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_________ is also known as price Quantity Quote.

_________ is also known as price Quantity Quote.

Looking for the answer to the question below related to Financial Management ?

_________ is also known as price Quantity Quote.

 Options:

A. Forward Quote
B. Indirect Quote
C. Spot Quote
D. Spread Quote

The Correct Answer Is:

  • B. Indirect Quote

The correct answer is B. Indirect Quote.

Why B (Indirect Quote) is the Correct Answer:

An “Indirect Quote” is also known as a “Price Quantity Quote” in the context of foreign exchange markets. An indirect quote is a method of quoting exchange rates where the domestic currency is expressed as a fixed unit, and the foreign currency is expressed as the variable quantity of that unit. Here’s a detailed explanation of why B is the correct answer:

1. Indirect Quote Definition:

In an indirect quote, the exchange rate is expressed as the amount of foreign currency required to purchase one unit of the domestic currency. For example, if an indirect quote for the EUR/USD currency pair is 0.85, it means that 0.85 U.S. Dollars (USD) are required to purchase 1 Euro (EUR).

2. Fixed Domestic Currency:

In an indirect quote, the domestic currency is considered the fixed unit of measure, and its value is always equal to 1 unit. This allows for easy comparison of exchange rates across different currencies.

3. Variable Foreign Currency:

The foreign currency in an indirect quote is the variable quantity that you receive in exchange for 1 unit of the domestic currency. It represents the price or quantity of the foreign currency in terms of the domestic currency.

4. Common Usage:

Indirect quotes are commonly used in countries where the domestic currency is relatively strong or stable, and it is more convenient to express the value of foreign currencies in terms of the domestic currency. For example, in the United States, the USD is often used as the fixed unit in indirect quotes.

5. Comparative Analysis:

Indirect quotes make it easy to compare the relative strength or weakness of different currencies. A higher indirect quote for a foreign currency indicates that it is stronger relative to the domestic currency, while a lower indirect quote suggests the opposite.

Why the Other Options are Not Correct:

A. Forward Quote:

A “Forward Quote” represents the exchange rate for a currency pair at a future date. Forward quotes are used for transactions where the exchange of currencies occurs at a predetermined future date. They are not specifically related to the expression of exchange rates as a fixed unit (domestic currency) and variable quantity (foreign currency).

C. Spot Quote:

A “Spot Quote” represents the exchange rate for a currency pair in the current market, where transactions are settled immediately. Spot quotes are used for immediate currency exchange, and they do not involve the fixed unit and variable quantity concept found in indirect quotes.

D. Spread Quote:

A “Spread Quote” refers to the bid-ask spread, which is the difference between the highest price a buyer (bid) is willing to pay and the lowest price a seller (ask) is willing to accept for a financial instrument. It does not relate to the expression of exchange rates as a fixed unit and variable quantity.

In conclusion, the correct answer is B because an “Indirect Quote” is also known as a “Price Quantity Quote,” where the domestic currency is expressed as a fixed unit, and the foreign currency is expressed as the variable quantity of that unit.

This method of quoting exchange rates is essential in foreign exchange markets for understanding the relative value of currencies. The other options represent different aspects of forex trading and pricing, but they do not specifically describe the concept of an indirect quote.

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