"In finance, an exchange rate is the rate at which one currency will be exchanged for another currency."
The price of one currency in relation to another.
Foreign Exchange Market: The currency market where currencies are bought and sold. The market allows for the determination of exchange rates.
Exchange Rates: The value of one currency expressed in terms of another. Exchange rates are influenced by economic and political factors.
Determination of Exchange Rates: The factors that influence exchange rates, including inflation, interest rates, balance of payments, and speculation.
Fixed Exchange Rate System: A system where a country's currency is fixed to another currency, gold or a basket of currencies. A fixed exchange rate system requires a country to maintain an exchange rate within a narrow band.
Floating Exchange Rate System: A system where exchange rates are determined by the foreign exchange market. The system allows for greater flexibility in exchange rates and is the most commonly used system today.
Balance of Payments: The record of a country's transactions with the rest of the world. The balance of payments includes both trade and financial transactions and can affect exchange rates.
International Monetary Fund (IMF): An organization that promotes international monetary cooperation and exchange rate stability. The IMF provides loans to member countries facing balance of payments problems.
Currency Hedging: The practice of protecting against exchange rate risk by using financial instruments like futures, options, and forwards.
Capital Flows: The movement of funds between countries for investments, trade, or other purposes. Capital flows can affect exchange rates.
Exchange Rate Regimes: The different systems used to manage exchange rates including fixed, floating, and managed floating regimes.
Nominal Exchange Rate: This is the rate at which one currency can be exchanged for another currency. It is also called the spot exchange rate, as it is the rate at which currency is bought or sold for immediate delivery.
Real Exchange Rate: This reflects the purchasing power of one currency relative to another currency. It takes into account differences in inflation rates between countries.
Cross Exchange Rate: This is the exchange rate between two currencies that are not the domestic currency of the country in which the exchange rate is quoted.
Fixed Exchange Rate: This is a system in which a country's currency value is fixed directly to another country's currency or to a commodity, such as gold.
Floating Exchange Rate: This is a system in which a country's currency value is determined by market forces, such as supply and demand in the foreign exchange market.
Pegged Exchange Rate: This is a system in which a country fixes its currency value to another currency, but allows for a certain amount of fluctuation within a narrow band.
Managed Float Exchange Rate: This is a system in which a country's government intervenes in the foreign exchange market to manage the value of its currency.
Dirty Float Exchange Rate: This is a system in which a country allows its currency to float, but occasionally intervenes in the foreign exchange market to influence the value of its currency.
Effective Exchange Rate: This is a weighted average of several bilateral exchange rates, which gives a broader measure of a country's currency value.
Forward Exchange Rate: This is the rate at which a currency can be exchanged for another currency on a specific future date. It is used for currency hedging purposes.
Option Exchange Rate: This is the rate at which a currency can be exchanged for another currency at a future date, but with the option to cancel the transaction if the exchange rate goes against the buyer's interest.
Black Market Exchange Rate: This is the rate at which currency is traded illegally in unofficial markets, usually due to government restrictions on the foreign exchange market.
"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)."