The
world money exchange rate is the price of a country's currency expressed in terms of another country's currency. This denomination reveals the rate at which one currency can be exchanged for another. If the exchange rate of one currency is higher in terms of another, then, the relative value of the former is higher than the latter. According to dependable market studies in most financial papers, currencies are generally expressed in terms of US dollars. The dollar is often compared to the Japanese yen while the British pound is often put in comparison with the Euro. Not too long ago, the exchange rate of one US dollar for one Euro was about 0.84.
Fixed Exchange Rate is the rate that is determined by the central bank on behalf of the government. This rate is the official exchange rate of the country. A price is set against the major world currency, usually the US dollar. To maintain the local exchange rate, the central bank buys and sells its own currency in the foreign exchange market. The rate is fixed when two countries agree to maintain a fixed rate through the use of monetary policy.
The Floating Exchange Rate, on the other hand, is determined through the forces of demand and supply by the private market. The value of a currency is low if its demand is low and import of goods in that country becomes expensive. The demand for local goods and services increases in the process.
In times of sudden financial crisis, a country can implement Dual or Multiple Exchange Rate System. The country thus manages to have more than one exchange rate at which its currencies are exchanged. Both fixed and floating exchange rates are prevalent in the market in a dual exchange rate system. The market exchange rate system is almost the same with the exception that the market itself gets divided into many segments and each segment has its own interest rate.
A quotation for exchange rate is put forward by stating the number of units of a price currency that can be bought in terms of 1 unit currency. This is the base currency. Quotes that use a country's home currency as the unit currency are known as indirect quotations.
The exchange rate is also the price at which one country's currency can be converted into another's. Most exchange rates in the world are free floating and usually show slight daily changes. The foreign exchange markets are usually highly liquid. The biggest foreign exchange trading center in the world is London. New York and Tokyo are close followers.