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Currency Exchange Rate
The price of one country's currency expressed in another country's currency.
In finance, the exchange rates or foreign currency exchange rate, the two currencies in between, which are to be specified?
According to the value how much the one currency’s worth over the other???
The values of two different currencies are related to each other e.g. on company or an individual may do trading in US dollars against the number of British Pounds. As the currency exchange rates float daily or they may be associated with the forms of currency. The fluctuation and differentiation of exchange rate is due to the demand and supply of the currencies and the amount of the currency which is hold by the foreign reserves.
The state governments of some countries attach their currency value with the value of international or most acceptable icon of trading currency e.g. Riyal of Qatar has been worth 0.275 dollars since 1980.
The floating exchange rate is beneficial in the sense of economic efficiency but on the other hand it is more volatile and unpredictable by the traders. Te fixed exchange rate is generally more stable in the economy but as their fixation is done by the political influence rather than economic influence which ultimately harm the trade and exchange of currency.
In the sense of quotation which is given by the number of units to allocate price currency which can be used for the exchange of base currency for example if some businessman delivered his goods/services in the foreign currency which is pounds although its basic currency is dollars so one pound will be equal to 1.5$. The most acceptable and international currencies are Euro, Pounds and US Dollar. If the value of home currency is increasing i.e. appreciating or becoming more value able reverse is the case for depreciating which means lower the value.
The efficient currency exchange rate assists in developing the bilateral and effective exchange rate which ultimately measures the strength and the potential for competitiveness. Foreign currency exchange helps in neutralization of interest rates for the home country and the host country which ultimately effects the appreciation and depreciation. The currency exchange rate should be at the equilibrium level.
Growth, inflation and productivity which were the drivers of currency movements in the past, are now being changed because of the expansion in the trading of financial assets and bonds.
In the foreign exchange market the investors and speculators can increase when its demand increases in the market than its supply and reverse is the case when the supply is high than the demand.
The demand of the particular currency increases because of its high speculation in the market which is highly associated to countries business interest Rate, GDP and employment. The central banks of the states usually take control of supply and demand of the money through stock exchange. The central banks controls the speculation demand for money by setting the interest rates.