Exchange rates

Exchange rate

The price of one country's currency in terms of another country's currency. It determines the rate at which trade and investment transactions can be conducted between two countries.

Floating exchange rate

A system where the value of a country's currency is determined by the forces of supply and demand in the foreign exchange market, without government intervention.

Trade Weighted Index (TWI)

A measure of the value of a country's currency against a basket of foreign currencies of its major trading partners. The currencies in the basket are weighted according to their significance to the country's trade flows.

Appreciation

An increase in the value of a country's currency in terms of another country's currency.

Depreciation

A decrease in the value of a country's currency in terms of another country's currency.

Inflation

The general increase in prices of goods and services in an economy over time. Exchange rate fluctuations can affect the rate of demand inflation and/or cost inflation.

Economic Growth

The increase in the production and consumption of goods and services over time. Exchange rate fluctuations can affect economic growth by influencing the level of aggregate demand and/or aggregate supply.

Employment and Unemployment

The state of having work or being without work. Exchange rate movements can affect rates of cyclical and structural unemployment by influencing the level of aggregate demand and/or aggregate supply.

Current Account Balance

The record of a country's transactions with the rest of the world in terms of trade in goods and services, primary income, and secondary income. Exchange rate fluctuations can affect the size of a country's current account balance through changes in the value of exports and imports and the value of primary income credits and debits.