X Rate Definition
What Does X Rate Stand For?
What Does X Rate Mean In Finance?
The purpose of an X Rate is to figure out the buying power of a currency as compared to another currency.
Not all currencies have the same buying power per unit, so knowing the exchange rate helps determine the “value” of an amount of money.
For example, the exchange rate of US dollars (USD) to Pound sterling (GBP) is 1.24.
This means that it takes $1.24 to equal £1.
Put another way, if a US citizen traveled to the UK with $10,000 to exchange into pounds, they would get about £8,034.
X Rate Example
Several factors influence exchange rates.
Most exchange rates are free-floating, meaning they rise and fall in accordance with fluctuations in supply and demand in the foreign exchange market.
Other currencies may be pegged, meaning that their value is tied to the value of another currency within a certain margin; the Hong Kong dollar, for example, is pegged to the US dollar at a range of 7.75 to 7.85, so its value will stay within this range of the USD.
Some currencies have different exchange rates depending on whether or not the funds are held inside or outside a country’s borders.
The Chinese Yuan (CNY), for instance, has an exchange rate of ¥7.05 per $1 outside its borders, but ¥7.04 per $1 inside.