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What Are Exchange Rates?

Published by Scott Hershman

As a currency exchange business serving West Chicago, we want to make sure that you are well-rounded in exchange rates.

The Definition

Exchange rates are the amount of one currency that you can exchange for another, telling you how much your currency is worth in a foreign country.

The Forex

The forex is short for the foreign exchange market and it determines most exchange rates. These rates are called flexible exchange rates, and the fluctuate on a moment-by-moment basis. There are different types of exchange rates to be aware of, including:

  • Free-floating: These exchange rates rise and fall due to changes in the foreign exchange market.
  • Restricted currencies: Some countries operate on restricted currencies and it limits their exchange within the countries’ borders.
  • Currency peg: This is when a country pegs its currency to that of another nation meaning that the two different currencies remain within a specific range.
  • Onshore vs. offshore: Did you know that exchange rates can sometimes be different for the same country? This means there is an onshore rate and an offshore rate. China, for example, has the yuan currency that is controlled by the government, but every day the government sets a mid-point value for the currency, allowing the yuan to trade in a band of 2% from the midpoint.
  • Spot vs. forward: A spot rate is cash value that is the current market value, whereas the forward value is based on expectations for the currency to rise or fall.
  • Quotation: Normally, an exchange rate is quoted using an acronym for the national currency it represents. If you were to quote the currency pair for the dollar and the euro, it would be EUR/USD, meaning the quotation is euro to dollar.

To learn more about exchange rates, visit our website today, or come visit our currency exchange storefront in West Chicago. We look forward to answering any questions you may have!

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