What does the exchange rate indicate?

The exchange rate represents the price of one currency in terms of another currency, serving as a crucial economic indicator in the global marketplace. It indicates how much of one currency can be exchanged for a unit of another currency, influencing international trade, investments, and financial transactions.

For example, if the exchange rate between the US dollar and the euro is 1.10, it means that 1 euro can be traded for 1.10 US dollars. This relationship not only affects individuals and businesses engaging in foreign exchange but also plays a significant role in a country's economic health by impacting trade balances and capital flows.

In contrast, the other options focus on different economic metrics that do not pertain directly to currency valuation against one another. Understanding the exchange rate is key for anyone involved in cross-border commerce, international finance, or global investments.