![]() There is no agreement in the economic literature on the optimal national exchange rate policy (unlike on the subject of trade where free trade is considered optimal). ![]() ![]() Countries can also have a strong or weak currency. Governments can impose certain limits and controls on exchange rates. For example, a currency may be floating, pegged (fixed), or a hybrid. In this case it is said that the price of a dollar in relation to yen is ¥131, or equivalently that the price of a yen in relation to dollars is $1/131.Įach country determines the exchange rate regime that will apply to its currency. For example, an interbank exchange rate of 131 Japanese yen to the United States dollar means that ¥131 will be exchanged for US$1 or that US$1 will be exchanged for ¥131. The exchange rate is also regarded as the value of one country's currency in relation to another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of the euro. In finance, an exchange rate is the rate at which one currency will be exchanged for another currency.
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