An indirect exchange rate can be converted to a direct exchange rate by:
A) dividing the indirect rate by 100.
B) multiplying the indirect rate by the spot rate.
C) dividing the indirect rate by the number of US dollars required to purchase one unit of the terms' currency.
D) transposing the indirect rate.

Question

Quizplus · Accepted Answer

To convert an indirect exchange rate to a direct exchange rate, you need to transpose the indirect rate. This involves swapping the numerator and denominator of the fraction. For example, an indirect exchange rate of 0.8 GBP/USD would become a direct exchange rate of 1.25 USD/GBP (1 ÷ 0.8 = 1.25). Dividing the indirect rate by 100 (choice A) or the number of US dollars required to purchase one unit of the terms' currency (choice C) would not result in a direct exchange rate. Multiplying the indirect rate by the spot rate (choice B) is not a step required in converting an indirect rate to a direct rate.

An Indirect Exchange Rate Can Be Converted to a Direct