Foreign Exchange Rate – meaning, definition, types, examples Class 12

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looking for what is for the foreign exchange rate, its meaning definition, and types with examples as per class 12.

I have explained this topic in detail.

What is Foreign Exchange rate class 12

In simple words, The foreign exchange rate is the rate at which one currency can be exchanged with other.

For example, If 70 ₹ Indian rupees are needed to purchase a 1 dollar. The exchange rate of the dollar with respect to Indian rupees is ₹ 70.

Exchange rates differ from currency to currency. It depends on the demand and supply of that currency with respect to another currency in the foreign exchange market.

For example, The foreign exchange rate of the pound in India is ₹ 90. It implies, to purchase 1 pound, ₹ 90 should be paid.

Definition of Foreign Exchange Rate class 12

The exchange Rate is the rate at which one currency can be converted into another currency.

S.K Aggarwal

The rate at which domestic currency can be exchanged for a foreign currency is known as the foreign exchange rate.

T.R Jain

Foreign Exchange Rate refers to the rate at which one currency is exchanged for the other.

Sandeep Garg

Definition of Foreign Exchange by Crowther

The rate of exchange measures number of units of one currency which is exchanged in the foreign market for one unit of another.


Example of Foreign Exchange rate

As, we already discussed, it is the price paid in domestic currency for buying a unit of the foreign currency.

Example:- If 74 rupees are to be paid to buy one US Dollar, then the exchange rate is:-

$ 1 = ₹ 50

Types of Foreign Exchange Rates

Following are the types of foreign exchange rate

Fixed Exchange Rate:-

If a country’s government decides the foreign exchange rates. It is called the Fixed exchange rate. Such a rate does not influence by the market forces of demand and supply.

It is the government that can change it.

Floating (Flexible) Exchange Rate:-

If Market forces of demand and supply decide the exchange rate. Such an exchange rate is called the Flexible Exchange rate. The government does not intervene in it.

Other Names of Flexible exchange rate is

  1. Floating Exchange rate
  2. Market Exchange rate

This rate varies with changes in the demand and supply of foreign currencies.

Managed Floating Rate:-

Manages Floating Rate is the midway between Fixed Exchange rate and Floating one. It is essentially a floating rate.

It is called Managed as the central bank tries to influence the rate by entering the market as bulk buyer or seller of Foreign Exchange.

Role of Central Bank in Managing Floating Rate:-

See, Government is working as the regulator of the Foreign exchange rate. The government’s intention is just to maintain the stability in the Foreign Exchange rate.

If Central Bank finds the floating rate too high, it starts selling foreign exchange from its reserve to bring down the rate.

When it finds the rate too low, it starts buying to raise the rate.

It is done by the central bank to protect the interest of importers and exporters.

Other Name of Managed Floating Rate:-

Dirty Floating Rate

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Anurag Pathak
Anurag Pathak

Anurag Pathak is an academic teacher. He has been teaching Accountancy and Economics for CBSE students for the last 18 years. In his guidance, thousands of students have secured good marks in their board exams and legacy is still going on. You can subscribe his youtube channel and can download the Android & ios app for free lectures.

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