Explanation

Exchange rate is based on the value of one currency with respect to the other currency. Exporters, Importers, tourists and even governments require foreign currencies to perform foreign transactions. Thus, domestic currency is converted into foreign currency by using the exchange rate. In most of the countries the exchange rate is determined on the basis of total bilateral trade between the countries.

Verified Answer

The exchange rate is a rate at which some units of the currency of a country can be purchased with one unit of currency of another country. It is the value of one currency for the purpose of conversion to currency of foreign countries.