exchange rate

noun
Updated on: 13 Oct 2017

Definition of exchange rate

:the ratio at which the principal unit of two currencies may be traded

First Known Use of exchange rate

1855


Financial Definition of EXCHANGE RATE

exchange rate

What It Is

An exchange rate between two countries' currencies indicates the value of one currency relative to the other.

How It Works

On June 16, 2010, the exchange rate between the dollar and the euro was 1.23 $/€. This means that to obtain one euro, you would need 1.23 dollars. Conversely, if you were about to take a vacation to Europe, you could take $1,000 to the bank and receive €813.01.

Exchange rates can be fixed or floating. If a country fixes its currency to that of another country, the exchange rate between those two currencies will not change. If a country has a floating exchange rate, the rate between its currency and any other currency will adjust to market conditions.

Why It Matters

The exchange rate between two currencies plays a major role in international trade and investment. For instance, if the dollar appreciates, or gains value, relative to the euro, Americans traveling in Europe will have greater purchasing power, but it will be more difficult for the U.S. businesses to export goods.

Changes in the exchange rate are subject to a wide range of factors, such as interest rates, price levels and expected future market conditions.


EXCHANGE RATE Defined for English Language Learners

exchange rate

noun

Definition of exchange rate for English Language Learners

  • : a number that is used to calculate the difference in value between money from one country and money from another country



Seen and Heard

What made you want to look up exchange rate? Please tell us where you read or heard it (including the quote, if possible).

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!

WORD OF THE DAY

serious difficulty or misfortune

Get Word of the Day daily email!

Test Your Vocabulary

The Exceptions Quiz III

  • one-green-toy-robot-amidst-many-red-toy-robots
  • Which of these words does not mean "nonsense"?
True or False

Test your knowledge - and maybe learn something along the way.

TAKE THE QUIZ
SCRABBLE® Sprint

Test Your Knowledge - and learn some interesting things along the way.

TAKE THE QUIZ

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!