Question

What is meant by foreign Exchange Rate?

Hint:

When the exchange rate increases (e.g., from 1 Dollar = 70 Rupees to 80 Rupees), it means the domestic currency has depreciated.
This generally makes exports cheaper and imports more expensive.

Answer 1

Step 1: Understanding the Concept:
International trade requires the exchange of currencies because different nations use different monetary units.
The exchange rate acts as a link between the price levels of different countries.
Step 2: Detailed Explanation:
For example, if 1 US Dollar is equal to 83 Indian Rupees, the exchange rate is \( \$1 = \text{₹}83 \).
This rate can be determined by market forces (Flexible Rate), the government (Fixed Rate), or a combination of both (Managed Floating).
It fluctuates based on the demand and supply of foreign currency in the international market.
Step 3: Final Answer:
Foreign exchange rate is the rate at which one currency is exchanged for another in the foreign exchange market.