The paper "International Financial Management" is a great example of business coursework. A direct quote can be defined as the foreign exchange that has been quoted concerning the domestic per the foreign currency unit. It entails the process of quoting units that are fixed using foreign currency against the domestic currency. Indirect quote involves foreign markets that do express foreign currency needed in the process of buying or selling domestic currency (Rime, 2003). It involves expressing the foreign currency quantity that is needed in the process of buying domestic currency. An indirect quote is said to have the base as the domestic currency. The indirect quote is the one used in Australia while the United States and Europe use direct quotes. Australia uses the indirect quote as it expresses the foreign currency amount that is required to sell or buy a unit of its domestic currency.
It is also referred to as quantity quotation as it is expressed regarding the foreign quantity amount that is required in the process of buying a certain unit of domestic currency (Evans & Lyons, 2008). Australia uses domestic currency as the base currency in the spot currency market while makes use of the foreign currency as the counter currency. 2. One United States dollar is equivalent to around 1.32 Australian dollars. Therefore: 1 US$=UA$1.32 AU$100,000 in US$ can be AU$100,000 divided by 1.32 which is equivalent to US$75757.58. Supposing the quote is US$0.736 in Australia, the cost of AU$100,000 in US$ would then be: US$75757.58 multiplied by US$0.736 = US$55757.576 3. 1 British Pound is equivalent to US$1.31.
(1 British Pound = US$1.31) Therefore, $15,000 is equivalent to ($15,000 divided by 1.31) = 11450.38 British pounds. Converting the 11450.38 British pounds back to $US 11450.38 British pounds multiply by 1.31= $US15, 000 If the British pound is quoted at US$1.523 the value in US$ will be: US$15, 000 multiply by US$1.523 = US$22,845 The US$ needed to earn $1,500 $1,500 divided by 0.31= $4838.7 Therefore, if I were in a position to buy at bid rate pounds and sell them at ask rate to earn $1,500 I will then supposed to have around $4838.7. 4. Foreign exchange market The foreign exchange market is said to provide an institutional and physical structure where the currency of one nation is exchanged for another currency of a different country.
The exchange rate is normally determined by the physical completed foreign currencies. Foreign change transaction is taken to represent the agreement resulting between the seller and the buyer in the money market. Specified amounts of currencies are delivered with the rate specified for the various currencies that are involved in the transaction (Bjø nnes & Rime, 2005). The market of the foreign exchange does span in different regions globally where the prices and currencies are traded daily. The market is considered to be one of the most liquid markets have many transactions solving exchange of different foreign currencies do take place. Functions of the foreign exchange market The foreign exchange market enables a company to transfer the purchasing power from the nation to the other.
The countries transferring the purchasing power do provide or obtain credit for trade transactions at the international level while minimizing the foreign exchange risks exposure. Transferring purchasing power Transferring purchasing power is considered necessary as global transactions do involve parties that have various foreign currencies. The players in the foreign exchange market are countries that have different foreign currencies that are then traded in the market at different rates (Evans & Lyons, 2008).
Each party in the foreign exchange market does deal with its currency where the transactions are normally invoiced using one currency,
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