Excellent city like Reykjavik (7)
I believe the answer is:
capital
'excellent' is the definition.
(I've seen this before)
I don't understand how the remainder of the clue works.
Can you help me to learn more?
(Other definitions for capital that I've seen before include "Hamilton, perhaps" , "City - finance - very good" , "Funds" , "Upper-case letter" , "It's terrific in the big city" .)