Exchange rates the amount of one currency you can exchange for another. For example, the dollar's exchange rate tells you how much a dollar is worth in a foreign currency. For example, if you traveled to the United Kingdom on June 19, , you'd only receive 0. You'd get a little less than the exchange rate since banks charge a fee. Most exchange rates are determined by the foreign exchange market , known as forex.

That's known as a flexible exchange rate. For this reason, exchange rates vary on a moment-by-moment basis. Those judgments depend on a lot of factors. The three most important are central bank interest rates , the country's debt levels and the strength of its economy.

America allows the forex market to determine the U.

The dollar strengthened against most currencies during the financial crisis. As stock markets around the world fell, traders flocked to the relative safety of the dollar. Why was the dollar safe? After all, the crisis started in the United States.

Exchange Rate

Despite this, most investors trusted that the U. Treasury would guarantee the safety of the world's global currency. The country makes sure its value against the dollar, or another important currency, remains the same. It buys and sells large quantities of its currency, and the other currency, to maintain that fixed value.

As of June 19, , one dollar was worth 6. The dollar has weakened against the yuan since February 7, , when a dollar could be exchanged for 8. It's weakened because it can buy fewer yuan in than it could in That's because the U. It also makes Chinese exports to the U. For more on how this affects you, see U. On August 11, , China modified its policy to allow the yuan more flexibility.

It wants to reduce its reliance on the dollar. It also wants the yuan to be more widely traded. For more, see Yuan to Dollar Conversion.

Most exchange rates are given in terms of how much a dollar is worth in the foreign currency. The euro is different. It's typically given in terms of how much a euro is worth in dollars. It's hardly ever given the other way around.

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So, although the dollar was worth 0. In that way it is similar to the British pound.

That's because the future of the European Union and the euro itself was in doubt after the United Kingdom voted to leave the European Union. This reduced bank rates for anyone lending or saving in euros. That reduced the value of the currency itself.

In March , the ECB announced its version of Quantitative Easing. For more on the history of exchange rates between the dollar and the euro, see Euro to Dollar Conversion.

Exchange Rates: Definition, Types

Federal Reserve Bank of New York web site. Nevertheless, the euro is special. It's the second most popular currency after the dollar. More than million people use it as their sole currency. The euro's popularity derives from the power of the European Union. Even though the euro hasn't been adopted by all EU countries, no other currency comes close to being a global currency. Search the site GO. US Economy Trade Policy Exchange Rates U.

Dollar Trade Agreements NAFTA Economic Theory Supply Demand National Debt Fiscal Policy Monetary Policy GDP and Growth Inflation U. Markets World Economy Economy Stats Hot Topics Glossary. Updated June 20, Federal Reserve Bank of New York web site Nevertheless, the euro is special. Exchange Rates FAQ How Do Exchange Rates Work? How Does the Government Regulate Exchange Rates?

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