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    Ma. Eleanor T. Fernandez

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    Jessica Acosta
    An exchange rate is the value of one country's currency relative to another's. It represents how much of Country A's currency is needed to buy one unit of Country B's currency. Exchange rates can be free-floating, meaning they fluctuate based on supply and demand, or fixed, where a currency's value is pegged to another currency within a set range. Knowing the exchange rate between two currencies allows people to convert amounts when traveling or conducting international business transactions.

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    Ma. Eleanor T. Fernandez

    Uploaded by

    Jessica Acosta
    51 views14 pages
    An exchange rate is the value of one country's currency relative to another's. It represents how much of Country A's currency is needed to buy one unit of Country B's currency. Exchange rates can be free-floating, meaning they fluctuate based on supply and demand, or fixed, where a currency's value is pegged to another currency within a set range. Knowing the exchange rate between two currencies allows people to convert amounts when traveling or conducting international business transactions.

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    Exchange rate

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    Exchange-rates

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    An exchange rate is the value of one country's currency relative to another's. It represents how much of Country A's currency is needed to buy one unit of Country B's currency. Exchange rates can be free-floating, meaning they fluctuate based on supply and demand, or fixed, where a currency's value is pegged to another currency within a set range. Knowing the exchange rate between two currencies allows people to convert amounts when traveling or conducting international business transactions.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    51 views14 pages

    Ma. Eleanor T. Fernandez

    Uploaded by

    Jessica Acosta
    An exchange rate is the value of one country's currency relative to another's. It represents how much of Country A's currency is needed to buy one unit of Country B's currency. Exchange rates can be free-floating, meaning they fluctuate based on supply and demand, or fixed, where a currency's value is pegged to another currency within a set range. Knowing the exchange rate between two currencies allows people to convert amounts when traveling or conducting international business transactions.

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    MA. ELEANOR T.

    WHAT IS EXCHANGE RATE


    AN EXCHANGE RATE IS THE VALUE OF ONE
    NATION'S CURRENCY VERSUS THE CURRENCY OF
    ANOTHER NATION OR ECONOMIC ZONE.

    FOR EXAMPLE, HOW MANY U.S. DOLLARS DOES IT


    TAKE TO BUY ONE EURO? AS OF SEPTEMBER 24, 2021,
    THE EXCHANGE RATE IS 1.1720, MEANING IT TAKES
    $1.1720 TO BUY €1
    TYPICALLY, AN EXCHANGE RATE IS QUOTED USING AN
    ACRONYM FOR THE NATIONAL CURRENCY IT
    REPRESENTS. FOR EXAMPLE, THE ACRONYM USD
    REPRESENTS THE U.S. DOLLAR, WHILE EUR
    REPRESENTS THE EURO. TO QUOTE THE CURRENCY PAIR
    FOR THE DOLLAR AND THE EURO, IT WOULD BE EUR/USD.
    IN THE CASE OF THE JAPANESE YEN, IT'S USD/JPY, OR
    DOLLAR TO YEN. AN EXCHANGE RATE OF 100 WOULD
    MEAN THAT 1 DOLLAR EQUALS 100 YEN.
    EXCHANGE RATES CAN BE FREE-FLOATING OR FIXED. A
    FREE-FLOATING EXCHANGE RATE RISES AND FALLS
    DUE TO CHANGES IN THE FOREIGN EXCHANGE MARKET
    . A FIXED EXCHANGE RATE IS PEGGED TO THE VALUE
    OF ANOTHER CURRENCY.
    FOR INSTANCE, THE HONG KONG DOLLAR IS PEGGED
    TO THE U.S. DOLLAR IN A RANGE OF 7.75 TO 7.85. THIS
    MEANS THE VALUE OF THE HONG KONG DOLLAR TO
    THE U.S. DOLLAR WILL REMAIN WITHIN THIS RANGE. 
    EXCHANGE RATES CAN HAVE WHAT IS CALLED A 
    SPOT RATE, OR CASH VALUE, WHICH IS THE CURRENT
    MARKET VALUE. ALTERNATIVELY, AN EXCHANGE RATE
    MAY HAVE A FORWARD VALUE, WHICH IS BASED ON
    EXPECTATIONS FOR THE CURRENCY TO RISE OR FALL
    VERSUS ITS SPOT PRICE. FORWARD RATE VALUES
    MAY FLUCTUATE DUE TO CHANGES IN
    EXPECTATIONS FOR FUTURE INTEREST RATES IN
    ONE COUNTRY VERSUS ANOTHER. 
    EXCHANGE RATES CAN ALSO BE DIFFERENT FOR THE
    SAME COUNTRY. SOME COUNTRIES HAVE
    RESTRICTED CURRENCIES, LIMITING THEIR
    EXCHANGE TO WITHIN THE COUNTRIES' BORDERS. IN
    SOME CASES, THERE IS AN ONSHORE RATE AND AN
    OFFSHORE RATE. GENERALLY, A MORE FAVORABLE
    EXCHANGE RATE CAN OFTEN BE FOUND WITHIN A
    COUNTRY'S BORDER VERSUS OUTSIDE ITS
    BORDERS. ALSO, A RESTRICTED CURRENCY CAN
    HAVE ITS VALUE SET BY THE GOVERNMENT.
    CHINA IS ONE MAJOR EXAMPLE OF A COUNTRY
    THAT HAS THIS RATE STRUCTURE. ADDITIONALLY,
    CHINA'S YUAN IS A CURRENCY THAT IS
    CONTROLLED BY THE GOVERNMENT. EVERY DAY,
    THE CHINESE GOVERNMENT SETS A MIDPOINT
    VALUE FOR THE CURRENCY, ALLOWING THE YUAN
    TO TRADE IN A BAND OF 2% FROM THE MIDPOINT.
    EXAMPLE # 1:
    PAUL IS TRAVELING TO FRANCE FROM HIS HOME IN NEW
    YORK AND HE WANTS TO MAKE SURE HE HAS 200 DOLLARS’
    WORTH OF EUROS WHEN HE ARRIVES IN FRANCE. HE GOES TO
    THE LOCAL CURRENCY EXCHANGE SHOP AND SEES THAT THE
    CURRENT EXCHANGE RATE IS 1.20.

    THE EQUATION IS: DOLLARS ÷ EXCHANGE RATE =


    EURO
    $200 ÷ 1.20 = €166.66
    PAUL HAS RETURNED FROM THE TRIP, AND HE NOW WANTS
    TO EXCHANGE HIS EUROS FOR DOLLARS. HE NEVER USED
    HIS €166.66 AND NOW SEES THE EXCHANGE RATE HAS
    DROPPED TO 1.15. HE EXCHANGES HIS €166.66, AND
    BECAUSE THE RATE FELL WHEN HE WAS AWAY, HE
    RECEIVES ONLY $191.67. THE REASON HE GETS LESS
    DESPITE HAVING THE SAME VALUE OF EUROS IS THAT THE
    EURO WEAKENED VERSUS THE DOLLAR DURING HIS TIME
    AWAY.
    EUROS X EXCHANGE RATE = DOLLARS
    €166.66 X 1.15 = $191.66
    KEY TAKEAWAYS
    • AN EXCHANGE RATE IS THE VALUE OF A COUNTRY'S
    CURRENCY VS. THAT OF ANOTHER COUNTRY OR ECONOMIC
    ZONE.
    • MOST EXCHANGE RATES ARE FREE-FLOATING AND WILL RISE
    OR FALL BASED ON SUPPLY AND DEMAND IN THE MARKET.
    • SOME EXCHANGE RATES ARE NOT FREE-FLOATING AND ARE
    PEGGED TO THE VALUE OF OTHER CURRENCIES AND MAY
    HAVE RESTRICTIONS.
    REFERENCE:

    • HTTPS://WWW.INVESTOPEDIA.COM/TERMS/E/EXCHANGERATE.ASP
    ACTIVITY # 2

    Find today's current exchange rates! Use the internet to find them and fill them in:

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