Final answer:
The exchange rate is not the interest rate foreign banks receive when borrowing from the United States. It represents the value of one currency in terms of another, and can be influenced by changes in interest rates, which affect currency demand and supply.
Step-by-step explanation:
The statement that 'the exchange rate is the interest rate that foreign banks receive when borrowing money from the United States' is false. The exchange rate actually refers to the value of one country’s currency in terms of another currency. It is not an interest rate. However, interest rates can influence exchange rates, as they affect the demand and supply of a currency. For instance, if interest rates in the U.S. rise, financial investments in the country might offer a higher return, increasing the demand for U.S. dollars and thus potentially appreciating the exchange rate.
When a bank in Thailand borrows US dollars and then lends out in baht, they are exposed to exchange rate fluctuation risk, which occurs if the exchange rate changes before the loan is repaid and converted back to dollars. This is separate from the interest paid on the loan, which would be the rate to consider when talking about an interest rate on borrowed funds.