Exchange Rate
The price of one currency expressed in terms of another currency.
Definition
An exchange rate is the value of one nation's currency versus the currency of another nation. Exchange rates can be floating (determined by market forces of supply and demand) or fixed/pegged (set by a government or central bank relative to another currency). Factors influencing exchange rates include interest rate differentials, inflation rates, trade balances, political stability, and economic performance. The most traded currency pairs include EUR/USD, USD/JPY, GBP/USD, and USD/CHF. Exchange rates affect international trade, tourism, investment returns, and the cost of imported goods. Central banks sometimes intervene in currency markets to stabilize or influence their exchange rate.
Related Tools
Related Terms
Forex (Foreign Exchange)
The global decentralized market for trading currencies, the largest financial market in the world.
ForexUS Dollar Index (DXY)
A measure of the value of the US dollar relative to a basket of six major foreign currencies.
EconomyPurchasing Power
The quantity of goods and services that can be purchased with a unit of currency.
EconomyInterest Rate
The percentage charged by a lender or paid by a borrower for the use of money over a period of time.