Exchange Rate Regimes
There is not a single money that is used globally. As a consequence, it is necessary to exchange one money for another when engaging in international transactions. Markets where such exchanges occur are foreign exchange markets. Prices in these markets are called exchange rates, and there exists an exchange rate for each pair of currencies.1
Because exchanges in these markets involve trading one unit of account for another, it is customary to quote the price in terms of each of the currencies involved. For example, in the market where U.S. dollars and British pounds are exchanged, one can refer to the price of pounds in terms of dollars ($2 = 1£). Alternatively, one can express the same ...
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