The exchange rate is the price of one country’s currency (foreign exchange or FX) in terms of another. It consists of the relationship to which the currency of one country can be exchanged for that of another.
The exchange rate will be fixed when the value of a currency is determined, backed and maintained by the Central Bank of the country. This does not mean that its value is unalterable. If they deem it appropriate, the monetary authorities can modify the reference value of their currency: If the modification is upwards, it is about a revaluation and, if it is downwards, it is about a devaluation.
The exchange rate is flexible when a currency is allowed to fluctuate freely in the foreign exchange markets; its value is determined by the supply and demand of such currency. Under this system, market forces cause exchange rate swings; in this case, we talk of appreciation when the oscillation is upward and depreciation when it is downward.
