What is a Foreign Currency Exchange Rate?

The ratio of the currency of one country to the currency of other countries is also called the exchange rate.

Foreign currency exchange rate

Exchange rate is the exchange rate between two different currencies, also known as

For example, 1 US dollar = 110 yen, which means that the exchange rate of US dollars to Japanese yen is 110, one dollar can be exchanged for 110 yen, or 110 yen can be exchanged for one dollar. in

At present, there are two types of foreign currency exchange rate pricing methods: direct pricing method and indirect pricing method.

To put it simply, the direct price method is a method of measuring the exchange rate by using a certain number of domestic currencies to represent a certain unit of foreign currency, or using a certain unit of foreign currency as a standard to convert receivables and payables in several domestic currencies.

For example, with the Japanese Yen as the base currency, at a direct list price:

1 USD = 110 yen

1 pound = 165.80 yen

1 mark = 64.94 yen

In foreign exchange transactions, the amount of foreign currency represented by the direct price method is fixed, and the exchange rate changes are expressed by changes in the amount of the domestic currency. If the amount of foreign currency converted to currency increases, it means that the foreign currency appreciates and the local currency depreciates; on the contrary, if the amount of foreign currency converted to currency depreciates, it means that the foreign currency depreciates relative to the local currency and the local currency appreciates. Simply put, under the direct quotation method, the larger the exchange rate value, the greater the foreign currency value, and vice versa.

At present, all countries in the world except the United Kingdom, the United States and Australia use the direct pricing method. This method is also used in China's RMB exchange rate.

The indirect price method is a method of measuring the exchange rate by using a certain number of foreign currencies to represent a certain unit of domestic currency, or to calculate a certain unit of foreign currency receivable and payable based on a certain unit of domestic currency.

For example: l USD = 1.6840 marks

1 USD = 110 yen

1 pound = 165 yen

1 Australian dollar = 1.6820 US dollars

In foreign exchange transactions, the local currency value represented by the indirect price method is fixed, and the fluctuations in the exchange rate are expressed in terms of changes in the foreign currency amount. The higher the value, the smaller the value of the foreign currency relative to the local currency (depreciation); the smaller the value, the higher the value of the foreign currency relative to the local currency (appreciation). Currently only the United Kingdom, the United States and Australia use the indirect pricing method. The United States also used the direct price method before September 1978. Later, in order to be consistent with the US dollar price on the international market, it was changed to the indirect price method.

Relations between exchange rate: foreign exchange rate rises and falls, foreign exchange rate is high; external exchange rate rises, foreign exchange rate is low