What do foreign exchange rates indicate?

Foreign exchange rates provide critical information about the value of one currency in relation to another currency. They are essential for international trade and investment as they determine how much of one currency can be exchanged for another. For example, if the exchange rate between the US dollar and the euro is 1.2, it means that 1 US dollar is worth 1.2 euros. This information is crucial for travelers, businesses engaging in international commerce, and investors dealing in foreign assets.

Understanding exchange rates helps parties make informed decisions regarding currency conversions for purchasing goods and services across borders. They also impact the overall economy, influencing inflation, interest rates, and economic stability. Therefore, knowing exchange rates is vital for assessing economic conditions and trends on a global scale.