quote the same way as well.
In these cases, the U.S. dollar is the counter currency, and the exchange rate is refer to as an indirect price quote.
This is why the EUR/USD quote is given as 1.4036 for example because it means that one euro is the equivalent of 1.06325 U.S. dollars.
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