A direct currency quotation states how many units of the chosen home currency are needed to buy one unit of foreign currency. It makes a foreign payment easy to budget: multiply the foreign amount by the home-currency price of each foreign unit. Declare the home currency first; “direct” is a viewpoint, not a permanent property of a currency pair.
Put the units beside the number
Choose USD as home and EUR as foreign. At a synthetic rate of 1.20 USD per EUR, each euro costs USD 1.20, so a EUR 100 payment requires
This example ignores spreads and fees. The euros cancel, leaving the dollars needed. In general, with a positive quote measured in home currency per foreign unit,
Under the market currency-pair convention used here, the screen would show EUR/USD = 1.20: EUR is the base currency and USD is the quote currency. The slash in that market label is not a dimensional fraction; the numerical rate has units USD per EUR. Read the source's convention rather than guessing units from a slash. CME explains the base-first market convention.
The same exchange, viewed from two home currencies. Synthetic rate, without spread or fees; the market pair stays EUR/USD while the direct/indirect label changes.
Change the viewpoint or reverse the quote
Keep the original 1.20 USD per EUR rate but choose EUR as home. It now gives foreign USD per home EUR, making it an indirect currency quotation. The cash exchange has not changed. This home-currency distinction follows HMRC's direct/indirect definitions.
Alternatively, keep USD as home and reverse the rate. The reciprocal is
This is an indirect quote from the USD perspective. USD 120 multiplied by the exact reciprocal gives EUR 100; use the unrounded rate when converting. With an executable bid–ask spread, reversing a two-way quotation also swaps the sides: the reciprocal of the old ask becomes the new bid, and vice versa.
What a rise means
If the synthetic direct quote rises from 1.20 to 1.25 USD per EUR, the same EUR 100 payment now costs USD 125, an extra USD 5. The foreign euro has appreciated against the dollar; the home dollar has depreciated. A rising exchange-rate number does not always mean the home currency is stronger—the units decide.
For worked conversions using dealer prices, continue with FX: quotations and conversions. The public preview introduces the lesson; a signed-in free account opens the full material.
Sources
- HMRC, Corporate Finance Manual CFM12020: home-currency perspective for direct and indirect quotation.
- CME Group, Understanding FX Quote Conventions: base/quote currency order in market pair notation.
- Reserve Bank of Australia, Exchange Rates Overview: the two directions in which a currency rate can be expressed.
- CME Group, E-quivalents Help: reciprocal offer-to-bid and bid-to-offer conversion.
- John C. Hull, Options, Futures, and Other Derivatives, ninth Global Edition, Pearson, 2018, Section 5.10, p. 139: a foreign-currency price in USD need not match the market's usual quotation direction.