Quote Currency

The quote currency in foreign exchange is the standard used to measure the value of a base currency. That is, the value of the first currency in a currency pair is quoted against the value of the second one, which is the quote or counter currency.

The quote currency helps compare two currencies and tells how many units of it can be exchanged for a unit of the base currency. Hence, the Forex and global trade markets widely use it. Further, economic parameters like government policies and international markets influence it. 

• Quote currency in Forex is important to determine the base currency’s value. 
• Mostly, widely used currencies like the USD, EUR, GBP, etc., are considered the counter currencies, except in cases where two countries with other currencies trade with each other.
• The counter currency can be domestic or foreign, based on the quote type, which can be either direct or indirect.
• International markets, global trade, foreign investments, currency trading, etc., depend on base and counter currency values. In turn, many domestic and international economic conditions will affect these values.  

Quote currency can be explained by first understanding a currency pair. A currency pair constitute a quote currency and base currency. Then, one estimates the value of the base currency against the counter currency. An example of currency pair is EUR/USD. Here, the base currency is EUR, and the counter is USD.

Usually, many countries use widely accepted currencies, like USD, EUR, etc., to denote the value of a base currency. For instance, an investor from Korea wants to know the value of the Japanese Yen (JPY). So he can quote it against the South Korean Won or the USD to estimate JPY value. 

However, if an exporter from China wants to trade with Uruguay, they estimate the total value of the exports to be Chinese Yuan (CNY) 4000. Therefore, at the time of payment, he will evaluate the Uruguayan Peso (UYU) value with CNY by considering the latter as the base currency. 

For convenience, the direct base currency is always taken as one unit. In the example above, the Chinese exporter will estimate the value of 1 CNY in terms of UYU. This is a direct quote, where the domestic money is the base, and the foreign money is the counter.

On the contrary, in an indirect quote currency, the foreign currency is the base, and the domestic currency is the counter currency. Hence, if the Chinese exporter had calculated how many units of CNY would equal 1 UYU, it would have been an indirect quote currency.

Here’s an example of the Russian Rouble (RUB) falling past 58 on July 21, 2022, against the USD. The graph below shows the RUB value as compared to 1 USD. In this case, the USD is the base currency, and RUB is the counter currency. 

The graph shows that the USD value is appreciating against the RUB. However, RUB is considered the strongest-performing currency. The huge variations seen in the graph are due to the Russia-Ukraine war. 

At the peak of the war, the RUB depreciated to as high as 138.75 per USD. This was following the sanctions imposed by many countries against Russia. But, the Russian counter-sanctions have brought back the RUB value to a lesser than the pre-war rates. 

Often in Forex, to exchange currencies or international trade, there are two currencies – base and quote. The quote or counter currency compares and determines the base currency’s value by taking it as a standard 1 unit. 

For example, Claire, an American, wants to travel to Australia. She wants to plan her finances for the trip. USD is her base currency, and AUD is her quote currency. She found out that she could exchange 1.44 AUD for 1 USD. 

One of the main differences between the base and the quote currencies is that in a direct quote, the domestic currency is taken as the base, whereas, in an indirect quote, the domestic currency is the quote.

This has been a guide to What is Quote Currency. We explain direct & indirect quote currency in forex with an example & compare it with base currency. You may also find some useful articles here:

• Foreign Exchange Market
• Foreign Exchange
• Currency Appreciation