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exchange rate |
Also found in: Financial, Wikipedia, Hutchinson | 0.02 sec. |
exchange ratePrice of one country's money in relation to another's. Exchange rates may be fixed or flexible. An exchange rate is fixed when two countries agree to maintain a fixed rate through the use of monetary policy. Historically, the most famous fixed exchange-rate system was the gold standard; in the late 1850s, one ounce of gold was defined as being worth 20 U.S dollars and 4 pounds sterling, resulting in an exchange rate of 5 dollars per pound. An exchange rate is flexible, or “floating,” when two countries agree to let international market forces determine the rate through supply and demand. The rate will fluctuate with a country's exports and imports. Most world trade currently takes place with flexible exchange rates that fluctuate within relatively fixed limits. See also exchange control, foreign exchange. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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| This difference illustrates dramatically that nominal exchange rate indexes are poor measures of trade competitiveness when inflation rates abroad differ widely from those in the United States. Knight: Over time there can be changes in countries' real exchange rates relative to the United States, whether there are nominal exchange rate movements or not. The relative version of the theory says that the nominal exchange rate change over time such that the price of the same basket of goods in the two economies change at the same rate. |
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