Exchange Rate
This is the rate at which one currency can be exchanged for another in theforeign
exchange market.It is the price of one currency in terms of another.
The foreign exchange market (forex) is a market that specialises in the sale of
different currencies.
The exchange rate of a country can be determined by using
 a fixed exchange rate mechanism
 a floating exchange rate mechanism
 a managed exchange rate

The Fixed Exchange Rate system- this is when the government sets the
exchange rate,the rate is said to be fixed.The government through the
Central bank announces a value for the exchange rate.Whe the rate is
fixed,the government can choose to change the rate at any time.A
downward adjustment often referred to as a devaluation of the exchange
rate means that the domestic currency has become cheaper on the forex
market while an upward adjustment of the exchange rate is referred to as a
revaluation of the exchange rate  which means that the domestic currency
has now become more expensive.

The floating exchange rate system-under this system the forces of demand
and supply operate to determine the value of the currency.There is no
interference by the government.This system is often called a freely floating
exchange rate system.
At a low price more of the currency is demanded while at a high price less is
demand.The demand curve for any currency is downward sloping from left
to right.
At a low price less of the currency is supplied while more is supplied when
the price is high.The supply curve for any currency is upward sloping from
left to right.
At the intersection of the demand and supply curve (the point at which the
demand and supply curve cuts each other) there is the equilibrium rate of
exchange.
 The managed exchange rate system-here the currency is allowed to
float,however,the government through the central bank,can intervene in
the foreign exchange market to maintain the rate at a certain value or
within a range of values.
A depreciation of a currency is the fall in the external value of that currency due
to changes in the forces of demand and /or supply.
(when the currency is losing value ie. appreciating, it means that there is too
little of this currency on the market)

An appreciation of a currency is a rise in the external value of that currency due

to changes in the forces of demand and/ or supply.
(when the currency is gaining value ie. depreciating, it means that there is too
much of this currency on the market)