FX Market: Introduction to Exchange Rate Quotations

This tells you that if you want to buy one euro you need USD 1.30. This is conventionally called a "direct quotation," while the inverse would be an "indirect quotation," but the CFA curriculum has removed these terms in favor of using a consistent currency pair system. If you wanted the inverse, you would use something like EUR/USD = 0.77, which tells you what?

You got it!

No, just the opposite. The quote EUR/USD = 0.77 tells you that it takes 0.77 EUR to make 1 USD.

Yes! In fact, all of these are correct. You couldn't go wrong there. The world is full of rates like this, and every "this per that" measurement has the same meaning. If you say it's 8.1, that means it's 8.1 this per 1 of that. As a fraction, that's 8.1 this/1 that. Same thing. The currency rates work the same way here. A quote of 0.98 EUR/USD reads the same way: 0.98 EUR per 1 USD. You'll see the reverse on many FX sites, unfortunately, but here it's as easy as understanding fractions.

In summary: [[summary]]

Which of these measurements work in the same way as the CFA Institute's choice of currency pair quotations?

One of the most challenging concepts for exchange rates is how they are quoted. The CFA® Exam will use various types of quotations, and understanding what each means will be an important step to solving any currency problem. Keep in mind that exchange rates are for two currencies, which makes them like two sides of the same coin. Assume you are a U.S.-based investor looking at opportunities in Germany. In this case, the USD and EUR are the two currencies involved. You could see this exchange rate quoted as USD/EUR; for example you may see that USD/EUR = 1.30.

Because exchange rate quotations are just two sides of the same coin, another example like AUD/JPY = 0.125 tells you that JPY/AUD is just $$\frac{1}{0.125} = 8$$.

The EUR it takes to buy 1 USD

The USD it takes to buy 1 EUR

Kilometers per second

Dollars per hour

Pounds per square inch

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