What is an exchange rate?
Consider the following exrates:
- 1985 1US$=2,200 ITL
- 1991 1 US$=1,100 ITL
- 2000 1 US$=2,100 ITL
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An exchange rate is a price of a currency expressed in terms of another. Usually, the US$ is taken to be the numeraire, i.e. exchange rate = units of “foreign” money per $