What one currency is worth in terms of another. For example, one Argentine dollar might be worth 58 US cents or 70 Japanese yen. Currencies traded freely in foreign-exchange markets have a spot rate (applying to trades settled 'spot', that is, two working days hence) and a forward rate (which is the spot rate adjusted for the interest rate differential between the two currencies until maturity). Countries can determine their exchange rates in several ways:
- A floating exchange rate system, where the currency finds its own level in the market.
- A crawling or flexible peg system, which is a combination of an officially fixed rate and frequent small adjustments that in theory work against a build-up of speculation about a revaluation or devaluation.
- A fixed exchange-rate system, where the value of the currency is set by the government and/or the central bank.