Under the indirect method, the exchange rate rises, the foreign currency depreciates and the local currency appreciates.
In the international foreign exchange market, most countries in the world, including China, currently adopt direct quotation, so what we usually call exchange rate appreciation is under the direct method. In this case, the foreign currency appreciates and the local currency depreciates.
pricing method
To determine the exchange rate between two different currencies, we must first determine which country's currency shall prevail. Due to different standards, several different exchange rate pricing methods have emerged.
(1) Direct quotation (refer to "price payable method").
The direct quotation method, also known as the price payable method, is to calculate how many units should be paid in the local currency based on a certain unit of foreign currency (1, 100, 10000,10000). It is equivalent to calculating how much local currency should be paid for purchasing a certain unit of foreign currency, so it is called the payable price method. In the international foreign exchange market, most countries in the world, including China, currently adopt direct quotation. For example, the exchange rate of Japanese yen against US dollar is 1 19.05, that is, 1 US dollar is 1 19.05 yen.
Under the direct quotation, if a unit's foreign currency conversion cost currency is more than the previous period, it means that the foreign currency value rises or the local currency value falls, which is called the foreign exchange rate rise; On the other hand, if you want to use less local currency than before, you can convert it into the same amount of foreign currency, that is to say, the decline of foreign currency value or the increase of local currency value is called the decline of foreign exchange rate, that is, the value of foreign currency is directly proportional to the rise and fall of exchange rate. Direct quotation is similar to the common sense of buying and selling goods. For example, in direct quotation, the US dollar is used as a commodity to buy and sell foreign exchange, and the US dollar is 1 unit, and the unit is unchanged, while the RMB as the currency side is changing. The same is true for the sales of general commodities. 500 yuan bought a dress, 550 yuan sold it and earned 50 yuan. The commodity has not changed, but the currency has changed.
(2) Indirect quotation method (refer to "Accounts Receivable Quotation Method")
Indirect pricing method is also called accounts receivable pricing method. It calculates the foreign exchange receivable currency of several units in the domestic currency of a unit (such as 1 unit). In the international foreign exchange market, euros, pounds. Australian dollar, etc. Are indirect pricing methods. For example, the exchange rate of the euro against the US dollar is 0.9705, that is, 1 euro against 0.9705 US dollars. In indirect pricing method, the amount in local currency is constant, and the amount in foreign currency changes with the change of the value in local currency. If a certain amount of local currency can be converted into less foreign currency than the previous period, it means that the value of foreign currency rises and the value of local currency falls, that is, the foreign exchange rate falls; On the other hand, if a certain amount of local currency can be converted into more foreign currency than in the previous period, it means that the value of foreign currency declines and the value of local currency rises, that is, the foreign exchange rate rises, that is, the foreign exchange value is inversely proportional to the rise and fall of the exchange rate. Therefore, indirect pricing method is the opposite of direct quotation.
(3) Direct quotation and indirect pricing methods have opposite meanings to exchange rate fluctuation. Therefore, when quoting the exchange rate of a certain currency and explaining its exchange rate fluctuation, it is necessary to specify which pricing method to adopt to avoid confusion.
(4) dollar pricing method, also known as new york pricing method, refers to the indirect pricing method for other foreign currencies in new york's international financial market, except the direct quotation for pound sterling. The dollar pricing method was formulated and implemented by the United States in September of 1978+0, which is the prevailing pricing method in the international financial market at present.
Under the gold standard system, the basis of exchange rate determination is the golden point, while under the condition of paper money circulation, the basis of exchange rate determination is purchasing power parity.