The direct quotation, by price or European convention, consists of referencing the national currency in a unit of foreign currency to calculate the exchange rate.
In other words, what we want is to know how many currencies of our country would be needed to buy a foreign currency. In this way, we will always have the reference of a unit of another currency as a fixed part, and as a variable part, the national currency.
Let’s see an example. We have a currency pair expressed as follows: 0.694 EUR/USD. As we can see, the national currency would be the euro (numerator) and the foreign currency would be the US dollar (denominator). It tells us that 0.694 euros are needed to buy one dollar (one unit).
Direct and indirect quote
We already know that it is a direct quote, but its counterpoint is the indirect one. It is the volume quoting method or British system. In this case, what is reflected is the number of foreign currencies needed to buy a unit of national currency.
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As we can see, sometimes it is important to know how many yen I can buy with one euro and other times, how many euros do I need to buy one yen. Therefore, we will use one or the other method depending on what we need to know. Of course, the most common is direct.
On the other hand, in the Forex market, everything depends on whether the position is buying or selling. Thus, the direct method interests the buyer, how many of my coins do I need to buy a foreign one. For its part, the indirect one would be for the seller, since it works in reverse.
Direct listing on the stock market
This concept of direct listing also applies to the stock market. In this case, it refers to a situation in which the shares are listed directly without a prior public offering. Therefore, these are placed on the market directly.
Usually it is due to different factors. For example, that the company does not need to increase its own funds, that the shareholding is highly diversified, the shareholders do not want to lose control or there is a majority that intends to carry out a divestment.
Example of currencies in direct quotation
Let’s see, to finish, some examples of currency pairs represented according to this exchange rate system as of November 2022. Let’s remember that the foreign currency is the one that is expressed in a unit and the national one is the one that varies.
- With 19.50 Mexican pesos we would buy one euro. The national one is the Mexican peso and the foreign one would be a euro.
- In turn, with 20.05 Mexican pesos we would buy one USD dollar. Now the foreign is the USD dollar expressed in one unit.
- We need 147.10 Argentine pesos to buy one euro. Once again, the foreign currency is the euro, from which one unit is taken.
- With 151.32 Argentine pesos we would buy one USD dollar. Once again, the dollar is the foreign currency (unit) and the national currency is the Argentine peso.
- If we buy dollars with yen, we need 147.28 yen for each dollar. Now the yen would be the national one, which is the one that varies with respect to a USD dollar unit.
- Finally, by the direct quotation method, we must have 143.24 yen to buy one euro. The yen would be the national one, referenced with a euro unit.