Answer :
A company can calculate its profit by using the foreign currency exchange rates prevailing in the market. The cost incurred in foreign currency can be converted into domestic currency first. The spot rates prevailing in the market can be used for such conversion. Once the expenses are converted into the domestic currency, the profits can be computed in the normal manner as now both the revenues and the cost are in domestic currency.
What is meant by foreign exchange rate?
Foreign Exchange Rate is defined as the cost of the residential currency with regard to another currency. The reason of foreign trade is to compare one currency with another for appearing their relative values.
Foreign exchange rate can also be said to be the rate at which one currency is traded with another or it can be said as the price of one currency that's expressed in terms of another currency.
Exchange rates of a currency can be either fixed or floating. Fixed trade rate is decided by the central bank of the nation whereas the floating rate is decided by the flow of market request and supply.
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