What measures the value of a country's currency relative to another's?

The exchange rate is the correct measure of a country's currency value compared to another's. It indicates how much of one currency can be exchanged for another and essentially reflects the currency's purchasing power and demand relative to other currencies. For instance, if the exchange rate between the US dollar and the euro is 1.10, it means that one US dollar can be traded for 1.10 euros. The exchange rate is influenced by various factors, including market speculation, economic performance, interest rates, and political stability, providing insight into an economy's strength and competitiveness in the global market.

Other options like the inflation rate refer to the rate at which the general level of prices for goods and services rises, which does not directly measure currency value against another. Economic indicators encompass a broader category of metrics used to gauge economic performance and include many different measurements, not specifically currency comparisons. The trade balance, while important for understanding a country's economic position relative to its exports and imports, does not specifically define the value of one currency in relation to another.