# Numeraire: Prices under different numeraires

#### kdmfe

Pg 386 Steven Shreve Book 2: Stochastic Calculus: Continuous-Time Models

There is a matrix (4 X3 matraix) for the following three instruments (column headings):
• Domestic Money market
• Stock
• Foreign Money market
The rows headers are the following:
• Domestic currency
• Domestic Money market
• Foreign currency
• Foreign money market
Take row 1: header Domestic currency: it has the following three values under each of the column
• M(t): This is an instrument which yields certain rate of interest compounded continuously
• S(t): This is the stock price of an asset
• M^(f)(t).Q(t): This the price of foreign (non local) money market instrument converted to local currency using an exchange process Q(t). I am saying Q(t) is a direct quote, i.e., for a fixed unit of foreign currency the local currency is variable.
Take row2: Take row (1) and divide the instrument by M(t) or in other words, multiply the instrument by D(t)

My question is how do I read/interpret the titles Domestic Money Market vs Domestic Currency? How are these different? What does it add or takeaway from row 1?

I have written my notes, but this is not somethin I have grasped.

Kindly guide/provide a link where these topics are discussed.

Once I am convinced, I have a follow-up question on row 3 and 4 ( I might post it as a different question)

Thank you

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