Exchange Rate

An exchange rate is the rate at which one currency can be exchanged for another currency.

For example, the currency rate between US dollars and euros is 1.11. In other words, one euro could be worth $1.11.

Another example, a business needs to buy inventory from overseas, often the company needs to pay the supplier in the supplier's currency instead of its own. In this case, amount of the home currency required to match the supplier currency's price is directly determined by the exchange rate.