What do you mean by exchange rate, Macroeconomics

Assignment Help:

Q. What do you mean by Exchange rate?

Exchange rate is defined as the price of one unit of currency in terms of another currency. If one euro costs 1.5 USD then 1 USD costs 1/1.5 = 0.667 euro. If exchange rate is stated in terms of euro (for instance 1.5 USD/euro) then euro is known as the base currency or unit currency. 

In most countries, exchange rate is expressed using foreign currency as the base currency. For instance in Denmark, USD exchange rate would be expressed as 4.8 Danish kronor (DKK) per USD whereas, in the U.S., same exchange rate would be expressed as 0.208 USD/DKK (or 20.8 USD/100DKK). This way of specifying the exchange rate is known as the direct method as you can immediately figure out how much you have to pay for one unit of a foreign currency.

In a number of countries, exchange rate is expressed using home currency as the base currency. In the UK for instance, Danish exchange rate would be expressed as 9.2 DKK/GBP. So you have to invert the exchange rate if you want to figure out how much one unit of a foreign currency costs in the UK. This method is known as the indirect method of specifying the exchange rate and notation is occasionallytermed as British notation.


Related Discussions:- What do you mean by exchange rate

Employment, Employment  Full employment of human and non-human resource...

Employment  Full employment of human and non-human resources or at least minimization of unemployment is an accepted goal of macroeconomic policy. Also the best way to alleviat

Federal funds rate and supply and demand analysis, If banks expect an unusu...

If banks expect an unusually large increase in withdraws from checking deposit accounts in the near future, what would happen to the federal funds rate, borrowed reserves and nonbo

Explain the following equation, Which of the following equations is FALSE f...

Which of the following equations is FALSE for perfectly competitive firms? A. Total cost = fixed cost + variable cost B. Marginal cost = change in total cost / change in quantity o

Properties of indifference curve, Properties of indifference curve:   P...

Properties of indifference curve:   Property I: Higher indifference curve gives higher utility.      Explanation: Since all goods are non-satiated, larger consumpti

Described as a market in equilibrium, Camping at Wilson's Promontory, a nat...

Camping at Wilson's Promontory, a national park in Victoria, isn't free, but for many years now not everyone who wants to camp at Wilson's Promontory during the Christmas holidays

Ketch the bakerys average cost curve, A bakery has fixed costs of $10 per d...

A bakery has fixed costs of $10 per day and variable costs of $1 per loaf. Its oven can handle up to 50 loaves a day and it is impossible to obtain additional capacity. Sketch the

Define price elasticity of demand, Suppose the price elasticity of demand f...

Suppose the price elasticity of demand for used cars is estimated to be 3 what does this mean?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd