"In finance, an exchange rate is the rate at which one currency will be exchanged for another currency."
The value of one currency in relation to another, usually expressed as a ratio or rate.
The gold standard: The gold standard was a monetary system where currencies were pegged to gold. It had a significant impact on exchange rates and international trade.
Bretton Woods: The Bretton Woods system was created after World War II to stabilize and improve the global economy. It included fixed exchange rates and the US dollar as the global reserve currency.
Exchange rate regimes: Different countries have different exchange rate regimes, which can be floating or fixed. Understanding the differences can help explain exchange rate movements.
Purchasing power parity: Purchasing power parity (PPP) is an economic theory that suggests exchange rates should equalize the prices of goods and services in different countries. It can be used to compare living standards across countries.
Currency speculation: Currency speculation is the practice of making bets on currency movements. It can have a significant impact on exchange rates and the global economy.
Interest rates: Interest rates affect currency movements. High interest rates usually strengthen a currency, while low interest rates weaken it.
Macroeconomic factors: Macroeconomic factors like GDP, inflation, and unemployment can affect exchange rates. Understanding these factors can help predict currency movements.
Balance of payments: The balance of payments is a record of a country's financial transactions with the rest of the world. It includes exports, imports, and financial transactions, and can affect exchange rates.
Central bank interventions: Central banks can intervene in currency markets to influence exchange rates. They might do this to stabilize their own currency or to stimulate the economy.
Exchange rate forecasting: Exchange rate forecasting uses statistical models to predict future exchange rate movements. It can be useful for businesses and investors who want to minimize foreign currency risk.
Fixed exchange rate: A fixed exchange rate is one where the value of a currency is pegged to the value of another currency or a basket of currencies.
Floating exchange rate: A floating exchange rate is one where the value of a currency is determined by the forces of supply and demand in the foreign exchange market.
Managed float exchange rate: A managed float exchange rate is one where the value of a currency is allowed to fluctuate within a certain range, but central banks intervene in the foreign exchange market to prevent extreme fluctuations.
Crawling peg exchange rate: A crawling peg exchange rate is one where the value of a currency is adjusted gradually over time to reflect changes in economic fundamentals.
Dual exchange rate: A dual exchange rate is one where there are two exchange rates for a currency, one for transactions between residents and non-residents and the other for transactions within the country.
Multiple exchange rate: A multiple exchange rate is one where there are multiple exchange rates for a currency, each with different purposes and rates.
Nominal exchange rate: A nominal exchange rate is the rate at which one currency can be exchanged for another currency.
Real exchange rate: A real exchange rate takes into account differences in inflation rates between countries and reflects the relative purchasing power of currencies.
Effective exchange rate: An effective exchange rate is a weighted average of a country's exchange rate against a basket of other currencies.
Cross exchange rate: A cross exchange rate is the exchange rate between two currencies, where neither currency is the official currency of the country in which the exchange rate is quoted.
"Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of the euro."
"The exchange rate is also regarded as the value of one country's currency in relation to another currency."
"For example, an interbank exchange rate of 131 Japanese yen to the United States dollar means that ¥131 will be exchanged for US$1 or that US$1 will be exchanged for ¥131."
"In this case, it is said that the price of a dollar in relation to yen is ¥131, or equivalently that the price of a yen in relation to dollars is $1/131."
"Each country determines the exchange rate regime that will apply to its currency."
"For example, a currency may be floating, pegged (fixed), or a hybrid."
"Governments can impose certain limits and controls on exchange rates."
"Countries can also have a strong or weak currency."
"There is no agreement in the economic literature on the optimal national exchange rate policy."
"In floating exchange rate regimes, exchange rates are determined in the foreign exchange market, which is open to a wide range of different types of buyers and sellers."
"The spot exchange rate is the current exchange rate, while the forward exchange rate is an exchange rate that is quoted and traded today but for delivery and payment on a specific future date."
"The buying rate is the rate at which money dealers will buy foreign currency, and the selling rate is the rate at which they will sell that currency."
"The quoted rates will incorporate an allowance for a dealer's margin (or profit) in trading."
"...or else the margin may be recovered in the form of a commission or in some other way."
"Different rates may also be quoted for cash, a documentary transaction, or for electronic transfers."
"The higher rate on documentary transactions has been justified as compensating for the additional time and cost of clearing the document."
"On the other hand, cash is available for resale immediately, but incurs security, storage, and transportation costs."
"the cost of tying up capital in a stock of banknotes (bills)."
"24 hours a day except weekends (i.e. trading from 20:15 GMT on Sunday until 22:00 GMT Friday)."