Financial Management · Causes of exchange rate differences and interest rate fluctuations

Exchange Rate Quotations and Spot Rates Explained

Updated 11 October 2026 · Fact-checked

An exchange rate quote shows how much of one currency buys one unit of another. Spot quotes have two prices: the bank buys the base currency at the lower rate (bid) and sells it at the higher rate (offer). Convert using the bank's bid or offer, multiplying for a known base amount and dividing for a known quote amount.

Understand Exchange Rate Quotations and Spot Rates

An exchange rate is the price of one currency in terms of another. A quote such as USD/EUR 0.9200 means 1 US dollar costs 0.9200 euros. The first currency is the base currency. The rate tells you how many units of the second currency you get for one unit of the base.

A spot rate is the rate for exchange now, with settlement normally within two working days. Forward rates are for a future date and are covered elsewhere.

A direct quote expresses the foreign currency in terms of your home currency, for example ₹83 per 1 foreign unit. An indirect quote expresses the home currency in terms of foreign units, for example 0.012 foreign units per ₹1. They are reciprocals: indirect = 1 ÷ direct. Be careful, because 'direct' depends on who you are. The same quote is direct for one country and indirect for another. In the exam, always check which currency is the base.

Banks quote two rates, a bid and an offer (also called ask). Written as 1.5000 - 1.5100, the bank buys the base currency at 1.5000 and sells it at 1.5100. The difference is the spread, which is the bank's margin. The quote is always from the bank's point of view, not yours.

The rule is simple. The bank always gives you the worse deal. If you are selling base currency to the bank, you get the lower rate. If you are buying base currency from the bank, you pay the higher rate.

Key rules to remember

Quote format: Base/Quote currency = Bid - Offer (lower rate first); The bid is the rate at which the bank buys the base currency. The offer is the rate at which the bank sells it.
Spread: Spread = Offer − Bid; Can be expressed in pips, the last decimal place quoted, or as a percentage of the rate.
Spread as a percentage: Spread % = (Offer − Bid) ÷ Bid × 100; Some questions use the mid-point as the denominator. Use the method the question implies, and state it.
Mid-rate: Mid-rate = (Bid + Offer) ÷ 2; Use only when the question asks for a mid-market rate. Real transactions use bid or offer.
Converting with the base currency: Customer buys base currency: pay quote currency = base amount × Offer. Customer sells base currency: receive quote currency = base amount × Bid.; The bank sells base currency at the offer and buys it at the bid.
Reciprocal of a quote: Rate for the reverse pair: Bid = 1 ÷ Offer of original; Offer = 1 ÷ Bid of original; Bid and offer swap when you invert. The lower rate must stay first.

How to solve Exchange Rate Quotations and Spot Rates questions

Use this method for any spot rate conversion question. The key is to work out what the bank is doing, then pick the matching rate.

1Identify the base currency (first named) and the quote currency in the rate given.
2Write the quote as Bid - Offer, lower number first. Check you know which currency each rate applies to.
3Decide from the bank's side. If you receive base currency, the bank sells it to you (offer). If you give base currency to the bank, the bank buys it (bid).
4Pick the rate: bank buys base at the bid (lower), bank sells base at the offer (higher).
5Convert: to turn a known base amount into quote currency, multiply by the rate. To turn a known quote amount into base currency, divide by the rate. The rate you use (bid or offer) depends on what the bank does with the base currency, not on which currency you hold.
6Sense-check. The result should be slightly worse for you than using the mid-rate. If it is better, you picked the wrong rate.
7State the answer in the correct currency with a label.

Quickest way: The 'bank wins' check

When to use it: Use it in any Section A or OT case question on conversions, when you have under two minutes.

Write the quote as Bid - Offer.
If you hold base currency and sell it to the bank, multiply by the bid (the lower rate).
If you hold quote currency and want to receive base currency, you are buying base from the bank, so divide by the offer (the higher rate).
If you need a fixed amount of quote currency and will pay for it with base currency, you are selling base to the bank, so divide by the bid.
If you must pay quote currency to buy a fixed amount of base currency, multiply by the offer.
In every case the bank's rate leaves you worse off. Check the answer against the mid-rate result to confirm it is slightly worse for you.

Common mistakes in Exchange Rate Quotations and Spot Rates

Using the bid rate when the customer is buying the base currency.
Students think from their own point of view, not the bank's.
Fix: Always ask what the bank is doing. The bank sells base currency at the offer, so a customer buying base pays the offer.
Multiplying when you should divide, or the reverse.
Students decide by the currency they hold, not by which amount the question gives them.
Fix: To convert a known base amount into quote currency, multiply. To convert a known quote amount into base currency, divide. Then choose bid or offer by what the bank does with the base currency. Write the currency labels beside every number.
Using the mid-rate for a real transaction.
It feels like a fair average and is quicker.
Fix: Use the mid-rate only if the question tells you to. Otherwise use the bid or offer.
Inverting a quote and keeping bid and offer in the same order.
Students invert each number but forget that the bank's buy and sell sides swap.
Fix: Invert the offer to get the new bid, and the bid to get the new offer. Check the lower rate is first.
Confusing direct and indirect quotes.
The word 'direct' sounds universal, but it depends on the home currency.
Fix: Find the home currency. If the home currency is the quote currency (per one foreign unit), it is direct. If the home currency is the base, it is indirect.
Using the wrong number of decimal places or rounding too early.
Time pressure and careless rounding of intermediate figures.
Fix: Keep all decimals through the working. Round only the final answer, as the options usually differ at that level.

Worked examples

Example 1

A bank quotes the spot rate for USD/EUR as 0.9180 - 0.9240. (a) A US company sells $200,000 to the bank. How many euros does it receive? (b) A US company buys $200,000 from the bank. How many euros does it pay?

Show the solution

The base currency is USD. The quote currency is EUR. Bid = 0.9180, offer = 0.9240.
(a) The company sells USD, so the bank buys USD. The bank uses the bid, 0.9180.
Euros received = 200,000 × 0.9180 = €183,600.
(b) The company buys USD, so the bank sells USD. The bank uses the offer, 0.9240.
Euros paid = 200,000 × 0.9240 = €184,800.
Check: the company receives less than the mid-rate amount in (a) and pays more in (b). The difference between the two, €1,200, is the bank's spread on $200,000.

Answer: (a) €183,600 received. (b) €184,800 paid.

Example 2

The spot rate for GBP/USD is quoted as 1.2650 - 1.2710. A UK company must pay a supplier $253,000 and needs to buy the dollars from its bank with pounds. How many pounds does it need? Also, express the spread of the quote as a percentage of the bid, to two decimal places.

Show the solution

The base currency is GBP. The quote currency is USD. Bid = 1.2650, offer = 1.2710.
The company needs dollars, which is the quote currency. It pays pounds, the base currency, so the bank buys GBP from the company.
The bank buys GBP at the bid, 1.2650 dollars per pound.
The company needs a known amount of the quote currency (USD), so divide by the rate (the bid, 1.2650).
Pounds needed = 253,000 ÷ 1.2650 = £200,000.
Check with the other rate: the offer would give 253,000 ÷ 1.2710 = £199,056 (to the nearest pound). The bid gives £200,000, so the bid is the rate that costs the company more pounds, which is the bank's rate.
Spread = 1.2710 − 1.2650 = 0.0060.
Spread % = 0.0060 ÷ 1.2650 × 100 = 0.47% (0.4743 rounded).

Answer: The company needs £200,000. The spread is 0.0060, or 0.47% of the bid.

Exam tips

Write Bid - Offer on your scratch paper before you touch the numbers, and label each rate with its currencies.
In OT questions, the wrong options are usually the answers you get from using the wrong rate or the wrong operation. Work it out first, then match, and do not pick the first number that looks close.
Check which currency is the base. The pair 'USD/EUR' and 'EUR/USD' give different rates and need different operations.
If a question gives a quote in the form 'X per Y', note which currency is Y. That is your base.
In Section C, show the rate you used and say why, for example 'bank sells dollars at the offer'. Method marks depend on this.

Practice questions from Causes of exchange rate differences and interest rate fluctuations

Exchange Rate Quotations and Spot Rates in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Exchange Rate Quotations and Spot Rates: frequently asked questions

What is the difference between bid and offer rates?

The bid is the rate at which the bank buys the base currency. The offer is the rate at which the bank sells it. The offer is always higher, and the gap is the bank's profit margin.

How do I know whether to multiply or divide?

Look at which amount the question gives you. To convert a known base currency amount into quote currency, multiply by the rate. To convert a known quote currency amount into base currency, divide by the rate. Then pick the bid or offer by what the bank does with the base currency.

What is the difference between a direct and an indirect quote?

A direct quote gives the price of one unit of foreign currency in home currency. An indirect quote gives the number of foreign units per one unit of home currency. They are reciprocals, and which one you have depends on your home currency.

How do I calculate the spread?

Subtract the bid from the offer. You can show it in pips or as a percentage of the bid or mid-rate. Follow what the question asks for.

Do I use the spot rate for forward contracts?

No. The spot rate applies to settlement now. Forward rates are quoted as the spot rate adjusted by forward points, which reflect the interest rate differential between the two currencies.