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notesonexchangeratedefinition - -Taux de change au certain...

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Notes on exchange rate definitions. Indirect quotation : 1 home currency unit = x foreign currency units Direct quotation : 1 foreign currency unit = x home currency units Note that, using direct quotation , if the exchange rate number decreases, the home currency is strengthening (i.e., appreciating , or becoming more valuable) . Conversely if the exchange rate number increases, the foreign currency is strengthening, and the home currency is depreciating . With indirect quotation, when the exchange rate increases, the home currency appreciates. Taking real exchange rate, the direct quotation (if PPP holds) is the price of foreign products in terms of domestic products : how many goods in Euros do you need to buy the same good in $ ? if I need less goods in Euro -the exchange rate decreases- Euro is appreciating . Conversely, indirect quotation is the price of domestic goods in terms of foreign goods.
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Unformatted text preview: ------------------------------------------------------------------------------------------------------------------------Taux de change au certain : une unité de monnaie nationale = x unités de monnaie étrangère que l'on peut obtenir Exemple : 1 EUR = 1,05 USD. C'est le prix de l'euro en dollar. Taux de change à l'incertain : une unité de monnaie étrangère = x d'unités de monnaie nationale Exemple : 1 USD = 0,95 EUR. C'est le prix du dollar en euro. La hausse du taux de change coté à l'incertain correspond bien à une dépréciation de la monnaie nationale (et à une appréciation des devises étrangères). N.B : in the International Macro literature, the exchange rate is almost always defined with direct quotation (tx de change à l'incertain) while it is often the contrary in the Finance literature....
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