ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In a direct quotation, the foreign currency is the base currency and the domestic currency is the counter currency. In an indirect quotation, it’s the other way around. The domestic currency is the base and the foreign currency is the counter.

Detailed explanation-2: -A direct quote gives you the quantity of local currency needed to purchase one unit of foreign currency. Because the U.S. dollar is the most traded currency in the world, the USD generally serves as the base currency in most direct quotes. Some major exceptions to this rule include the British pound and the euro.

Detailed explanation-3: -Direct quotation is where the cost of one unit of foreign currency is given in units of local currency, whereas indirect quotation is where the cost of one unit of local currency is given in units of foreign currency.

Detailed explanation-4: -In forex, currencies are traded in pairs. The first currency is called the base currency and the second currency is called the quote currency. So for example, EURUSD, means that the base currency is the Euro and the quote currency is the USD. The quote currency is sometimes referred to as the counter currency.

Detailed explanation-5: -For accounting purposes, a firm may use the base currency as the domestic currency or accounting currency to represent all profits and losses.