What determines exchange rates?



  1. 0 Votes

    A lot of what causes the exchange to change to rapidly is simply market speculation. Based on trends in the market day to day, values of different moneys will fluctuate up and down. A base for determining a currency’s value is a nations Gross National Product. It is a value that shows the overall amount of money the country makes, spends, sells, and buys determining how much value their currency may be worth.

  2. 0 Votes

    Short-term exchange rates – the relative value of a currency – is determined by market supply and demand (specifically the supply/demand for a particular currency).  The supply and demand for a currency are determined by the market demand for goods, services, and investments priced in that currency and corrollating price in a different currency.  Additionally, market speculation and central banks have the power to influence the market for currency. 

    In the long-term, the market should level the value of the good or service as established by varying prices, and a ratio can be used to determine the equivalencies of currencies.  To be more technical, you’ll need to examine and understand purchasing power parity in business economics. 

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