FX: Direct Quotes, Buying or Selling? trouble, selling, someone, Foreign, buying

jacksparrow

Hey there,
I’m having a little trouble understanding Foreign Exchange Quotes. Say I’m given a quote for USD:GBP (GBP per $ USD) of $0.88 GBP per $1 USD.
Is this quote given to someone selling GBP and buying USD or someone selling USD for GBP?
Thanks!

TheMBAGlover

Yes there is.  Ignore direct/indirect completely, and just read what is written above.

smartpants

Every time you see the : sign in-between the currencies say “IN” — Example above USD:GBP — USD “IN” GBP… if you are looking for a quote (“PRICE”) that is given to you IN GBP terms – then you must be carrying GBP directly in your wallet….(i.e. why go to McDonalds in Denver and ask for price of a big mac IN GBP??) so direct quote for GBP since quoted IN their terms.
Not sure if that hurts/helps but just how I think about it.
Also if you have Bloomberg access it helps to visualize by pulling up the chart: (USDGBP CRNCY GPC ) is how you would look up the chart of the Dollar against the Pound (key is USDGBP = similar to CFAI notation)… If the chart is going up it means that the dollar is appreciating vs. pound. If you have this sort of access it might help to do some practice problems in front of the terminal – it will click real fast.

amqata

“It’s like a price label in a store that says GBP 0.88/Box, you can buy one box for GBP 0.88, or if you have one box you can sell it for GBP 0.88.”
So using the “bad” direct/indirect terminology, GBP 0.88/Box is the direct quote or direct price for buying 1 box.  So when you go to the store, the direct quote is what they are showing as the price for one bo, i.e., it’s the direct quote for buying/selling one box.
If next day you go to the store and tell them you want to buy one GBP, they are going to think you are crazy until they realize you’re a CFA geek and you really mean you want to sell them one box and walk awy with some GBP!  In that case, the price of one GBP is not obvious “directly”, hence it is indirectly obtained from GBP 0.88/Box, or 1.14 Box/GBP, so you have to give them 1.14 boxes to walk away with one GBP.

cross-ied

Just remember whatever currency value is showing, that’s the country to whicih the quote is direct:
AUD:THB = 40 Baht… this is a direct quote to Thais (and indierect to Australias).