Direct and Indirect Methods of Quoting Exchange Rate | direct rate
Thisarticlethrowslightuponthedirectandindirectmethodsofquotingexchangerate.1.DirectMethod:Underthismethod,theforeignexchangerateofaforeigncurrencyisexpressedasnumberofunitsofhomecurrency(Local,domesticcurrency).Underdirectmethod,thenumberofunitsofforeigncurrencyiskeptconstant(normallyaunit,withexceptions,viz.JapaneseYen,inwhichYenistakenas100,ifYenisforeigncurrency)andanychangeintheexchangeratewillbemadebychangingthevalueoflocalcurrencyorhomecurrencyordomesticcurrency.Forexample,USdollar1.00...
This article throws light upon the direct and indirect methods of quoting exchange rate.
1. Direct Method:
Under this method, the foreign exchange rate of a foreign currency is expressed as number of units of home currency (Local, domestic currency).
Under direct method, the number of units of foreign currency is kept constant (normally a unit, with exceptions, viz. Japanese Yen, in which Yen is taken as 100, if Yen is foreign currency) and any change in the exchange rate will be made by changing the value of local currency or home currency or domestic currency.
For example, US dollar 1.00 = Indian Rupees 46.86 (as on August 27th, 2010) would be a direct exchange rate for the US dollar in India, and US $ 1.00 = Japanese Yen 93.25 (as on March 31st, 2010) is a direct quote for Japan. The quotation of the exchange rate as found by Direct Method is known as “Direct Quotation” or “Direct Rate”.
Direct Quotation – Buy Low, Sell High: