An exchange rate indicates how much it costs to buy units of one currency using a different currency. It also shows the relative value of one country’s currency compared to another’s.
For example, an exchange rate of 1 to .80 for Canadian to U.S. dollars means that C$1 is worth US80 cents.
Exchange rates fluctuate over time. That’s why importers and exporters often protect themselves with currency hedging, which is a way of offsetting losses when the value of their domestic currency changes.
More about exchange rates
The following example illustrates how exchange rates can affect companies differently. When the Canadian dollar is weak compared to the American dollar, Canadian exporters benefit because their products are cheaper for U.S. buyers. However, the cost of doing business rises for Canadian companies importing American products because those goods now cost more in Canadian dollars.