Question

1. A U.S. investor just received a foreign exchange rate quote for USD 1.1855/EUR. What kind...

1. A U.S. investor just received a foreign exchange rate quote for USD 1.1855/EUR. What kind of quote is this, in terms of direct vs indirect? How about in terms of American vs European?

1a. If a month later, the exchange rate between USD and EUR became USD1.1920/EUR. Without calculation, did EUR appreciate or depreciate against USD?

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Answer #1

1)For U.S investor USD is the home curreny and other Currencies are foreign currency.

A Direct Quote is a foreign Exchange rate Quoted in the Domestic Currency per unit of Foreign curreny.

Since investor is U.S and the quote is gIven for EUR (i.e Foreign currency ) so the given quote is a Direct quote.

Quote is given per unit of foreign currency.i.e EUR,  Hence it is a Direct Quote

USD 1.1855/ EUR indicates 1 EUR can purchase 1.1855 USD.

1a One month later Quote is given as USD 1.1920/ EUR

The quote USD 1.1920/ EUR inicates that 1 EUR can purchases 1.1920 USD.

Earlier 1 EUR can purchases only 1.1855 USD but now it can purchase 1.1920 USD.By this we can understand that EUR is appreciated against USD.

If you are having any doubts,please post a comment.

Thank you.please rate it.

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