Final answer:
An exchange rate is the price of one currency in terms of another, influenced by supply and demand, not always fixed or tied to gold, and subject to various government policies and market determinants.
Step-by-step explanation:
An exchange rate is the price of one currency expressed in terms of units of another currency. It is not always fixed and is certainly not tied to the price of gold in the modern economy. Exchange rates are determined by the operation of supply and demand in the foreign exchange markets. Governments have several mechanisms to manipulate the value of their currency, such as monetary policy or trade incentives, but these do not necessarily fix the exchange rate unless a specific exchange rate regime is adopted. Some countries allow the market to determine the exchange rate, while others have the central bank intervene to manage it. Exchange rate policies come with tradeoffs and risks, and nations adopt different exchange rate regimes from floating rates to pegged rates to a common currency.