What does a high exchange rate indicate about a country's currency in relation to others?

A high exchange rate suggests that a country's currency can buy more foreign currency, indicating that it has a strong relative value. This means that with a higher exchange rate, each unit of the domestic currency allows the holder to exchange for a larger amount of a foreign currency than they could with a lower exchange rate. This strength can be an indicator of economic stability, higher interest rates, or stronger overall economic performance that attracts foreign investment.

In contrast, a weaker currency, indicated by a lower exchange rate, means that it will buy less foreign currency. The notion that a currency has no significant value is eliminated since a high exchange rate signifies a strong capacity to purchase foreign goods or investments. Additionally, while inflation can impact currency value, it is not the sole determining factor; other economic variables and conditions also play a critical role in establishing exchange rates.