Exchange Rate

Exchange rate is a price or ratio at which one nations currency can be converted into that of another. Simply put, the exchange rate is how much of one denomination it takes to pay for another. The exchange rate for every currency is different. That means that exchange rate between the U.S. dollar and a Euro is different from that between the dollar and a Japanese Yen. An exchange rate is subject to various economic and market forces. Thus, a floating exchange rate may flow freely, exhibiting movement from day to day. Conversely, an exchange rate may be fixed, and therefore independent of market forces. A fixed exchange rate is influenced by the government or central bank, mainly for the purpose of procuring more stable international trade.