Explanation:

- Option 1: Price of a foreign factor in terms of the domestic factor

- Factors usually refer to inputs in production like labor or capital.

- Not directly related to the foreign exchange rate.

- Option 2: Price of a foreign currency in terms of the domestic currency

- This directly defines the foreign exchange rate.

- It tells you how much of your home currency is needed to purchase foreign currency.

- This option correctly describes the foreign exchange rate.

- Option 3: Price of a foreign good in terms of the domestic good

- This is more related to exchange in goods not currencies.

- Reflects a trade, but not the exchange rate.

- Option 4: Price of a foreign trade in terms of the domestic trade

- Focuses on trade terms not currency exchange.