Exchange Rate
Exchange rate is the rate of change between 2 countries that is agreed upon by the residents of the two countries to take turns doing trade. There are 2 types of exchange rates used, namely the nominal exchange rate and the real exchange rate.
Nominal exchange rate (nominal exchange rate) is the value used by a person when changing the currency of one country with another country’s currency.
For example, if the exchange rate between the US dollar and the Indonesian Rupiah is Rp. 14. 500, up to 1 dollar worth Rp. 14,500. When we want 20 dollars, we have to pay IDR 290. 000($20 x Rp.14500).
The real exchange rate (real exchange rate) is the exchange rate used by a person when exchanging goods and services of one country for goods and services of another country.
For example, when buying a bag, the price in America is 400 dollars, whereas in Indonesia it is Rp. 000. 000. Make a price comparison between the two, so you have to convert it into universal currency, if 1 dollar is Rp. 10. 000 to the price of a bag in America Rp4.000. 000. So, in equating the price of bags in America and Indonesia, it can be concluded that the price of bags in Indonesia is the price of the price of bags in America.
When the exchange rate changes so that 1 dollar can buy more foreign currency, it is called Appreciation, some call it “strengthening”. On the other hand, when the exchange rate changes so that 1 dollar can only buy less currency, it is called Depreciation, some call it “weakening”.
On the other hand, one of the measuring tools to determine the competitiveness of a country in terms of price in trading partner exchanges is generally using Real Effective Exchange Rates (REER).
Real Effective Exchange Rates (REER) is a marker to show the value of a country’s currency relative to some currencies of other countries that have been adjusted for the inflation rate in a certain year or the consumer price index of a particular country.
The increase in the Real Effective Exchange Rate illustrates that the value of exports is more expensive and the value of imports is cheaper, the increase proves that the energy of trade competitiveness is reduced, and vice versa.