The exchange rate of the pound against the dollar shows for example how many pounds you can get against the dollar and vice versa.
The exchange rate market is one that is established on the foreign exchange markets in every moment of the day given the supply and demand of both currencies.
The exchange rate is said to be fixed when two countries agree to defend an official exchange rate by intervening in the foreign exchange market.
It is called flexible if there is no official exchange rate.
At the conclusion of Jamaica (1976) the exchange rate is flexible in principle, but the states that participate in a regional agreement may adopt a fixed exchange rate regime. This was the case for the European Union within the European Monetary System (EMS) from 1979 to 2000. Since that date there is no problem of exchange between the euro area countries since they have a single currency, the euro.
Exchange rate market
Whatever the exchange rate regime (fixed or flexible) every day purchases and sales of currencies are performed on foreign exchange markets. There are two types of exchange rates, by the date of the actual exchange of currencies: the spot exchange rate is the price for a transaction “immediate” (a day or two at most for large transactions), the rate exchange term is the price for a transaction that will take place in 30, 90 or 180 days.
In April 2007 the daily amount of transactions on the foreign exchange market was on average equal to 3475 billion, cash transactions accounted for only 1.006 trillion dollars (28%).
The foreign exchange market is more clearly a futures market.
An exchange rate can be expressed in two ways: the listing “certain” is to give the foreign currency units that correspond to a unit of local currency, the quotation; “the uncertain” indicates the number of local currency units corresponding to one unit of foreign currency. For example, on 28 October 2008, the euro stood at Paris 1.28188 dollars (quotes), or the dollar against the euro traded at 0.780526 (listing to uncertainty).
The Forex market is open 24 hours on 24, from Sunday evening to Friday evening. The session begins in Australia to continue in Asia, Europe and the United States and the circle.
The players in this market are mainly companies that carry international contracts (sometimes adjusted for cash) and who wish to hedge against fluctuations in order to ensure the stability of their income (this is the role of futures ) and large institutional investors through major banks, which perform transactions on the market for speculative or hedging (again it is futures trading).