CBSE Class 12-commerce Macroeconomics Exchange rate: Meaning and its types

Learn about exchange rate from the CBSE Class 12 Commerce Economics chapter Open Economy Macroeconomics by referring to our revision notes, sample papers, past year papers etc. at TopperLearning.

The price of one currency in terms of the other is known as the exchange rate. Since there is a symmetry between the two currencies, the exchange rate may be defined in one of the two ways. First, as the amount of domestic currency required to buy one unit of foreign currency, i.e. a rupee-dollar exchange rate of your currency in exchange for the dollar? Should exchange rates between two currencies continue like this? Discuss. 79 Macroeconomics Open Economy Rs 50 means that it costs Rs 50 to buy one dollar, and second, as the cost in foreign currency of purchasing one unit of domestic currency. In the above case, we would say that it costs 2 cents to buy a rupee. The practice in economic literature, however, is to use the former definition – as the price of foreign currency in terms of domestic currency.