ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -There are many ways to measure an exchange rate. The most common way is to measure a bilateral exchange rate. A bilateral exchange rate refers to the value of one currency relative to another. Bilateral exchange rates are typically quoted against the US dollar (USD), as it is the most traded currency globally.

Detailed explanation-2: -A direct quote is a foreign exchange rate quoted in fixed units of foreign currency in variable amounts of the domestic currency. In other words, a direct currency quote asks what amount of domestic currency is needed to buy one unit of the foreign currency-most commonly the U.S. dollar (USD) in forex markets.

Detailed explanation-3: -Most people are familiar with the nominal exchange rate, the price of one currency in terms of another. It’s usually expressed as the domestic price of the foreign currency. So if it costs a US dollar holder $1.18 to buy one euro, from a euro holder’s perspective the nominal rate is €0.85 per dollar (that is, 1/1.18).

Detailed explanation-4: -A fixed exchange rate is a regime applied by a government or central bank that ties the country’s official currency exchange rate to another country’s currency or the price of gold. The purpose of a fixed exchange rate system is to keep a currency’s value within a narrow band.