Refer to figure. 
The directional gyroscope uses the gyroscopic property of rigidity in space to provide a stable direction indication. An attitude indicator and a directional gyroscope (DG) are both gimballed systems, with two degrees of freedom of rotation and precession. The rotor spin axis is horizontal.

DG indication consists of a vertical compass rose. The movements of the aircraft in the horizontal plane (heading) around the rigid gyroscope are transformed into movements of the compass card by a gearing unit.

Note: This question has also seen in UK CAA exams as a “drop-down” with two drop-down menus, one for (2) degrees of freedom and one for (horizontal) axis gyro.