Foreign Exchange Rate

In simple terms, a foreign exchange rate dictates the value of one type of currency when it’s converted to a different type. Usually this involves the currencies of two separate countries, but in some cases, like the Euro, the same currency is used throughout the region.

Foreign exchange rates are determined by a variety of influences, such as economic conditions, geopolitical events, and simple supply and demand. Most rates rise or fall depending on outside influences. In contrast to these “floating” rates, some exchanges are fixed to the value of a specific country's currency.

Obviously, businesses, individuals, and governments engaged in cross-border trade pay close attention to foreign exchange rates when purchasing or transferring funds between countries. These rates can heavily impact the cost of goods and services, which in turn dictates the overall profitability of international transactions.