Exchange rates

Definition

The price of one country's currency expressed in terms of another country's currency. Exchange rates fluctuate based on supply and demand, trade balances, interest rates, and economic stability, affecting the cost of imports and exports between nations.

Examples

  • If 1 U.S. dollar equals 0.85 euros, American tourists get fewer euros for their dollars
  • A weaker dollar makes U.S. exports cheaper and more competitive abroad
  • China has historically managed its yuan exchange rate to keep exports affordable

Related Terms

Global economy Trade barriers Comparative advantage Fiscal and monetary policy

Study This Concept

Practice exchange rates with free review games in these units:

Economics Unit 6: International Trade