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An exchange rate
quotation is given by stating the number of units of a price currency
that can be bought in terms of 1 unit currency (also called base
currency). For example, in a quotation that says the EUR/USD exchange
rate is 1.2 (USD per EUR), the price currency is USD and the unit
currency is EUR.
Quotes using a country's home currency as the price currency (e.g.,
£0.574744 = $1 in the UK) are known as direct quotation or price
quotation (from that country's perspective) ([1]) and are used by most
countries.
Quotes using a country's home currency as the unit currency (e.g.,
$1.73990 = £1 in the UK) are known as indirect quotation or quantity
quotation and are used in British newspapers and are also common in
Australia, New Zealand and Canada.
direct quotation: 1 foreign currency unit = x home currency units
indirect quotation: 1 home currency unit = x foreign currency units
Note that, using direct quotation, if the home currency is
strengthening (i.e., appreciating, or becoming more valuable) then the
exchange rate number decreases. Conversely if the foreign currency is
strengthening, the exchange rate number increases and the home
currency is depreciating.
When looking at a currency pair such as EUR/USD, many times the first
component (EUR in this case) will be called the base currency. The
second is called the counter currency. For example : EUR/USD = 1.2836,
means EUR is the base and USD the counter, so 1 EUR = 1.2836 USD.
Currency pair are given with four decimal places except au JPY with
two decimal places (EURUSD : 1.2836 - EURJPY : 150.17). In other
words, quotes are given with 5 digits. Where rates are below 1, quotes
frequently include 5 decimal places.
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