What Is an Exchange Rate?

By Kristi Waterworth – Updated Dec 3, 2025 at 2:01 AM EST

Key Points

Exchange rates show the cost of trading one currency for another.
High domestic interest rates can increase a currency's value by attracting investors.
Political unrest or economic instability can negatively impact a currency's exchange rate.

Whether you're dealing in the currency markets or you're simply trying to buy goods from another country, the exchange rate is an important concept to understand. We'll walk you through it in this article.

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U.S. and foreign banknotes rolled up next to one another. — Image source: Getty Images.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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