Sam Dearing,Budding International Financier
Sam Dearing is a summer intern in the arbitrage department at a prestigious Wall Street firm.Sam is hoping to be offered a full-time position at the firm after he graduates from college,and therefore,Sam knows that he must demonstrate a strong understanding of how exchange rates work.
-Sam already knows that the ________ tells us how much of one currency we must pay to receive a certain amount of another.

Question

Quizplus · Accepted Answer

The exchange rate is the rate at which one currency can be exchanged for another. It tells us how much of one currency is required to purchase a certain amount of another currency. Therefore, option A is the correct answer. Par value is a term used to denote the face value of a currency rather than its exchange rate. The law of one price and purchasing power parity theory are related concepts but not directly relevant to the definition of exchange rate.