currency quotes currency, domestic, investor, correct, foreign

rohitdoshi

just a clarification:

if some1 says USD:GBP 2.20, without specifying if the domestic investor is British or American, then there is no way to figure out what this quote means right?

i.e. any currency should always have the info as to which is the domestic and which is the foreign currency right? without which it doesn't make sense?

simply by looking at USD:GBP 2.20, we cannot say if 1 USD = 2.20 GBP or 1 GBP = 2.20 USD correct?

random_walker47

Thanks +1 Guy and thanks Dreary for explaining. That seems to have cleared up things a bit. Shd be fine once i work a few more problems. Thanks a lot.

wxs1986

Ignore domestic investor concept altogether. It's a bad way of explaining this. Also ignore direct/indirect...another bad way of explaining this.

USD:GBP 2.20 means GBP 2.20/USD, which means you can buy one U.S. dollar by paying GBP 2.20, or with GBP 2.20 you can buy $1. It doesn't matter who you are or where you live.

If that changes to USD:GBP 2.40, then GBP 2.40/USD and the dollar costs more now. You have to pay GBP 2.40 to get $1.

What if I want to buy GBP? Flip the quote to see the price of 1 GBP.

GBP 2.20/USD = $0.4545/GBP. So, one GBP will cost you $0.4545, or with $0.4545 you can get GBP 1.00.

liquidity

Hi integraldx

Yes you can tell. The way I remember is that I interpret the ":" as "buys". For example USD:GBP 2.20 means that 1 USD buys 2.20 GBP.

Also, quotes can be either direct or indirect. I always remember my formulas using the "direct" notation. E.g.:

forward price = spot price (FCC) x (1+rDC)/(1+rFC)

So in the above quote the foreign currency is "USD" and the domestic currency is "GBP".

Hope that helps.