What is the Meaning of: Exchange rate | Concept and Definition of: Exchange rate
The exchange rate is the exchange relationship between two different countries currencies (currencies). This information indicates how much of the currency X we will get into the currency exchange Y. In other words, it tells how much money it is possible to buy with the currency of another country.
Foreign Exchange (buying and selling of currency) transactions can be made in banks and bureaux de change, which, in general, to contribute two Exchange rates, namely: one for the purchase and another for sale. For example: If you want to buy dollars, the price payable to the bureau de change is 0.74 euros for each dollar received. On the other hand, if you want to sell euros, we get 1.34 dollars for every sold euro.
We can mention two Exchange rates: the real exchange rate and the nominal exchange rate.
The real change is one which establishes the relationship through which a person can exchange goods and services of one country by another.
The nominal change, on the other hand, is the direct relationship between a foreign and local currency. This is the exchange rate that is used in banks and bureaux de change.
The Central Bank of each country has a choice between several systems of exchange rate. The fixed exchange rate is determined by the Central Bank (the institution decides the price of the currency). On the other hand, the floating or flexible exchange rate allows that the price is determined by supply and demand theory.