Business, Legal & Accounting Glossary
A foreign exchexchange rate is the price of one currency in terms of another. For example, suppose the foreign exchexchange rate for the Japanese yen vis-à-vis the U.S. dollar is ¥100 = $1. If the foreign exchexchange rate changes to, say, ¥110 = $1, the yen is now weaker and the dollar stronger, since it now costs 10 yen more to buy a single dollar. But if the foreign exchexchange rate changed to ¥90 = $1, the yen is now worth more, since it only costs 90 yen to buy a dollar. The foreign exchexchange rate for the yen could also strengthen against the dollar while its foreign exchexchange rate against other currencies weakens. A currency’s foreign exchexchange rate is determined by many factors, including the macroeconomic, monetary, and trade policies of its own country and those of other nations.
The foreign exchexchange rate is key for investors when buying stocks quoted in currencies other than their own because the foreign exchexchange rate will determine the amount they receive in their own currency upon sale.
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This glossary post was last updated: 9th February, 2020