The Economics of Foreign Exchange and Global Finance

An exchange rate is the price of one currency in terms of another currency, it is the relative price of the two currencies. The initial and foremost roles of money are to function as a common measure of value and the media of exchange to facilitate the exchange of commodities of different attributes. When the values of commodities of different attributes are readily denominated by certain units of a currency or a kind of money circulated in a country or region, the relative price, or the ratio of values, of two commodities can be easily decided. The relative price of two commodities can be decided without the involvement of money, though less explicit. So, more important is the role of money as the media of exchange, for it is the bearer of commonly recognized value, exchangeable for many other commodities then or at a future time.