FREE online courses on Investment Decisions in Exchange Rates - The Relation between Direct and Indirect Exchange Rate Quotations

 

An indirect exchange rate quotation is simply the reciprocal of the direct exchange rate quotation.  In other words

 

                   S=     .

 

where the superscripts are actually unnecessary in that we will use the notation F/$ to denote an indirect quotation in terms of units of currency F required to purchase one dollar.  Similarly, we will use the notation $/F to denote a direct quotation in terms of the number of dollars required to purchase one unit of currency F.  To illustrate this principal, suppose that the direct quotation for the exchange rate between the dollar and the German mark is $0.6000/DM1.  Then the indirect quotation for the exchange rate between the dollar and the mark would be

 

                   S          =     ,

 

                   =      DM1.6667/$1  .