Yen per dollar is an indirect quote for all traders. Group of answer choices True False
The correct answer and explanation is:
Correct Answer: False
Explanation (300 words)
In foreign exchange (forex) markets, currency quotations can be given in two ways: direct quotes and indirect quotes. The classification depends on the perspective of the trader’s home country or base currency.
- A direct quote is when the exchange rate is expressed as the amount of domestic currency per one unit of foreign currency.
- An indirect quote is when the exchange rate is expressed as the amount of foreign currency per one unit of domestic currency.
Let’s take the example of a trader based in the United States, where the U.S. dollar (USD) is the domestic currency.
- If the exchange rate is quoted as JPY 150/USD, this means 150 Japanese yen per one U.S. dollar.
- For a U.S.-based trader, this is an indirect quote, because it tells them how much foreign currency (yen) they get for one unit of their domestic currency (USD).
However, for a trader based in Japan, where the yen (JPY) is the domestic currency:
- The same quote (JPY 150/USD) is a direct quote, because it expresses the value of one unit of foreign currency (USD) in terms of their domestic currency (yen).
This means that whether a quote is direct or indirect depends on the location of the trader. Therefore, the statement “Yen per dollar is an indirect quote for all traders” is false.
Key Point
- “Yen per dollar” (JPY/USD) is:
- Indirect for U.S. traders
- Direct for Japanese traders
Thus, it cannot be indirect for all traders globally.
Summary
The truth of whether a quote is indirect or direct depends entirely on the trader’s domestic currency. Therefore, the statement is False.