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Exchange rate – Definition, Conversion, Best Regimes, Exchange rate Uses, and More


What is an Exchange rate?

  • The Exchange rate is a reference used in the exchange market to know the number of units of national currency.
  • It must pay to obtain a foreign currency, or similarly, the number of national currency units that are obtained when selling a unit of foreign currency.
  • For example, if to obtain a United States dollar (dollar), must deliver 18 Mexican pesos (pesos).
  • The nominal exchange rate between a state of Mexico and the United States will be 18 pesos per dollar.


  • The dollars are multiplied by the exchange rate to know many pesos a certain dollar amount represents.
  • Continuing with the previous example, 100 dollars represents 100 * 18 = 1,800 pesos.
  • It is divided by the exchange rate to determine how many dollars a certain amount of pesos represents.
  • That is, 1,800 pesos are equivalent to 1,800 / 18 = 100 dollars.
  • The exchange regime determines each country’s exchange rate.
  • That is, how you decide to manage the value of your currency compared to others.

Best Exchange rate regimes

  • The best-known regimes are the fixed, flexible exchange rate and exchange bands.
  • In this system, the monetary authority establishes a level of the exchange rate and commits itself.
  • Intervening in the market by buying or selling foreign currency to guarantee that remains at that level.

Flexible or floating

  • The currency’s price is determined by the supply and demand of the market without the intervention of the monetary authority.

Exchange bands

  • Firstly, it is an intermediate scheme between a fixed and a flexible regime.
  • Secondly, the monetary authority sets a round in which it lets to move freely.
  • When the exchange rate reaches the ceiling or the band floor, the power intervenes by selling or buying currencies to keep it in the band.

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Recommendations so that it does not affect finances

  • In the context of rising, some benefit, such as exporters and those who have savings or investments in foreign currency.
  • However, it is always advisable to take some precautions to avoid being affect by volatility.
  • Save in the currency that the salary we receive.
  • The dollar has an unpredictable cost and behavior in the Peruvian market.
  • It is advisable to spend and save in the currency in which the income we receive.

1. Diversify savings and investments

  • It is healthy to diversify savings and investments in currencies so that time deposits are in both soles and dollars and avoid exchange rate risk.

2. Change money in small amounts

  • If you have a high sum of dollars or soles and want to change, the idea is to do it in small parts to minimize volatility risks.

3. Safe change

  • Carrying amounts of cash can be risky. BBVA offers T-Cambio, a digital module for buying and selling dollars.
  • And also, it is for individuals and companies for greater security and convenience.
  • Through this functionality, the client can quote and exchange dollars from their cell phone or computer 24 hours a day.
  • Also, it offers a preferential quote, better than the one at the window.

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