In finance, an exchange rate (also known as a foreign-exchange rate, forex rate, or rate) between two currencies is the rate at which one currency will be exchanged for another . It is also regarded as the value of one country’s currency in terms of another currency.
What is foreign exchange rate Class 12?
The rate at which one currency is exchanged for another is called Foreign Exchange Rate. ... For example, if one U.S dollar exchanges for 60 Indian rupees, then the rate of exchange is 1$ = Rs. 60 or 1 Rs = 1/60 or 0.0166 U.S. dollar.
What is foreign exchange rate give example?
Foreign Exchange (forex or FX) is the trading of one currency for another. For example, one can swap the U.S. dollar for the euro . Foreign exchange transactions can take place on the foreign exchange market, also known as the forex market.
What are the two types of exchange rates?
2 Kinds of Exchange Rates
There are two kinds of exchange rates: flexible and fixed . Flexible exchange rates change constantly, while fixed exchange rates rarely change.
How is foreign exchange rate determined?
Currency prices can be determined in two main ways: a floating rate or a fixed rate. A floating rate is determined by the open market through supply and demand on global currency markets. ... 4 Therefore, most exchange rates are not set but are determined by on-going trading activity in the world’s currency markets .
What are the three types of foreign exchange rate?
The three major types of exchange rate systems are the float, the fixed rate, and the pegged float .
What is the relationship between demand for foreign exchange and exchange rate?
Exchange rate of foreign currency is inversely related to the demand . When price of a foreign currency rises, it results into costlier imports for the country. As imports become costlier, the demand for foreign products also reduce. This leads to reduction in demand for that foreign currency and vice-versa.
What is a floating exchange rate system?
A floating exchange rate is a regime where the currency price of a nation is set by the forex market based on supply and demand relative to other currencies . This is in contrast to a fixed exchange rate, in which the government entirely or predominantly determines the rate.
Which type of exchange rate system is better?
Probably the best reason to adopt a floating exchange rate system is whenever a country has more faith in the ability of its own central bank to maintain prudent monetary policy than any other country’s ability. The key to success in both fixed and floating rates hinges on prudent monetary and fiscal policies.
What is REER and NEER?
The NEER is the weighted geometric average of the bilateral nominal exchange rates of the home currency in terms of foreign currencies. ... The REER is the weighted average of NEER adjusted by the ratio of domestic price to foreign prices.
When should you exchange currency?
Best Place to Exchange Currency Before and After Traveling
Head to your bank or credit union before you leave to avoid paying ATM transaction costs. You may even receive a better exchange rate.
How is foreign exchange rate determined use diagram?
Explain with diagram. Answer: Exchange rate in a free exchange market is determined at a point, where demand for foreign exchange is equal to the supply of foreign exchange . ... In the above diagram, the price on the vertical axis is stated in terms of domestic currency (that is, how many rupees for one US dollar).
Why foreign exchange rate is important?
The exchange rate is important for several reasons: a. It serves as the basic link between the local and the overseas market for various goods, services and financial assets. Using the exchange rate, we are able to compare prices of goods, services, and assets quoted in different currencies .
What is the highest currency in the world?
Kuwaiti Dinar or KWD has crowned the highest currency in the world. Dinars is the currency code of KWD. It is widely used in the Middle East for oil-based transactions. 1 Kuwaiti Dinar is equal to 233.75 INR.
What are the factors affecting foreign exchange rate?
- Inflation. Inflation is the relative purchasing power of a currency compared to other currencies. ...
- Interest Rates. ...
- Public Debt. ...
- Political Stability. ...
- Economic Health. ...
- Balance of Trade. ...
- Current Account Deficit. ...
- Confidence/ Speculation.
What are the four categories of exchange rate systems?
There are four main types of exchange rate regimes: freely floating, fixed, pegged (also known as adjustable peg, crawling peg, basket peg, or target zone or bands ) , and managed float.
