Final answer:
An exchange rate is the price of one currency expressed in terms of another, influenced by supply and demand in the market. It is not always fixed or tied to the price of gold. Exchange rates allow for the comparison of economic data like GDP between countries with different currencies.
Step-by-step explanation:
An exchange rate is not always fixed, nor is it universally tied to the price of gold. Instead, it is B) The price of one currency in terms of another. The concept of exchange rates is central to understanding the value of different currencies when comparing international economic statistics, such as GDP. The rate is determined by supply and demand in the market, influenced both by public policy decisions and business activities.
Exchange rates can differ in how they are regulated: some are fixed by governments to another currency or basket of currencies, while others are left to float and change according to market dynamics, known as a floating exchange rate. Various factors, including trade balances, interest rates, and economic policies, can impact these rates. To measure the relative economic performance across different countries with diverse currencies, economists use exchange rates as conversion factors so that data can be meaningfully compared.
For practical uses, there are online tools like exchange rate calculators that can help individuals and businesses convert between currencies based on current market rates.