Exchange Rate
Plain definition
The price of one currency in terms of another -- how much of a foreign currency one unit of the domestic currency buys. Exchange rates can be quoted directly (domestic per foreign) or indirectly, so check the quotation before interpreting movements.
In economics
The exchange rate links domestic and foreign prices, affecting export competitiveness, import costs, and inflation. A stronger currency makes exports dearer abroad and imports cheaper at home; a weaker one does the reverse. Central banks and markets watch the real exchange rate, which adjusts for inflation differentials.
Example
An exchange rate of 1.10 dollars per euro means one euro costs $1.10; if it moves to 1.20, the euro has strengthened and the dollar has weakened against it.
People mix up which currency 'rose' because the same move can be described two ways: saying 'the dollar rose' or 'the euro fell' describes one event. Always state which currency is the base of the quotation, e.g., dollars per euro, to avoid sign confusion.