Foreign exchange rates refer to the rates at which one currency can be exchanged for another. They are determined by the foreign exchange market, where currencies are bought and sold. Foreign exchange rates fluctuate due to various factors, including supply and demand dynamics, interest rate differentials, inflation differentials, political and economic stability, and market sentiment. Understanding foreign exchange rates is crucial for businesses engaged in international trade and investment, as exchange rate movements can impact the competitiveness of exports and imports, the profitability of foreign investments, and the overall cost structure of international business transactions.