Rate at which one currency may be converted into another currency.

Definition:
Exchange rate is a price or ratio at which one nations currency can be converted into that of another. The exchange rate for every currency is different. That means that exchange rate between the U.S dollar and a Euro is different from that between the dollar and Japanies Yen. There are wide variety of factors which influence the exchange rate such as interest rate, inflations and the state of politics and the economy in each country also called rate of exchange or foreign exchange rate or currency exchange rate.

Types of exchange rate are as follows Nomial exchange rate:

Nomial exchange rates are established on currency financial market called ``Forex Markets``.Rates are usually established in continous quotation, with news papers reporting daily quotation. Central banle may also fix nomial exchange rate.

Bilateral exchange rate:

Bilateral exchange rate clearly relates to two countries currencies. They are usually the results of matching of demand and supply in financial markets or in banking transaction.

Multilateral exchange rate:

Multilateral exchange rate are computed in order to judge the general dynamics of a countrys currency towards to the rest of the world.

Floating exchange rate:

Exchange rate system in which rates of each national currency are determined by interaction of market supply and demand. Floating rates are the most common exchange rate regime today. For example dollar, Euro, Yen and British Pound all are floating currencies. However since central banks frequently interence to avoid excessive appreciation or depreciation.

Fully fixed exchange rate:

In a fixed exchange rate system the government or the central bank intervenes in the currency market in order to keep the exchange rate closed to find target. It is committed to a single fixed exchange rate and does not allow major fluctuations from this central rate.

Semi fixed exchange rate:

Currency can move with in a permitted range but the exchange rate is the dominant target of economic policy making interest rates are set to meet the target exchange rate. Free Floating Exchange Rates: The definition of a floating exchange rate system is a munetry system in which exchange rates are allowed to move due to markets forces with out intervention by national government with floating exchange rates changes in a market supply and demand cause a currency to change in value. Manage floating exchange rate: A managed floating exchange rate is an exchange rate that is allowed to fluctuate due to supply and demand factor. A system of floating exchange rates in which the government or the countrys central bank occasionally intervenes or the exchange the direction of the value of the country currency. In this type of exchange rate most government in managed floating system if not a part of a fixed exchange rate system. Dollarization: Dollarization OCCUR WHEN THE INHABITANTS OF a country use foreign currency in parallel to or instead of the domestic currency. The term is not only applied to usage of the US dollar, but generally to the use of any foreign currency as the national currency.