Currency and exchange rates

An exchange rate is the price of one currency in relation to another currency. Exchange rates are determined on a foreign exchange market. There are many different currency markets, one for each combination of currencies.

The exchange rate for USD in EUR is stated as EUR/USD, how many EUR you have to pay for one USD. The exchange rate depends on the price level and interest rates in a country. Higher prices in one country reduces exports and hence the demand for the country's currency. Higher interest rates in a country will lead to a higher demand for fixed-income securities in the country and hence a higher demand for the country's currency.