Foreign Exchange Quotations 283v2z

Foreign Exchange Quotations (CURRENCY PAIRS): Foreign Exchange Quotation is the amount of currency that is exchanged for a unit of another currency. For example, The exchange rate of rupee in India may be quoted in of dollar,

(rs/$ = rs44/$). It means $1 is worth rs44.

A change in price of one currency implies, therefore, a change in price of the other currency that appears in the quote. For example, If the price of rs against the $ moves from rs44/$ to rs43.5/$, one can say that rs has appreciated relative to $ by rs0.50. This is the same as saying that $ has depreciated relative to the rupee.

Types of FOREX Quotations: 

Bid and Ask prices of currencies

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Direct Quote

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Indirect Quotes

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Cross Rates

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Spot Rates

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Forward Rates

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Inter – Bank

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Spread/Cost of transaction

Bid and Ask Price of currency: A quotation is the amount of a currency necessary to buy or sell a unit of another currency. When it is expressed in currency it is called outright rate. For example, Rs/$ = rs35.98/$ is an outright rate between rupees and dollar. The ‘buy’ quote is the price at which the exchange dealer is ready to buy a currency for which the quote is made and ‘sell’ quote indicates the price at which the dealer is ready to sell the currency. The ‘bid’ and ‘ask’ are the alternative for the above two quotes. Sometimes ‘ask’ is also referred as ‘other’ price. An example, Currency Notes: Buying: rs 35.10/$ Selling: rs 36.35/$ Indirect Quotes: An ‘Indirect’ quote is the price of one unit of home currency in of a foreign currency. Indirect Quote: Bid rate > Ask rate i)

Bid rate: It is the rate at which an AD buyer is ready to buy the

currency that is constant (currency H). ii)

Ask rate: It is the rate at which an AD seller is ready to sell the

currency that is constant (currency H) For example, At London foreign exchange market the quotation are made as: SPOT (Bid): $3.0201/BP, SPOT (Ask): $3.0180/BP. Direct Quote: The quotes can be direct or indirect. In the case of ‘direct’ quotes, a unit of foreign currency is quoted in of domestic currency. Direct Quote: Bid rate < Ask rate i)

Bid rate: It is the rate at which an AD buyer is ready to buy the

currency that is constant (currency H). ii)

Ask rate: It is the rate at which an AD seller is ready to sell the

currency that is constant (currency H). For example, At New York forex market the Deutsche mark (DM) is the quoted as: SPOT (Bid): $2.4000/DM SPOT (Ask): $2.4017/DM

Cross Rates: It is the exchange rate between two inactively traded currencies usually involves the use of a third widely traded currency, the US dollar. For example, Japanese Yen: U106.2000/$