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Foreign exchange rates

Economics notes

Foreign exchange rates

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.

What is a foreign exchange rate?

A foreign exchange rate is the rate at which one currency can be exchanged for another currency in the global foreign exchange market.

How is the foreign exchange rate determined in the foreign exchange market?

The foreign exchange rate is determined in the foreign exchange market through the interaction of supply and demand for different currencies, influenced by factors such as interest rates, economic conditions, and market sentiment.

What are the factors that influence foreign exchange rate fluctuations?

Factors influencing foreign exchange rate fluctuations include interest rates, inflation differentials, trade balances, political stability, market speculation, central bank interventions, and market sentiment and expectations.

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