What is the differencebetween direct and indirect quotations?

Principles of Accounting Volume 1
19th Edition
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax
Chapter3: Analyzing And Recording Transactions
Section: Chapter Questions
Problem 15Q: What does the term recognize mean?
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What is the difference
between direct and indirect quotations?

Expert Solution
Step 1

Introduction:

Exchange rate for a pair of currencies is quoted in two ways. They are,

  • Direct quote, and
  • Indirect quote

Assume that USD is the domestic currency and Euro (EUR) is the foreign currency.

Step 2

Direct quote:

It shows how many foreign currency units per domestic currency unit can be purchased. Within a direct quote, the quoted currency is domestic one and base currency is foreign currency.

Finance homework question answer, step 2, image 1

The currency to the left of the cut is the base currency and counter currency is considered the currency on the right. The based currency is always 1 unit. The quotation means that on the particular moment in time 1 EUR is equal to 1.12USD.

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