4.1 Definitions and types of the exchange rate

4.1 Definitions and types of the exchange rate

The exchange rate is simply the price of one currency in terms of another, and there are two methods of expressing it:

1.Domestic currency units per unit of foreign currency—for example, taking the pound sterling as the domestic currency, on 16 August 1997, approximately £0.625 was required to purchase one US dollar.

2.Foreign currency units per unit of the domestic currency—again taking the pound sterling as the domestic currency, on 16 August 1997, approximately $1.60 was required to obtain one pound.