Exchange Rate

What does exchange rate mean?

In traditional fiat currency the term exchange rate refers to the comparative value of one government issued currency versus another.

It is used when making purchases in currencies that are not your home currency, and lets users know how much they are paying for something in their home currency.

For example, a Japanese person or company buying U.S. goods would need to know how many Yen they need to pay a U.S. dollar invoice. An exchange rate lets them know this.

Because exchange rates are always fluctuating based on a variety of factor, someone could make the decision to hold off on a purchase until the exchange rate is more favorable to them. Others speculate on exchange rate changes, buying a currency when it is deemed “weak” and then selling it back when it becomes “stronger” or more valuable.

Cryptocurrencies have the same value regardless of what country you’re using them in, but they still have exchange rates. You can compute an exchange rate for cryptocurrencies against traditional fiat currencies, or against any other cryptocurrency.

However, the most common exchange rate for cryptocurrencies is against Bitcoin. While the U.S. dollar is also used as an exchange rate for Bitcoin and other major altcoins, it isn’t always used for smaller coins because they may trade on exchanges where it isn’t possible to make a purchase using fiat currencies.