The exchange rate in foreign exchange market is the amount of one currency that is being exchanged with the currency of some other country. So basically it is the worth of currency of one country with respect to the other. An example can be sorted out to make the concept even clearer, like if an individual is willing to exchange $1 with yen or euro, then he will have to pay 84 Japanese yen or 79 euro cents per dollar.

But the exchange rates are never static. They always fluctuate. When exchange rate increases three phenomena is called appreciation of dollar. For instance when 84 Japanese yen for every single dollar increases to 100 yen, then it becomes an appreciation of dollars. Whereas, when 100 yen decreases to 84 yen per dollar then there is a decline in exchange rate and is termed as depreciation of dollar.

To know more details about the fluctuations in U.S dollar with respect to the three currencies right from the year, 2000 is explained in the next page, under topic economics in action.


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