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Exchange Rate

The price at which one currency can be exchanged for another currency.

Full Explanation

An exchange rate is the value of one currency in terms of another. For example, if 1 USD = 80 INR, that is the exchange rate between US Dollar and Indian Rupee. Exchange rates are constantly changing based on market forces. They can be fixed (government-set) or floating (market-determined). The exchange rate determines how much foreign currency you receive for your home currency in a transaction.

Related Terms

Foreign Exchange (FX)

The global market where currencies are traded. Also the rate at which one currency can be exchanged for another.

Bid-Ask Spread

The difference between the highest price a buyer will pay and the lowest price a seller will accept for a currency.

Frequently Asked Questions

What is the difference between spot and forward rates?

Spot rate is the current rate for immediate delivery. Forward rate is agreed today for future delivery.

Can exchange rates be locked in?

Yes, for international transfers you can lock the rate at the time of booking.

Who sets exchange rates?

For floating currencies, markets determine rates through supply/demand. Central banks influence through policy.

What is a good exchange rate?

Mid-market rate (real rate) is best. Any markup is cost to you. Real rates have zero markup.