Price of one country's money in relation to another's.
Exchange rates may be fixed or flexible. An exchange rate is fixed when two countries agree to maintain a fixed rate through the use of monetary policy . Historically, the most famous fixed exchange-rate system was the gold standard ; in the late 1850s, one ounce of gold was defined as being worth 20 U.S dollars and 4 pounds sterling, resulting in an exchange rate of 5 dollars per pound. An exchange rate is flexible, or "floating," when two countries agree to let international market forces determine the rate through supply and demand . The rate will fluctuate with a country's exports and imports. Most world trade currently takes place with flexible exchange rates that fluctuate within relatively fixed limits. See also exchange control , foreign exchange .