Many factors influence 'value' of US $ but where does the actual numeric 'value', the rate, originate

Question

Numeric rate, exchange rate - value of the dollar against another currency - where does the number come from? If it is a giant formula then is this formula in a computer program somewhere?

Answer 1

same as the "number" of a stocks value, established by the marketplace.

Answer 2

Anna,

This is a very interesting question. It is a simple question to ask but a complex and complicated one to answer.

The value of the US dollar is a function of its perceived purchasing power for goods and services in both the US and other countries. However, different capital market factors affect the value of the dollar. Some examples are:
The prime lending rate of the Federal Reserve Bank
Consumer Price Index
Current inflation rates
The various stock market trends
The US trade deficit
M1 and M2 (the amount of physical currency and demand deposits in the banking system)

The "system" is far too complicated to think of it as a simple formula. Any person who could figure that out would literally win the Nobel Prize for Economics.

Also, psychology of investors plays a major role in affecting the value of the dollar.

What is interesting is that if you had to pick just one single factor that determines the value of the dollar, it would unanimously be the person who is the Chairman of the Federal Reserve Bank. A simple sentence from Mr. Bernanke can send the value of the dollar sky rocketing to new heights or plummeting to new depths.