An exchange rate is the value of one currency in relation to another. It determines how much of one currency you can exchange for another, influencing international trade and investments. For example, if the exchange rate between the US Dollar and the Euro is 1.2, it means 1 US Dollar can be exchanged for 1.2 Euros. Exchange rates can fluctuate due to various factors, including economic indicators, interest rates, and geopolitical events. These fluctuations can impact everything from the cost of imports and exports to travel expenses for individuals and businesses engaging in international transactions.