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

Relative cost-effectiveness, Stephanie Robbins is the Three Hills Power Com...

Stephanie Robbins is the Three Hills Power Company management analyst assigned to simulate maintenance costs. In Section 14.6 we describe the simulation of 15 generator breakdowns

Tariffs and non-tariff barriers, Tariffs and Non-tariff Barriers A sig...

Tariffs and Non-tariff Barriers A significant aspect of the trade reforms of the 1990s was the reduction in the then prevailing very high import duties (over 300 percent in so

Determine in detail about money supply of central bank, Determine in detail...

Determine in detail about money supply of Central bank The central bank will not pay cash when it buys government securities. Instead, it will ask the seller's bank to credit t

Assignment, what are the effects of interest rate in the economy of south a...

what are the effects of interest rate in the economy of south africa in unemployment, economic groth, employment. and economic growth

Compute the sample mean, Joans Nursery specializes in custom-designed lands...

Joans Nursery specializes in custom-designed landscaping for residential areas. The estimated labor cost associated with a particular landscaping proposal is based on the number of

How can we define the real wage as nominal wage, How can we define the real...

How can we define the real wage as nominal wage We define real wage as nominal wage divided by a price index (typically CPI). In the illustration above, your real wage was 20 i

Eco, illustrate and discuss the implications of various market structures (...

illustrate and discuss the implications of various market structures (competitive and non-competitive)for price determination.

Exante real interest rate, The exante real interest rate is based on _____ ...

The exante real interest rate is based on _____ inflation, while the ex post real interest rate is based on _____ inflation. A) expected; actual B) core; actual C) actual;

Government imposes a price floor, Consider the above table. Assuming the go...

Consider the above table. Assuming the government imposes a price floor on garbanzo beans of $8, what would be the likely result? a. no change, equilibrium would prevail b. T

Particular public policy, Select a particular public policy with which you ...

Select a particular public policy with which you are familiar and discuss two positive and two negative aspects of that policy. b. What goal do you think the policy makers were try

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