The price of one currency in terms of another currency is called?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Foreign Exchange Rate
Anyone in India who buys a good made in America has to pay in dollars, and so must first know how many rupees one dollar costs. That price of one currency in terms of another currency is the foreign exchange rate, often called just the exchange rate: if Rs 50 has to be paid for $1, the rate is Rs 50 per dollar. It links the currencies of different countries and makes international prices comparable.
Why the other options are incorrect
Option (1) Floating rate — Incorrect. A floating or flexible rate is one kind of exchange rate, the one determined by the market forces of demand and supply. It names the system, not the price itself.
Option (2) Fictional Rate — Incorrect. There is no such rate.
Option (3) Reserve rate — Incorrect. There is no such rate.
Note: A similar question was also asked in CUET (UG) 2026 on 31-05-2026 (Slot 1).
NCERT (2025-26): “…For instance, if an Indian wants to buy a good made in America, she would need dollars to complete the transaction. If the price of the good is ten dollars, she would need to know how much it would cost her in Indian rupees. That is, she will need to know the price of dollar in terms of rupees. The price of one currency in terms of another currency is known as the foreign exchange rate or simply the exchange rate.…” |