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What is exchange rate?

Before explaining its importance lets define what exchange rate means

Exchange rate is simple the price of one country currency expressed in another country currency. In
other word the rate at which one currency can be exchanged for another. For example the exchange
rate between the USA dollar and the Japan yen is us$ 1=104 yen means the rate at which you could
exchange yours dollar for Japanese yen is 1:104 (I.e., for each dollar you exchanges you receive 104
yen).

What is the importance of exchange rate?


The exchange rate is importance because it allows for the converse on of one country currency into that
of another, there by facilitating international trade for purchases of goods and service or transfer of
fund b/n country, and it allows price comparison of similar good in different country. In general the price
difference between similar goods determines which good are traded and where they are shipped or
sourced. Hence, the exchange rate is significant factor influencing the competitiveness of agricultural
and manufacturing commodity and the profitability of enterprise there for individuals and businesses
have to convert their country currency in to the other countrys currency, because the currency of one
country may not be used in another country for payment purpose.

The exchange rate b/n Korean WON and USD


Now it is time to study and see how different countrys exchange rate is shaped and fluctuates by taking
a particular example historical data and evidence sources shows us exchange rate difference b/n
countries depending on the power and value of the respective currencys also differs or fluctuates over
time. For example in our case the exchange rate b/n Korean won and USA dollar covering 33 years of
annualized exchange rate. Explain briefly how their exchange rate fluctuates over time as you look the
data below both on tabular and graphical forms.
YEAR KRW/USD$
1982 732
1983 776
1984 808
1985 872
1986 885
1987 826
1988 735
1989 674
1990 711
1991 737
1992 784
1993 805
1994 807
1995 773
1996 805
1997 954
1998 1404
1999 1190
2000 1131
2001 1292
2002 1250
2003 1192
2004 1146
2005 1024
2006 954
2007 929
2008 1100
2009 1275
2010 1155
2011 1107
2012 1226
2013 1094
2014 1053

Now let show this tabular form graphically


Figure 1.1 shows the evolution of won dollar nominal exchange rate indices b/n 1982 and 2014.

The figure show that there have been very substantial movements in nominal exchange rates over this
period. And we can concluded that the currency of Korean was appreciated during the year 1989 as
compared from other years and highly depreciated during the year 1998 as compared from other years
and may be there were reasons behind from this.