Quotation currency
Also written QC · Quotation currency (QC) · Quoting currency · Quote currency · Term currency · Counter currency
The second currency in a pair — the one that does the pricing. Its amount varies as the market moves, and a contract's value is always expressed in it.
In plain language
Every currency quote has two currencies in it. They do different jobs.
One is being priced. Its amount is fixed, usually at one unit. That is the base currency.
The other is doing the pricing. Its amount changes as the market moves. That is the quotation currency. Dealers also call it the quote currency, the term currency or the counter currency.
In USDINR, the dollar is base and the rupee is the quotation currency. A quote of 83 means one dollar costs 83 rupees. The 83 is a number of rupees.
The quotation currency is written second. It is also the currency the price is denominated in, which is why it decides the units of almost everything else — the tick, the contract value, the option premium, the profit or loss.
And the same currency can swap roles. In GBPUSD the dollar is the quotation currency, not the base. So "the dollar" is not permanently one or the other. It depends on the pair.
How it works
The definition (Chapter 1, section 1.3.2). The base currency is the currency that is priced, and its amount is fixed generally at one unit. The other is the quotation currency, which prices the base currency, and its amount varies as the price of the base currency varies in the market. What is quoted anywhere in the world is the price of the base currency expressed in the quotation currency.
Conventions that follow from it.
- The base code is written first, the quotation code second. USDINR means the rupee price of one dollar.
- In the interbank market USD is the universal base currency, except against EUR, GBP and AUD — in those pairs the dollar is the quotation currency.
- Direct quote: the foreign currency is the base and the local currency is the quote. Indirect quote: the reverse. Most pairs using the dollar are direct quotes.
Why it decides the units. In the exchange-traded contracts (Chapters 3 and 4), everything priced is priced in the quotation currency:
| Contract | Quotation currency | Tick size | Contract value |
|---|---|---|---|
| USDINR futures | INR | Rs 0.0025 | Trade price x 1,000 |
| JPYINR futures | INR | Rs 0.0025 | Trade price x 1,000, where the price is per 100 JPY on a lot of 100,000 JPY |
| EURUSD futures | USD | USD 0.0001 | Trade price x 1,000, in the quote currency |
| USDJPY futures | JPY | JPY 0.01 | Trade price x 1,000, in the quote currency |
| USDINR options | INR | Rs 0.0025 | Premium quoted in Indian Rupees |
| EURUSD options | USD | USD 0.0001 | Premium quoted in USD |
The consequence for cross-currency contracts. Because an EURUSD position is valued in dollars and a USDJPY position in yen, those values have to be converted before they can be counted in rupees. The workbook's rule: for EUR-USD and GBP-USD contracts use the latest available FBIL reference rate for USD-INR; for USD-JPY contracts use the FBIL JPY-INR rate, remembering that it is published for 100 units of yen.
Appreciation reads off the base. If the pair rises, the base buys more of the quotation currency, so the base has appreciated and the quotation currency has depreciated. USDINR from 82 to 83 means the rupee — the quotation currency — weakened.
A worked example
1. The same dollar, two roles.
| Pair | Base | Quotation currency | A quote of | Means |
|---|---|---|---|---|
| USDINR | USD | INR | 83.00 | One dollar costs 83 rupees |
| GBPUSD | GBP | USD | 1.3365 | One pound costs 1.3365 dollars |
| JPYINR | JPY | INR | 55.00 | 100 yen cost 55 rupees |
2. What a tick is worth, in the quotation currency. The workbook's own figures.
| Contract | One tick | Value of one tick on one lot |
|---|---|---|
| USDINR futures | Rs 0.0025 | 1 x 1,000 x 0.0025 = Rs 2.50 |
| EURUSD futures | USD 0.0001 | 1 x 1,000 x 0.0001 = USD 0.10 |
| USDJPY futures | JPY 0.01 | 1 x 1,000 x 0.01 = JPY 10 |
3. Converting a cross-currency position into rupees. The workbook's worked case: 10 GBPUSD lots at 1.26.
| Step | Working | Result |
|---|---|---|
| Contract value in the quotation currency | 1.26 x 10 x 1,000 | USD 12,600 |
| Convert at the FBIL USD-INR reference rate | 12,600 x 82.95 | Rs 10,45,170 |
And its USDJPY case: 15 lots at 150.65 gives JPY 22,59,750, which at a JPYINR rate of 55.05 for 100 yen becomes 22,59,750 x 55.05 / 100 = Rs 12,43,992.38.
That division by 100 is the whole reason the JPY convention is examinable. Miss it and the answer is a hundred times too large.
Why NISM asks about it
Chapter 1, section 1.3.2 (Base Currency / Quotation Currency) defines it; section 1.3.5 uses it for appreciation and depreciation; section 1.4 uses it to derive cross rates. Chapter 3, sections 3.3 and 3.4, and Chapter 4, section 4.9, are where it earns marks: the price quotation row of every contract specification is written in terms of the quotation currency, and the INR conversion footnote for cross-currency positions turns on it. The Chapter 1 sample question asks directly whether the quotation currency is the first or second currency in a pair.
Common exam traps
- The quotation currency is the second currency, not the first. The base is first.
- It is the one whose amount varies. The base is fixed at one unit.
- Contract value, tick value and option premium are all in the quotation currency — dollars for EURUSD, yen for USDJPY, rupees for the INR pairs.
- JPYINR is quoted per 100 yen, and the FBIL JPY-INR reference rate is also per 100 yen, even though the lot is 100,000 JPY.
- When the pair rises, the quotation currency has weakened. USDINR 82 to 83 is a weaker rupee, not a stronger one.
- USD is the quotation currency in EURUSD, GBPUSD and AUDUSD — the three interbank exceptions — and the base everywhere else.
- Cross-currency positions are converted to rupees using FBIL USD-INR for EUR-USD and GBP-USD, and FBIL JPY-INR for USD-JPY. Do not use the traded cross rate.
Check yourself
1.Which of the following is true about a currency pair?
- a)Base currency is the first currency in a currency pair
- b)Base currency is the second currency in a currency pair
- c)Quotation currency is the first currency in a currency pair
- d)Exchange rates are quoted in per unit of quotation currency
Show the answer
Answer: (a) Base currency is the first currency in a currency pair
For the currency pair, the standard practice is to write the BC code first followed by the QC code.
What each one is: the BC is the currency that is priced, and its amount is fixed generally at one unit. The other currency is the QC, which prices the BC, and its amount varies as the price of BC varies in the market.
So options B and C simply reverse the convention.
Option D reverses the pricing convention. What is quoted throughout the FX market anywhere in the world is the price of BC expressed in QC — that is, per unit of the base currency, not per unit of the quotation currency.
Two worked illustrations from the chapter: in USDINR, USD is the base currency and INR is the quoted currency; and what is quoted in the market is the price of one USD expressed in INR. And GBPUSD = 1.34 means that one unit of GBP is valued at 1.34 USD.
The same currency changes role depending on the pair: in case of USDINR, USD is base currency and INR is quotation currency while in case of GBPUSD, USD is quotation currency and GBP is base currency.
And the order matters when you want the reverse price: if you want the price of INR expressed in USD, then you must specify the currency pair as INRUSD.
One market convention worth learning alongside: in the interbank market, USD is the universal base currency except when it is quoted against Euro (EUR), Sterling Pound (GBP), Australian Dollar (AUD).
2.USDINR moves from 82.00 to 83.00. Which statement is correct?
- a)The rupee has appreciated and the dollar has depreciated
- b)The dollar has appreciated and the rupee has depreciated
- c)Both currencies have appreciated
- d)Neither currency has changed in value, only the quote has changed
Show the answer
Answer: (b) The dollar has appreciated and the rupee has depreciated
Whenever the base currency buys more of the quotation currency, the base currency has strengthened / appreciated, and the quotation currency has weakened / depreciated.
In USDINR, USD is base currency and INR is quotation currency. At 83, one dollar buys more rupees than at 82.
The workbook states this case directly: base currency appreciates when it can buy more units of quotation currency. For example, USD INR moves from 82 to 83 it means the base currency (USD) strengthens and the quotation currency (INR) weakens.
The reverse rule: quotation currency strengthens when the base currency buys lesser units of quotation currency. For example, USD INR moves from 83 to 82 it means the base currency (USD) weakens and the quotation currency (INR) strengthens.
Option C cannot be right in a currency pair — one side rises only as the other falls. That is what distinguishes currency from every other asset class in this exam.
Option D misses that the quote is the relative value.
In trading terms: when you buy a currency pair, clearly it implies that you expect the value of the pair to go up... This translates to you being bullish on the base currency and bearish on the quotation currency at the same time.
And one caution the chapter is careful to add: appreciation and depreciation of one currency is always in terms of other currency. Hence, it is possible that USD can appreciate against INR, however at the same time USD may depreciate against EUR.
So "the rupee is weak" is never a complete statement until you say weak against what.
3.USDJPY is 115.08 / 115.09 and USDINR is 75.64 / 75.65. What is the JPYINR rate, and on what convention is it quoted?
- a)0.6572 / 0.6574, quoted per 1 JPY
- b)65.72 / 65.74, quoted per 100 JPY
- c)87.05 / 87.06, quoted per 100 JPY
- d)65.74 / 65.72, quoted per 100 JPY
Show the answer
Answer: (b) 65.72 / 65.74, quoted per 100 JPY
Thus, price of JPYINR (for 100 JPY) would be 65.72 / 65.74 INR.
The convention first: for JPYINR, the market convention is to quote price of 100 JPY in terms of INR. In all other pairs mentioned above, the convention is price of 1 unit of base currency in terms of quotation currency.
So option A has the right arithmetic per yen but the wrong quoting convention.
Why the calculation differs from EURINR: in case of GBPINR and USDINR computation, USD is base currency for one currency pair and quote currency for other currency pair. However, in case of JPYINR, USD is base currency for both the currency pairs.
When USD is base in both, you divide.
The buy side: to buy 1 unit of USD, the applicable price is 75.65 INR (offer side)... The price for selling one unit of USD is 115.08 (bid side). Therefore, you get 115.08 JPY by spending 75.65 INR. Thus, price of buying 1 JPY is 75.65/115.08 i.e. 0.6574 INR or in other words price of buying 100 JPY is 65.74 INR.
The sell side: price of selling 1 JPY is 75.64/115.09 i.e. 0.6572 or in other words price of selling 100 JPY is 65.72 INR.
Note the crossed sides — the USDINR offer over the USDJPY bid for buying. When you multiply you match sides; when you divide you cross them.
Option C multiplies (75.65 × 115.08 ÷ 100), which is the wrong operation entirely.
Option D reverses the order. The bid price (lower price) is quoted first.
FBIL follows the same convention on its reference rates: the reference rate in respect of JPY is for 100 units of JPY, published up to 2 decimal places.
Where this is taught
Free preparation for NISM Series IRelated terms
- Base currencyThe first currency in a pair, fixed at one unit and priced in the second (quotation) currency. In USDINR the base is USD, so the quote is the rupee price of one dollar.
- Bid priceIn a two-way quote, the price at which the market maker will buy the base currency from you — always the lower of the two prices, and always quoted first.
- Cross currency derivativesIn the exchange traded context, derivatives on a currency pair not involving the Indian rupee — EURUSD, GBPUSD and USDJPY futures and options, introduced from 2018.
- Cross rateThe price of a currency pair that is not directly quoted, derived by combining two pairs that share a common currency — EURINR from EURUSD and USDINR, for example.
- FBIL reference rateThe daily USD/INR (and EUR, GBP, JPY vs INR) benchmark rate published by Financial Benchmarks India Pvt Ltd around 1.30 pm; it is the final settlement price of INR currency futures and options.
- Contract valuePrice or rate multiplied by the lot size or contract multiplier — the number margins, brokerage, transaction charges and regulatory fees are all computed from, and different for every contract.
- Interest rate parityThe principle that a currency pair's forward or futures price differs from spot by the two currencies' interest rate differential, so borrowing in one and lending in the other earns no riskless profit.