What is an indirect quote?
Is the price of a currency pair expressed as amount of foreign currency per unit of domestic currency.
In other words, when an indirect quote is given, the exchange rate is expressed relative to a fixed amount of the national currency (1 unit), while the amount of foreign currency is variable.
For example, if we are in the United States, the indirect quote for the Canadian dollar would be 1.17 CAD = 1 USD, so the exchange rate of the indirect quotation is expressed as USD/CAD 1.17 because it is the expression that reports the amount of CAD per unit of USD which is the national currency (for 1 USD we can obtain 1.17 CAD). If we were in Canada the indirect quotation of the US dollar would be 0.85 USD = 1 CAD (CAD/USD 0.85 indicates that for 1 CAD, which is the national currency, we get 0.85 USD). As we can see, in an indirect quote the base currency of the currency pair is the national currency.
Unlike indirect quote, the directly quote expresses the amount of domestic currency per unit of foreign currency. In the above example, if we are in the US, the quote CAD/USD 0.85 would be the direct quote as it expresses the amount of domestic currency per unit of foreign currency (we require 0.85 USD (national currency) to buy 1 unit of CAD).
What is a direct quote?
It is the price that express the exchange rate of the national currency per unit of foreign currency. This implies that the amount of a foreign currency is fixed (1 unit), the national currency is always compared with the same amount of foreign currency.
For example, if we are in Germany, where the currency is the Euro, a direct quote would be 1 Australian dollar AUD = 0.74 EUR (the exchange rate is expressed as AUD/EUR 0.74). On the contrary, if we are in Australia the direct value of the euro would be 1 EUR = 1.35 AUD (EUR/AUD 1.35). As we can see, in the direct quote the expression of the exchange rate use the foreign currency as base currency of the pair.
Unlike direct quotation, the indirect quotation indicates the amount of foreign currency per unit of domestic currency. In the above example, if we are in Australia, the quote AUD/EUR 0.74 would be an indirect quote (0.74 euros per unit of national currency).
