Definition: Indirect Quote, also called quantity quotation, is an estimate of the amount of another nation’s currency needed to purchase a unit of domestic currency. In other words, it’s an exchange rate that equates the foreign currency with the domestic one.
What Does Indirect Quote Mean?
What is the definition of indirect quote? One currency, the base currency or domestic currency is used as the defining unit in foreign exchange markets for a quote. While the foreign currency or counter currency is used to determine how much a unit of the base currency would cost in counter currency terms.
Let’s look at an example.
Example
The United States Dollar or USD is a major currency exchanged and expressed in the foreign exchange markets. Monies such as the Euro and the British pound are commonly indirectly quoted.
Matthew, an investor from the Britain, is talking with Rob, an investor from the United States. Rob is giving him quotes on the amount he is willing pay in his currency for the assets that Matthew has. In order to get an accurate picture, Matthew must make the quote either direct or indirect to account for the difference in currency value.
Choosing to use an indirect quote, Matthew uses one unit of his national currency, the GBP, and defines it in terms of the USD, which is Rob’s national currency. He found GBP 1 equals USD 1.50. Therefore, for every 1 British pound in assets Matthew owns, Rob will pay 1.5 in United States Dollars, if it were a simple exchange from one currency to another.
Indirect quotes display exchange rates, which are indications of if a currency is appreciating or depreciating against the currency it is quoted with. There are many sources where an individual could find the latest exchange rates or currency values, some websites even host live rates. Most currencies today are floating which means they change constantly and other attempts to quote exchange rates without a live value will be inaccurate.
Summary Definition
Define Indirect Quotes: Indirect quote means how much of a domestic currency is needed in order to purchase an amount of foreign currency.
