1) What is a rate of exchange?

2. How important is foreign exchange in international trade?

3.    Do you think it is possible that all countries will have an equal currency rate?

 

1--What is a rate of exchange?

In finance, an exchange rate is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country's currency in relation to another currency. For example, an inter bank exchange rate of 114 Japanese yen to the United States dollar means that ¥114 will be exchanged for US$1 or that US$1 will be exchanged for ¥114.

2--How important is foreign exchange in international trade?

It is important because the exchange rate, the price of one currency in terms of another, helps to determine a nation's economic health and hence the well-being of all the people residing in it. The exchange rate is also important because it can help or hurt specific interests within a country: exporters tend to be helped (hurt) by a weak (strong) domestic currency because they will sell more (less) abroad, while consumers are hurt (helped) by a strong currency because imported goods will be more (less) expensive for them.

Now imagine that in your remote little town you make fans for French computers that you can sell profitably for $10.00. The dollar's movements will affect you as a producer, but in precisely the opposite way as it affected you as a consumer. When the dollar appreciates against the euro, your computer fans grow more expensive in France (and indeed the entire euro zone), which will undoubtedly cut into sales and maybe your salary or your job. When the dollar depreciates, the euro price of your fans plummet, sales become increasingly brisk, and you think about buying a Cadillac (a more expensive American car)

3--Do you think it is possible that all countries will have an equal currency rate?

I'll answer this question as two possibilities

-One fine day, the world magically decides that the every currency in the world will have same value. The worst performing economies will become super rich with tonnes of money. Probably countries with hyper inflation would become the richest. The whole system would break loose, perhaps that's the idea of Apocalypse.

-The whole world takes up a common currency. The Apocalypse can be prevented, but we shall have a volcano which shall burst some time in future. The poor economies shall not be able to devalue the currency, thus exports shall suffer. These economies shall enter into a vicious circle as they spiral down to a state of bankruptcy. Remember the troubles with Euro.

In a nut shell, its a terrible terrible idea to have all the currencies valued equally.