Exchange Rate Definition

In finance, an exchange rate specifies how much one type of currency is worth in terms of another type of currency. For example, if some foreign currency had an exchange rate of 42 to the US dollar, one US dollar would be worth 42 basic units in the foreign currency. Exchange rates fluctuate constantly and often rapidly. The foreign exchange market, composed of people exchanging money from one currency to another, is the largest financial market in the world. Typical individuals usually encounter an exchange rate only when travelling to another country-although for those living on national borders this experience may be common.