# What is exchange rate?

## What Does exchange rate Mean

A rate is a coefficient that expresses the link between two quantities. Change , meanwhile, is substituting one thing for another.

The notion of exchange rate , which can also be mentioned as exchange rate , refers to how much a coin X is available with a coin . That is, how many Argentine pesos do I need to buy a dollar, or how many bolivars will I have to deliver to receive one euro, for example.
It is, therefore, the exchange rate that exists between the currencies of two countries . The exchange rate can be real or nominal. The real exchange rate indicates the relationship that exists when an individual wants to exchange products or services between two nations , while the nominal exchange rate is the direct link between one foreign currency and another.

Examples of nominal change
The nominal change is expressed in terms of the national currency and to simplify the concept we could say that it is the number of units of this that needs to be delivered to get a unit of a particular foreign currency or how many units of the national currency are required. they get by delivering an amount of the foreign one. This value changes over time; the worse the economic situation of a country, the higher this change will be.
Expressed in values, if for example to obtain a euro it is necessary to deliver 5 Argentine pesos, the nominal exchange rate between the countries or regions, in this case Argentina (\$) and the European Union (€), is 5 \$ / € . To know how much will be obtained from a certain amount of pesos, it must be multiplied by the exchange rate. If we had for example € 100 and we sold them for the change of \$ / € 5, we would have to carry out the following operation € 100 * \$ 5 / € and we would obtain \$ 500. Otherwise, the amount of pesos would be divided by the exchange rate: \$ 1000 / \$ 5 / € = \$ 1000 * € 1 / \$ 5, which would return € 200.
We must also talk about two important concepts:
* Real appreciation : refers to the variation of the goods of a country with respect to foreigners, becoming more expensive, the consequence of which is the drop in the real exchange rate;
* Real depreciation : occurs when the opposite occurs, the goods of one country become cheaper compared to those of another, the price of the goods of that other country rises and its consequence is the rise in the real exchange rate.
Another term related to this concept is the representative exchange rate of the market that is usually presented with the initials TRM and is the official indicator of the comparisons between the regional and foreign currencies; This value is calculated taking into account the sale and purchase operations carried out in the international financial sector and must be respected within the territorial borders.

Institutions that regulate the exchange rate
The Central Bank of each country is the institution that regulates the exchange rate system. In this way, there may be a fixed exchange rate , where the Central Bank decides the price of the currency and it cannot vary (that was the case in Argentina during the time of convertibility, in which a peso was worth one dollar) . Another possibility is the floating or flexible exchange rate , where the price of the currency is released to the game of supply and demand.
It is even possible for the Central Bank to choose a floating exchange rate but to develop interventions to keep the value of the currency within certain parameters . If the price of the foreign currency in question falls too low, the Central Bank begins to sell to increase the supply; otherwise, the Central Bank is dedicated to acquiring to avoid large increases.
Finally we can talk about the Forex Market , which is the name given to the international institution where currency exchange operations are carried out; It includes private and institutional investors, central banks from around the world, and other types of entities related to the movement of money in the world.

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