FX rate - Financial definition
Concise definition of the term FX rate
An FX rate, or foreign exchange rate, represents the value of one currency in terms of another and is used to facilitate currency conversion in international financial transactions.
Comprehensive definition of the term FX rate
FX rates are crucial in global finance, influencing trade, investment, and international business activities. They determine the cost of exchanging currencies and impact the profitability of cross-border transactions. For instance, a USD/EUR exchange rate of 1.10 means that one US dollar is equivalent to 1.10 euros.
FX rates fluctuate constantly due to factors such as economic indicators, geopolitical events, and central bank policies, affecting import/export prices, multinational corporations' earnings, and currency trading strategies. Additionally, FX rates play a vital role in hedging against currency risk and managing exposure in foreign markets for businesses and investors.