Chegg Textbook Solutions for Advanced Financial Accounting 9th Edition: Chapter 11

Chapter: Problem:

Explain the difference between indirect and direct exchange rates.

  • Step 1 of 1

    Indirect and direct exchange rates differ by which currency is desired to be expressed in another currency. An indirect exchange rate is the number of foreign currency units that may be obtained for one local currency unit. The indirect exchange rate has the foreign currency unit in the numerator. As a fraction, the indirect exchange rate is expressed as follows:

    A direct exchange rate is the number of local currency units needed to acquire one foreign currency unit. The direct exchange rate has the local currency units in the numerator (the U.S. dollar for the direct exchange rate for the U.S. dollar). As a fraction, the direct exchange rate is expressed as follows:

    The indirect and direct exchange rates are inversely related and both state the same relationship between two currencies.

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