c) Consider the following illustrative exchange rates. U. S. Dollars required to

Question

c) Consider the following illustrative exchange rates. U. S. Dollars required to buy one unit of foreign currency Euro 1.2500 Swedish krona 0.1481 i. What is a direct quotation? What is the direct quote for euros? ii. What is an indirect quotation? What is the indirect quotation for kronor (the plural of krona is kronor). iii. The euro and British pound usually are quoted as direct quotes. Most other currencies are quoted as indirect quotes. How would you calculate the indirect quote for a euro? How would you calculate the direct quote for a krona? iv. What is a cross rate? Calculate the two cross rates between euros and kronor.

Explanation / Answer

1./

DIRCT QUOTATION IS EXPRESSED AS HOME CURRENCY PER FORIGHN CURRENCY.

DIRECT QUOTE FOR EURO

1 / 1.25

= 0.8 EURO PER DOLLAR

2./

INDIRECT QUOTE IS EXPRESSED AS FORIGHN CURRENCY PER HOME CURRENCY.

INDIERECT QUOTATION FOR KRONOR

0.1481 $ PER KRONA

3./

INDIRECT QUOTE FOR EURO IS $1.25 PER EURO

DIRECT QUOTE FOR KRONA IS (1 / 0.1481) 6.75 KRONA PER DOLLAR

4./

THE EXCHANGE RATE BETWEEN TWO CURRENCIES WHICH DOES NOT INCLUDE US DOLLAR IS A CROSS RATE.

EXAMPLE

EURO PER DOLLAR * DOLLAR PER KRONA

= 0.8 * 0.1481

= 0.1185 EURO PER KRONA

KRONA PER DOLLAR * DOLLAR PER EURO

= 6.75 * 1.25

= 8.45 KRONA PER EURO

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.