Different areas and countries of the world use different currencies in their transactions.

a. The nominal exchange rate is the rate at which the currency of one country can be exchanged for the currency of another.

b. A decline in the value of one currency relative to another is called depreciation.

c. An increase in the value of one currency relative to another is called appreciation.

d. When the dollar appreciates relative to the euro, the euro depreciates relative to the dollar.

e. The real exchange rate is the rate at which the goods and services of one country can be exchanged for the goods and services of another.

f. About $5 trillion worth of currency is traded every day in markets run by brokers and foreign exchange dealers.