How is an exchange rate defined?

An exchange rate is defined as the ratio of exchange for two currencies. This means it indicates how much of one currency is needed to purchase another currency. Exchange rates are crucial in international finance and trade, as they affect the pricing of goods and services between countries, support currency conversion for travel and investments, and influence economic policies.

The exchange rate fluctuates based on various factors, including supply and demand, interest rates, economic stability, and geopolitical events. When understanding exchange rates, it's essential to recognize that they can be expressed in different formats, such as direct or indirect quotes, but fundamentally, they convey the relative value of one currency to another, making option B the correct definition.