Exchange rates — Economics, 14–17 years
How the value of one currency is expressed in another, and why that changes the prices of travel, imports and exports.
One currency priced in another
An exchange rate tells you how much of one currency is needed to buy a unit of another. For example, if €1 buys $1.10, one euro is worth 1.10 US dollars at that moment. The rate is a price, so it can rise or fall as people buy and sell currencies.
Why the rate matters
People and firms in different countries use different currencies, but they still need to compare prices and settle payments. The exchange rate provides that bridge. It also changes who finds goods expensive: a weaker currency makes foreign products and trips costlier at home, while making that country’s exports cheaper for foreign buyers.
Converting a holiday budget
You have €500 for a trip. At €1 = $1.10, your budget is 500 × 1.10 = $550. Later the euro weakens to €1 = $1.00, so the same €500 buys only $500. A hotel costing $220 used €200 at the first rate, but €220 at the second rate, before any bank fees.
A stronger currency is not always better
It is natural to think that a stronger currency must be good because it buys more abroad. That helps travellers and importers, but it can hurt firms selling abroad: their products become more expensive to foreign customers. There is no single winner; the effect depends on whether someone buys from abroad or sells to it.
Where it appears
Exchange rates appear when you book a foreign holiday, buy a phone made abroad, receive money from another country or follow an international company’s results. They also matter to exporters, importers and governments with foreign-currency debt. The rate on a screen may not be the rate you receive after fees.
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