Exchange Rate Determination

Definition

Exchange rate determination refers to the process through which the value of one currency is determined in relation to another currency. It involves various factors such as supply and demand dynamics, economic indicators, and government policies.

Related terms

Purchasing Power Parity (PPP): A theory that suggests exchange rates should adjust so that identical goods have similar prices across different countries.

Floating Exchange Rate: An exchange rate regime where currencies fluctuate freely based on supply and demand in the foreign exchange market.

Fixed Exchange Rate: An exchange rate regime where a country's currency is pegged or fixed to another currency or an external standard.