Direct and reverse currency quotes, explanation using simple examples

A currency quote is the price of one currency in units of another currency. It reflects the relationship between two currencies and is used for currency exchange.

In this case, the first entry in the entry is the currency that is being bought or sold, and the second entry is the monetary unit in which the price is indicated.

For example, the standard entry looks like this: EURUSD 1.25, the cost of the euro is currently 1.25 US dollars per 1 euro.

The price of a currency is set during trading on the Forex currency exchange or at a fixed rate by the national banks of the countries.

Today there is direct and reverse quotation of currencies:

A direct quote shows how many units of one currency can be purchased for one unit of another currency. For example, if the direct quote of the US dollar to the euro is 1.25, this means that one US dollar can buy 1.25 euros.

Direct quotation is also used when setting the exchange rate of the national currency to foreign monetary units.

For example, we are used to seeing that in Ukraine the exchange rate of the Polish zloty to the Ukrainian hryvnia is 9.6 hryvnia per 1 zloty and the entry will look like this PLNUAH.

At the same time, if you come to Poland, you will already see that in this country in all exchange offices they exchange the hryvnia for zloty and the price is indicated as 0.1 zloty per 1 Ukrainian hryvnia, respectively, and the direct quote has a different form of UAHPLN.

Examples of the most commonly used direct quotes:

USD/EUR = 1.25

USD/GBP = 0.75

USD/JPY = 110

An inverse quote shows how many units of one currency are worth one unit of another currency. For example, if the inverse quote of the US dollar to the euro is 0.8, this means that one dollar is worth 0.8 euros.

This rate conversion option is used when you need to make a reverse transaction, because you will not always sell dollars for British pounds, you may want to make a reverse transaction.

Examples of reverse currency quotes:

EUR/USD = 0.8

GBP/USD = 1.33

JPY/USD = 0.0091

In the financial sector, their own direct quotation is more often used, which is used for exchange trading on the currency exchange - https://time-forex.com/kotirovki

, the euro or the American dollar is not always used as the base currency

This is due to certain standards that are used in trading on the stock exchange and we are already more accustomed to this particular recording option. For example, if you want to buy euros with US dollars, you are more likely to say that you want to buy 1.25 euros per dollar rather than 0.8 dollars per euro.

However, reverse quotation can also be useful in some cases. For example, if you want to calculate how much money you will get for selling dollars, you will need a reverse quote.

That is, for example, you have 150 dollars and you want to determine how many euros you will get for them: 150 x 0.8 = 120 euros. For many, this option will seem simpler than dividing 150 by 1.25.

Conclusion

Direct and reverse currency quotes are the two main designations of foreign exchange transactions. They reflect the relationship between two currencies and are used for currency exchange.