I understand that exchange rates encourage / limit international trading, and I understand that the changes are similar to the stock market and supply and demand. But, these numbers... where do they come from? Who decides? Is there an international committee of bankers that decide what they feel like charging people? Who decides that the GBP should be worth 1.98 against the USD instead of 1.70? I am ignorant, please enlighten me.
2006-12-05 01:05:13 · 4 answers · asked by rockintheuse 2 in Social Science ➔ Economics
Nobody "decides", just like nobody "decides" what a stock price should be. It's a market like any other, with supply and demand. Those who believe that an asset is undervalued buy it (and seek to do it at the lowest price possible); those who believe that an asset is overvalued sell it (and seek to do it at the highest price possible).
2006-12-05 05:49:17 · answer #1 · answered by NC 7 · 0⤊ 0⤋
The market for money is like any other market where goods are bought and sold. In this market one currency is sold for another. e.g UK government buys pounds ----- this leads to a reduction in the amount of pounds available and therefore increases the value of 1 pound. The exchange rate is merely a way of valuing of one currency in exchange for another.
Choose an extreme example:
The US government buys all but one $ thus making it very rare and thus valuable. The exchange rate might be now:
£4trillion worth $1.
In conclusion exchange rates are just a way of valuing different currency's. Its on the international money exchanges where the price is set - by the forces of supply and demand.
2006-12-05 02:43:24 · answer #2 · answered by masterdelrond 3 · 0⤊ 0⤋
A few things. Mainly confidece in a country's economy over a given period. If a country is expected to be strong economically, then it's currency will trade favourably against it's rivals. Any disturbance in a country's domestic progress can affect stability though. Look at the US Dollar for instance, it's reeling because Bush is not having a good time of it, and they are screwing up in overseas theatres.
2006-12-05 01:11:58 · answer #3 · answered by Bubble 1 · 0⤊ 0⤋
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2016-11-23 17:55:11 · answer #4 · answered by belous 4 · 0⤊ 0⤋