Question

What is "Exchange Rate"?

Hint:

Think of the exchange rate as the "price tag" on a currency when you are "shopping" for another currency in the foreign exchange market.

Answer 1

Step 1: Understanding the Concept:
The question asks for the definition of the exchange rate, a fundamental concept in international economics.

Step 2: Detailed Explanation:
The Exchange Rate is the price of one country's currency expressed in terms of another country's currency. It specifies how much one currency is worth in terms of the other.
For example, if the exchange rate between the US dollar and the Indian rupee is \$1 = ₹80, it means that one US dollar can be exchanged for 80 Indian rupees.
Exchange rates are crucial as they determine the cost of imports and the value of exports, and they influence international trade and capital flows. In a flexible exchange rate system, the rate is determined by the market forces of demand for and supply of the currencies.

Step 3: Final Answer:
The Exchange Rate is the rate at which one currency can be exchanged for another. It is the price of a nation's currency in terms of another currency.