The exchange rate is the value of one currency in relation to another. It is common for the Canadian dollar, for example, to be quoted in terms of major currencies such as the U.S. dollar, the British pound or the euro. In February 2002, one Canadian dollar was equivalent to 62 U.S. cents. Put another way, it took about 1.59 Canadian dollars to purchase one U.S. dollar.

The price of a currency depends on supply and demand, which are affected by many factors, including interest-rate differentials, relative inflation, export competitiveness, economy growth, deficits and debt. Canada, as well as most developed countries, operates a “floating” exchange rate, meaning that the price of currency fluctuates according to market conditions.