What is meant by exchange rate between two currencies?« Back to Questions List


In finance, an exchange rate (also known as a foreign-exchange rate, forex rate, FX rate ) between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency. For example, an interbank exchange rate of 60 Indian Rupees  to the U S Dollar (US$) means that Rs.60  will be exchanged for each US$1 or that US$1 will be exchanged for each Rs.60. Exchange rates are determined in the Foreign Exchange Market,  which is open to a wide range of different types of buyers and sellers where currency trading takes place. The spot exchange rate refers to the current exchange rate. The forward exchange rate refers to the exchange rate that is quoted and traded today but for delivery and payment on a specific future date.

exchange2                 excahneg3

In the retail currency exchange market, a different buying rate and selling rate will be quoted by money dealers. Most trades are to or from the local currency. The buying rate is the rate at which money dealers will buy foreign currency, and the selling rate is the rate at which they will sell the currency. The quoted rates will incorporate an allowance for a dealer's margin (or profit) in trading, or else the margin may be recovered in the form of a "commission" or in some other way. Different rates may also be quoted for cash (usually notes only), a documentary form (such as travelers cheques) or electronically (such as a credit card purchase).