What is a Direct Quote?

//What is a Direct Quote?
What is a Direct Quote? 2017-10-03T05:04:34+00:00

Definition: A direct quote is a currency exchange rate between a domestic and foreign currency in terms of the foreign currency. In other words, it compares how many domestic units are required to purchase one foreign unit.

What Does Direct Quote Mean?

What is the definition of direct quote? International companies deal with currencies and exchange rates on a daily basis. Exchange rates are typically stated in one of two ways: direct and indirect.

Direct quotes are usually easier for consumers to understand because it essentially tells them how much of their currency is needed to purchase one unit of the foreign countries currency. The opposite is true about indirect quotes.

The difference between a direct quote and an indirect quote depends on the domesticity of the business or individual giving the quote. This makes the distinction between which currency is foreign and which is domestic.

Let’s look at an example.

Example

Jim, an investor in America, has investment holdings all over the world and is currently working on a deal in India. He wants to purchase stock valued at 15,000 Indian rupees, so he has to know the foreign exchange rate in terms of the Indian currency to price out a new investment. The current exchange rate is $.015 USD to 1 Indian Rupee.

Once he knows this information he is able to convert his dollars into rupees and purchase the stock. He notifies his European investor friends about his trade and they seem to be interested in buying the shares from him for 250 euros.

Now Jim has to convert the 15,000 rupees into euros. Directly quoting rupees to euros, Jim finds that 1 rupee equals $.0136 euros. Thus, his friends are willing to purchase the stock from him for 18,323 rupees (250 / .013). Jim sells the stock to his friends and now wants to quote the profit in his domestic currency, USD.

(18,323 rupees – 15,000 rupees) x .015 = $50 USD

Summary Definition

Define Direct Quotes: Direct quote means an exchange rate quoted from a fixed foreign currency.