Foreign Exchange Rate

Definition: It refers to all the currencies of the rest of the world other than the domestic currency of the country. For example, in India, US dollar is a foreign currency.

The rate at which one currency is exchanged for another is called Foreign Exchange Rate.

  • In other words, the foreign exchange rate is the price of one currency stated in terms of another currency. For example, if one U.S dollar exchanges for 60 Indian rupees, then the rate of exchange is $1 = Rs.60 or Rs1 = 1/60 or 0.0166 U.S. dollar.
  • The exchange rate can fluctuate from year to year or even day to day. Like many other prices, exchange rate is determined by forces demand and supply.

Foreign Exchange Market 

Definition: It is the market where the national currencies are converted, exchanged or traded for one another.

Currency Depreciation VS Currency Appreciation

Currency Depreciation

Meaning: It refers to decrease in the value of domestic currency in terms of foreign currency. It makes the domestic currency less valuable and more of it is required to buy the foreign currency.

Currency Appreciation

Meaning: It refers to increase in the value of domestic currency I terms of foreign currency. The domestic currency becomes more valuable and less of it is required to buy the foreign currency.