The price of one currency expressed in terms of another, i.e., the number of units of one currency that may be exchanged for one unit of another currency. There are mainly two systems of exchange rates:
- Free exchange rates: the actual exchange rate is determined by supply and demand on the foreign exchange market.
- Fixed exchange rates: the exchange rate is tied to a reference (e.g., gold, USD, etc.).
Influences on exchange rates include differences between countries; investor expectations about the future changes in a currency´s value; investor views on the overall quantity of assets in circulation; arbitrage; and central bank exchange rate support. See floating exchange rate; Oanda.