| the ratio at which a unit of the currency of one country can be exchanged for that of another country. |
| exchange rate n. A rate of exchange. |
Exchange Rate
The price of one country's currency expressed in another country's currency. In other words, the rate at which one currency can be exchanged for another.
Investopedia Commentary
In most financial papers, currencies are expressed in terms of U.S. dollars, while the dollar is commonly compared to the Japanese yen, the British pound and the euro.
Related Links
Floating And Fixed Exchange Rates
Getting Started In Forex
A Primer On The Forex Market
Dual And Multiple Exchange Rates
See also: Currency, Currency Forward, Forex, Transaction Exposure, Translation Exposure
exchange rate
How do currency exchange rates influence investment values? When the exchange rate between the foreign currency of an international investment and the U.S. dollar changes, it can increase or reduce your investment return. Because foreign companies trade and pay dividends in the currency of their local market, you will need to convert the cash you receive from dividends or the sale of the investment into U.S. dollars. Therefore, if the exchange rate changes significantly between the time you buy and the time you sell, it can sometimes turn a positive return in the investment itself into a loss for the investment in total, or vice versa. International investment returns increase when the dollar weakens in value against another currency, because each unit of foreign currency translates into more U.S. dollars. On the other hand, if the U.S. dollar strengthens against the foreign currency, it translates each foreign currency unit into fewer U.S. dollars and therefore diminishes your returns.Thomas M. Tarnowski, Senior Business Analyst, Global Investment Banking Division, Citigroup, Inc. |
Salomon Smith Barney, New York, NY, and London, UK