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Foreign Exchange Rate

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A foreign exchange rate is the price of one currency in terms of another. For example, suppose the foreign exchange rate for the Japanese yen vis--vis the U.S. dollar is 100 = $1. If the foreign exchange rate changes to, say, 110 = $1, the yen is now weaker and the dollar stronger, since it now costs 10 yen more to buy a single dollar. But if the foreign exchange rate changed to 90 = $1, the yen is now worth more, since it only costs 90 yen to buy a dollar. The foreign exchange rate for the yen could also strengthen against the dollar while its foreign exchange rate against other currencies weakens. A currency's foreign exchange rate is determined by many factors, including the macroeconomic, monetary, and trade policies of its own country and those of other nations. The foreign exchange rate is key for investors when buying stocks quoted in currencies other than their own, because the foreign exchange rate will determine the amount they receive in their own currency upon sale.



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