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# What is an Exchange Rate?

Exchange Rate is the value of one country’s currency and another country’s or economic zone’s currency. For example, how much does it cost to buy 1 euro? For example, how many U.S. dollars does it take to buy one euro?

1 Indian Rupee =0.014 US Dollar as on 21st September, 2021

Fro example ,one dollar = Rs.74.24.

## a.Free floating exchange rate

The floating exchange rate system fluctuates due to changes in the foreign exchange market.

## b.Restricted currency

Currencies are restricted in some countries and their exchange is restricted within national borders. Also, restricted currencies may be valued by the government.

## c.Currency pegs

One country may fix its currency to the currency of another. For example, the Hong Kong dollar is fixed at the US dollar in the range 7.75 to 7.85. This means that the value of the Hong Kong dollar against the US dollar remains within this range.

## d.Onshore vs. offshore

Exchange rates in the same country may also be different. In some cases, there are onshore and offshore rates. In general, more favorable exchange rates are often found inside the border rather than outside the border. The Chinese yuan is a currency controlled by the government.

## e.Spot vs. forward exchange rate

Exchange rates include what is called the current market value, the spot rate or cash value. Alternatively, it might have a futures value based on the expectation that the currency will rise or fall relative to its spot price. Changes in expectations for future interest rates in one country and another can cause forward rate values ​​to fluctuate. For example, let’s say traders see the euro area as easing monetary policy against the United States.

## f.Quote

Exchange rates usually estimates using the acronym of the country’s currency it represents. For example, the acronym USD stands for US dollar and EUR stands for euro. Estimating the dollar and euro currency pairs yields EUR / USD. In this case, the quote is from euros to dollars, and if the exchange rate is 1.13, a transaction of 1 euro is equivalent to \$ 1.13. For Japanese Yen, it is USD / JPY or from Dollar to Yen. If the exchange rate is 100, 1 dollar will be 100 yen.