1.2 Foreign Exchange Quotation Method
The foreign exchange quotation expresses how much of currency B can be exchanged for currency A. The foreign exchange quotation method comes in two forms: the direct quotation method and the indirect quotation method. Both are indicated in the form of currency pairs, meaning that the price of one currency is expressed in terms of another currency.
The direct quotation method is when the currency on the left side of the “\” is quoted in US dollars, such as in USD\JPY=92.56\92.59.
For this type of quotation, we understand it as follows: first, buying or selling refers to the currency on the left side of the “\”. If I buy USD, I am buying USD\JPY at a price of 92.59. That means you use 92.59 Japanese yen to buy 1 US dollar. If I sell USD, I am selling USD\JPY at a price of 92.56. That means if you sell 1 US dollar, you get 92.56 Japanese yen. In this case, you lose 92.59 - 92.56 = 0.03 Japanese yen, which is the bank's profit. This is how it works.
The indirect quotation method is when the currency on the left side of the “\” is not quoted in US dollars, such as GBP\USD=1.4860\1.4869.
For this type of quotation, if I buy GBP, I am buying British pounds at a price of 1.4869. That means you use 1.4869 US dollars to buy 1 British pound. If I sell GBP, I am selling British pounds at a price of 1.4860. That means if you sell 1 British pound, you get 1.4860 US dollars. In this case, you lose 1.4869 - 1.4860 = 0.0009 US dollars, which is also the bank's profit.
Now, let’s practice with the following examples:
AUD\USD=60.73\60.78
EUR\USD=1.3045\1.3048
USD\CHF=1.1969\1.1974
GBP\JPY=137.4\137.5
Did you understand? This is a challenging concept to grasp, so please try your best!