Understanding Exchange Rates

Nominal Exchange Rate

• Definition: The nominal exchange rate is the rate at which one country's currency trades for another country's currency.

• Historical Context:

  • As of May 20, 2011:

  • 1 Canadian Dollar = 0.97 US Dollar (indicating the Canadian Dollar was stronger at that time).

  • Current rate (as of recent discussions): 1 US Dollar = 1.35 Canadian Dollars.

  • Euro exchange rate:

  • As of May 20, 2011: 1 US Dollar = 0.71 Euros.

  • Current rate: 1 US Dollar = 0.88 Euros.

  • Japanese Yen:

  • Historical: 1 US Dollar = 81 Yen.

  • Current: 1 US Dollar = 120 Yen.

  • Mexican Peso (current): 1 US Dollar = 17 Pesos.

Appreciation of Nominal Exchange Rate

• Definition: Appreciation of nominal exchange rate occurs when the home currency strengthens against a foreign currency.