Quote Currency

Updated on April 8, 2024
Article byNanditha Saravanakumar
Reviewed byDheeraj Vaidya, CFA, FRM

What Is 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.

What is Quote Currency

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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. 

Key Takeaways

  • 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 Explained

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.

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Example

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. 

USD quoted against RUB in 2022

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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. 

Base Currency vs Quote Currency

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.

Frequently Asked Questions (FAQs)

1. What are quote currency and base currency?

In a currency pair, the first one is the base currency, and the second one is the quote currency. The base currency is taken as one, and its value relative to the quote or counter currency is determined. It is possible to find how many units of counter currency can be exchanged for a unit of the base currency.

2. How to quote currency exchange rates?

The base currency and quote currency in Forex are used to arrive at the exchange rates. There are two methods for this – direct and indirect quotation. The counter currency is usually the foreign currency, and in the latter, it is the domestic currency.

3. What is quote currency in a currency pair?

The counter currency is the second currency in the pair. The first one is the base currency. The counter currency helps estimate the value of the base currency. It is helpful in international trade and foreign exchange.

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:

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