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exchange rate |
Also found in: Financial, Acronyms, Wikipedia, Hutchinson | 0.04 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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| In this context, because the real exchange rate can play such a role, it is included in both the first and the fifth equations. Under the common currency regime, nominal exchange rate movements have been substituted with real exchange rate movements. However, there are three features of exchange rates that are far less easily explained using conventional modelling techniques: Exchange rates are very volatile; there is a very high correlation between the nominal and the real exchange rate in the short run; and macroeconomic fundamentals do not do a very good job at explaining high frequency (i. |
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