EECS 1019 Lecture Notes - Lecture 35: United States Dollar, Canadian Dollar
21 Jun 2018
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EECS 1019 Lecture 35 Notes
Introduction
Indirect quotation
If you initially received the indirect quotation then you can take its inverse to obtain the
direct quote.
The indirect quotation for the euro is $.97, so the direct quotation is Direct quotation ¼
1=Indirect quotation ¼ 1=:97 ¼ $1:031
Exhibit 3.2 compares the direct and indirect exchange rates at two different times.
Columns 2 and 3 provide quotes at the beginning of the semester, while columns 4 and
5 provide quotes at the end of the semester.
For each currency, the indirect quotes at the beginning and end of the semester
(columns 3 and 5) are the reciprocals of their respective direct quotes at the beginning
and end of the semester (columns 2 and 4).
Exhibit 3.2 demonstrates that, for any currency at any time, the indirect exchange rate is
the inverse of the direct exchange rate.
Exhibit 3.2 also shows the relationship, for each currency, between movements in the
direct exchange rate and movements in the indirect exchange rate.
EXAMPLE
According to Exhibit 3.2, the Canadian dollar’s direct quotation rose from $.66 to $.70
during the semester.
This change reflects an appreciation of the Canadian dollar: this currency increased in
value over the semester.
Note that the Canadian dollar’s indirect quotation decreased from 1.51 to 1.43 over the
same time period
Therefore, fewer Canadian dollars are needed to obtain a U.S. dollar at the end than at
the start of the semester.
This change also confirms that the Canadian dollar’s value has strengthened.
The indirect quote’s decline corresponds to the quoted currency’s appreciation.
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Document Summary
If you initially received the indirect quotation then you can take its inverse to obtain the direct quote. The indirect quotation for the euro is $. 97, so the direct quotation is direct quotation . Exhibit 3. 2 also shows the relationship, for each currency, between movements in the direct exchange rate and movements in the indirect exchange rate. Therefore, fewer canadian dollars are needed to obtain a u. s. dollar at the end than at the start of the semester. This change also confirms that the canadian dollar"s value has strengthened. The indirect quote"s decline corresponds to the quoted currency"s appreciation. Note also that the mexican peso"s direct quotation changed from $. 12 to $. 11 during the semester, reflecting a depreciation of the peso. The indirect quotation increased over the semester, which means that more pesos are needed to obtain a u. s. dollar at the end than at the start of the semester.
