Foreign exchange quotation when expressed in a manner that reflects the exchange of a specified number of foreign currencies vis-à-vis one unit of local currency is expressed as :
Indirect Quotation
Foreign currency per unit of home currency is an indirect quotation — option 3.
The two conventions. Everything turns on which currency is held at one unit :
| Direct quotation | Indirect quotation | |
|---|---|---|
| Form | Home currency per one unit of foreign currency | Foreign currency per one unit of home currency |
| From India | ₹ 83 = 1 USD | 1 ₹ = 0.012 USD |
| Also called | Price quotation | Volume or quantity quotation |
| A rising number means | The home currency is weakening | The home currency is strengthening |
The question specifies “a specified number of foreign currencies vis-à-vis one unit of local currency”, which is the indirect form.
An important caution. Direct and indirect are defined relative to where you stand. The same quotation is direct for one country and indirect for the other, so a question of this kind must always be read from the stated home currency. India moved from indirect to direct quotation in 1993, which is why rates are normally seen here as rupees per dollar.
Why option 2 is placed there. “European quotation” is a genuine market term, but it means something narrower: the number of a currency per one US dollar — the convention for most pairs. Its opposite is the American quotation, dollars per unit of the other currency, used for sterling, the euro, the Australian and New Zealand dollars. These describe the dollar market’s conventions, not the direct-indirect distinction.
Option 4 is a different concept altogether — geographical or two-point arbitrage is the practice of buying a currency in one centre and selling it simultaneously in another where it is dearer. Such arbitrage is what keeps quotations consistent across the world’s markets, but it is not a form of quotation.
The relation between the two forms is simply reciprocal :
\(\text{Indirect rate}=\dfrac{1}{\text{Direct rate}}\)
Hence, the answer is Indirect Quotation.
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