How is one currency be higher or lower to the other currency?

Question

For instance, if one euro is about .80 USD. Or Uk pound has more value than USD. What is the reason that makes euro or pound higher than USD. If we say, that exchange rates and the value of a currency depends on the economic power, I hope USA has more economic power than UK or may be EU countries.

thank you

mesfin

Answer 1

It depends on the condition of the Country. The Govermental policy towards Currency. The Country's economic condition, and manufacturing/service/agriculture out put.
Examples;
China; This Country has deliberately kept it's currency devalued so as to maintain cheap labour and materials/cost. This allows it to export much more than any Country on earth now because Countries like the USA and Europe can Buy it so much cheaper than they can manufacture it. How ever upping their currency would cause it to cost more thus giving the American and European Countries a chance to compete fairly. That wa swhat the free trade agrement was suppose to do. But our Idiots in office made China a favored trade partenr which gives them an advantage in trade. This also resulted in thousands of lost jobs as Companies here and in Europe moved to China or other slave labour Countries like In Africa.
American Currency is a result of our Industrial, Commericial, professional,Agriculturial, and service industries combined while China's is a result of Governmental control. Now even China admits they were wrong, and are growing at a pace they cannot continue or risk financial collapse in the future.

Iraq; At one time the (Iraqi Cuirrency) 1 Dinar was worth about 3 American dollars in value. This was in fact due to their small population, and huge out put in oil reserves. They had little expense and huge profits, but under a dictatorship which controlled ever part of the citizens lives.

Due to the last two Iraqi wars the Iraqi Dinar is now virtually worthless. You can buy 1 million Iraqi Dinars for about 750 to 1400 dollars(all according from whom you buy it.) . If there were to be peace and the country survives you would see the 1 Dinar worth 3 Dollars american with in 3 years again. and tha tis because there are thousands of companies waiting to help industrialize that country and bring democracy there. It would also make millionaires out of thousandsof people including billins for many terrorists groups who own Dinars. Thousands of Asians, Europeans, Africans and Americans (including troops) have purchased Iraqi Dinars on the premis that they will become a free country.
Basically your Currency is worth what someone will pay you for it.
Market traders do much to control Currencies world wide by buying many options fast, (this causes the average joe to do the same,) and selling faster than the average joe can leaving him holding the difference between cost and selling.
It's all a supply and demand with many factors in the middle. The difference between now and 50 years a go supply and demand did decided the currencies of the world, while now politicians , money traders, terrorists, and Companies Officers decide .

Answer 2

This is simple yet complicated. Depends on supply and demand and many outside influences. It also is based on perceptions of wealth or market stability. Import and export tariffs imposed by trade agreements, political stability. This is why, in part, that so many countries went to the EURO. A single currency. It promotes faster trade and save time headaches and money. It promotes market growth across borders which normally helps economies create jobs. The British pound has been a strong economic leader for a while. They choose not to join because in part their pound was valued more on the market and they would have taken a big devaluation by switching to the EURO. This is a simplified opinion. I hope a real Economist Like Dr. Ertl, a fabulous Micro and Macro Economics instructor I remember from Germany, helps answers this as well.

Answer 3

Value of a currency mostly depends on the trade surpluses and the interest rates prevailing in the economy.

Trade surplus here means the gap between what a company exports and what it imports - if the imports are more than exports, it's called a 'trade deficit'. Large trade deficit in general leads to a weaker currency. Other than the general trade deficit of a country, the trade deficit vis-a-vis the particular country is also important in deciding the price of a currency pair. As is well-known, US has been running huge trade deficits. And, this is the reason for the lower value of USD vis-a-vis euro/pound.

The other factor is interest rate - higher interest rates in general means stronger currency. As US Federal Reserve has led a campaign of raising interest rates (from 1% to 5.25% in about 2 years - 17 consecutive times), this has somewhat offset the impact of huge deficits, which would otherwise mean an even lower value of the USD.

If you recall when Euro was launched in 2000, it was valued at less than one dollar. Its growing value reflects the worsening of trade deficits in US and increasing clout of Europe in global trade - you can say a gradual decline in the 'economic power' of US and simultaneous rise in that of 'Euro-zone'. This trend may well continue in future and Euro may replace the current status of US Dollar as the 'international currency'.

Answer 4

You're comparing apples to oranges.
If 2 apples are worth 3 oranges that doesn't mean that apple growers are better, richer or have more economic power than orange growers.
Americans buy gas at dollars per gallon. French buy gas at Euros per liter. That makes it confusing to compare. One way to compare might be to look into how many gallons or liters of gas (or loaves of bread or ipods) you can buy with an hour's work.

Dick

Answer 5

Depends on the amount of gold they have to back up their currency.

Answer 6

well i for one feed my currency a high protein diet, so it tends to be taller that the otther currencies. however, even though it is higher, i taught it not to gloat.

Answer 7

Because those countries don't have 11 million "undocumented citizens."