AP

Exchange Rate

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Simple Definition of Exchange Rate
  • An exchange rate is the value of a country's currency vs. that of another country or economic zone.
  • Most exchange rates are free-floating and will rise or fall based on supply and demand in the market.
  • Some exchange rates are not free-floating and are pegged to the value of other currencies and may have restrictions.
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Understanding Exchange Rate
  • Typically, an exchange rate is quoted using an acronym for the national currency it represents.
    • For example, the acronym USD represents the U.S. dollar, while EUR represents the euro. 
    • To quote the currency pair for the dollar and the euro, it would be EUR/USD.
    • In the case of the Japanese yen, it's USD/JPY, or dollar to yen. An exchange rate of 100 would mean that 1 dollar equals 100 yen.