KTFA
The exchange rate is a mathematical relationship between two currencies used in international settlements.
There is no currency in the world that does not have an exchange rate with other currencies. Without this, settling accounts between countries resulting from international trade and other transactions would be impossible.
How is the exchange rate determined?
There are several models of exchange rate determination mechanisms:
The officially set exchange rate, where the central bank determines the conversion relationship between the national currency and international convertible currencies (hard currencies) or with one of them such as the dollar (as is the case in Iraq where the dinar was and still is linked to the US dollar at an exchange rate determined by the monetary authority).
The second method of determining the exchange rate is the floating method, where the exchange rate is left to float and is determined by the factors of supply and demand for foreign currency.
The other method is managed float, where the exchange rate is floated but the central bank monitors its movement in the market and intervenes through open market operations by offering more hard currency or withdrawing it to keep the exchange rate within the desired limits (some developing countries use this method).
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Source: Dinar Recaps
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