Bank Financial Statements
Bank Financial Statements are official documents that track the money coming in and going out of a bank. For bankers, understanding how currency values are recorded is vital. This is called Foreign Exchange or Forex accounting. In simple terms, an exchange rate is the price of one country's currency in terms of another. Banks use two main methods to quote these prices: Direct Quotes and Indirect Quotes. These methods help banks record international transactions in their ledgers accurately.
Concepts (3)
In a direct quote, the foreign currency is the base currency (fixed at 1). The home currency is the variable currency. For example, 1 Euro = 90 INR. If the rate increases to 92 INR, the home currency has depreciated (become weaker).
In a direct quote, the foreign currency is the base currency (fixed at 1). The home currency is the variable currency. For example, 1 Euro = 90 INR. If the rate increases to 92 INR, the home currency has depreciated (become weaker).
In an indirect quote, the home currency is the base currency (fixed at 1). The foreign currency is the variable. For example, 1 INR = 0.011 Euro. If this number increases, the home currency has appreciated (become stronger).
In an indirect quote, the home currency is the base currency (fixed at 1). The foreign currency is the variable. For example, 1 INR = 0.011 Euro. If this number increases, the home currency has appreciated (become stronger).
This is used when there is no direct exchange price for two currencies. If you know the price of Currency A in terms of USD, and Currency B in terms of USD, you can find the price of A in terms of B. Example: If 1 USD = 80 INR and 1 USD = 0.
This is used when there is no direct exchange price for two currencies. If you know the price of Currency A in terms of USD, and Currency B in terms of USD, you can find the price of A in terms of B. Example: If 1 USD = 80 INR and 1 USD = 0.80 GBP, then 80 INR = 0.80 GBP.
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Start Lesson: Direct Quote