How are world currency exchange rates set? What determines the world price of a certain currency?

Similar questions: world currency exchange rates set determines price.

There is no setting it's like a stock Take a look at my URL devspace.com/~christianhgross/?p=403. It is a blog entry that talks about what powers a currency. Based on that blog entry a currency is an abitrary means of avoid bartering and saying, "i give 2 goats for your 3 sheep."

Since it is arbitrary how is the value determined? The answer is that it depends on the interest of the world's market. Let me illustrate, Zimbabwe and the US have two common behaviors in that they print money, but yet the America dollar is still worth something, whereas Zimbabwe is setting records on how many zero's they can tack on their currency.

The interest in the USD is high and thus people know they can buy things with the USD, but not the Zimbabwe currency. Currencies are a trillion dollar a day business (I am not kidding here, you just need to look at the exchange statistics) and there are three major business; goods and services, money markets, and traders. By far and large it is goods and services that makes use of currencies, but it is money markets that determines the direction.

Traders are there, but I feel then tend to influence the market on a short term basis. There is no "world price" for a currency. Currencies are traded using pairs such as USD/EUR, or CAD/JPY.

With respect to smaller currencies you would trade against a bigger currency such as USD, or EUR. Right now the EUR is strong against the JPY and USD. But the USD is weak against the EUR, and strong against the JPY.

Overall you can say that right now the JPY is weak. I have no idea why you are asking this, but if you are interested in trading it is a 24 hour business, has liquidity to the wahzoo, and trades in spreads.

Since 1973, currencies float freely on the international markets. The value of the major world currencies is allowed to fluctuate freely on the world's foreign exchange markets. Just like a concert ticket on the night of a sold-out performance, a freely floating currency's price goes up when there is increased demand.

Currencies are scare commodities, subject to the laws of supply and demand, as long as governments do not start printing too much money. When everyone wants to buy Japanese stereo systems, for example, the "price" of the yen tends to go up. The yen's value will increase as importers around the world buy yen--with dollars, pounds or francs--to pay for the latest Japanese stereo systems and video games.

Likewise, if Italians should all decide to go on vacation in Florida, the Italian lira will lose value as it is sold on the foreign exchange market to buy dollars that are used to pay for Mickey Mouse t-shirts and Disney World tickets. So if a whole bunch of Italians want to exchange their lire for dollars, the demand is pushing the price, making the dollar the higher valued currency. However, if millions of Americans decide they want a Japanese product (which, of course, the Japanese merchant wants to be paid for in yen), then the demand for the yen is higher than the dollar supply.So the yen goes up on the exchanges.

Just like stock market. Of course, sometimes a country like China comes along and tries to manipulate its currency and that gets other economies a little tetchy and the free market doesnt' work quite as well as it should in the presence of government interference. Sources: A Beginner's Guide to the World Economy, Randy Charles Epping, 1992 constance2u's Recommendations Beginner's Guide to the World Economy: 71 Basic Economic Concepts That Will Change the Way You See the World Amazon List Price: $10.00 Used from: $0.01 Average Customer Rating: 4.0 out of 5 (based on 1 reviews) .

Currency rates (excepting the manipulated Chinese Yuan) float and are determined by the market. More info below money.howstuffworks.com/exchange-rate.ht... Excerpt from the article: How Exchange Rates Work by Edward Grabianowski Find a Floating SystemYou can see a floating system at work. Changes in the U.S.And Canadian economies have led to the Canadian dollar becoming worth more.

For years, a Canadian dollar was worth about 65 cents. In 2003, it rose to 75 cents. By early 2007, it had reached about 92 cents.

Look in the business section of your newspaper, or check an exchange rate calculator on the Internet, and track the Canadian dollar’s rise in value yourself. Right now, economists aren’t sure how high it will go. The Floating Exchange Rate There are two main systems used to determine a currency’s exchange rate: floating currency and pegged currency.

The market determines a floating exchange rate. In other words, a currency is worth whatever buyers are willing to pay for it. This is determined by supply and demand, which is in turn driven by foreign investment, import/export ratios, inflation, and a host of other economic factors.

Generally, countries with mature, stable economic markets will use a floating system. Virtually every major nation uses this system, including the U.S., Canada and Great Britain. Floating exchange rates are considered more efficient, because the market will automatically correct the rate to reflect inflation and other economic forces.

The floating system isn’t perfect, though. If a country’s economy suffers from instability, a floating system will discourage investment. Investors could fall victim to wild swings in the exchange rates, as well as disastrous inflation.

The Pegged Exchange Rate A pegged, or fixed system, is one in which the exchange rate is set and artificially maintained by the government. The rate will be pegged to some other country’s dollar, usually the U.S. Dollar. The rate will not fluctuate from day to day.

A government has to work to keep their pegged rate stable. Their national bank must hold large reserves of foreign currency to mitigate changes in supply and demand. If a sudden demand for a currency were to drive up the exchange rate, the national bank would have to release enough of that currency into the market to meet the demand.

They can also buy up currency if low demand is lowering exchange rates. The Foreign Exchange Market, or Forex, is the most prolific financial market in the world. Each day, over $1 trillion worth of currency changes hands.

Countries that have immature, potentially unstable economies usually use a pegged system. Developing nations can use this system to prevent out-of control-inflation. The system can backfire, however, if the real world market value of the currency is not reflected by the pegged rate.In that case, a black market may spring up, where the currency will be traded at its market value, disregarding the government’s peg.

When people realize that their currency isn’t worth as much as the pegged rate indicates, they may rush to exchange their money for other, more stable currencies. This can lead to economic disaster, since the sudden flood of currency in world markets drives the exchange rate very low.So if a country doesn’t take good care of their pegged rate, they may find themselves with worthless currency. Hybrids In reality, few exchange rate systems are 100 percent floating, or 100 percent pegged.

Countries using a pegged rate can avoid market panics and inflationary disasters by using a floating peg. They peg their rate to the U.S. Dollar, and that rate doesn’t fluctuate from day to day. However, the government periodically reviews their peg, and makes minor adjustments to keep it in line with the true market value.

Floating systems aren’t really left to the mercy of market forces, either. Governments using floating exchange rates make changes to their national economic policy that can affect exchange rates, directly or indirectly. Tax cuts, changes to the national interest rate, and import tariffs can all change the value of a nation’s currency, even though the value technically floats.

The next time you cross a border, and trade your money for that of another country, remember that economic forces across the world helped determine that exchange rate.In fact, when you exchange currencies, you’re one of those economic forces -- you’re helping to set the exchange rate, too. Although this system works pretty well most of the time, it’s not always the best solution. The Euro On January 1, 2002, the euro became the single currency of 12 member states of the European Union -- making it the second largest currency in the world (the U.S. Dollar being the largest).

This was, to date, the largest currency event in the history of the world; sixteen national currencies have since completely disappeared and were replaced by the euro.(For even more information on the euro, check out How the Euro Works. ) The original seed for a common currency was planted in 1946 when Winston Churchill suggested the creation of the "United States of Europe. " s goals were primarily political, in that he hoped a unified government would bring about peace for a continent that had been torn apart by two world wars.

Although the euro is fundamentally a tool to enhance political solidarity, it also has the economic effect of unifying the economies of participating countries. Some of the euro’s advantages, in regard to economics, include: Elimination of exchange-rate fluctuations - The euro eliminates the fluctuations of currency values across certain borders. Transaction costs - Tourists and others who cross several borders during the course of a trip had to exchange their money as they entered each new country.

The costs of all of these exchanges added up significantly. With the euro, no exchanges are necessary within the Euroland countries. Increased trade across borders - The price transparency, elimination of exchange-rate fluctuations, and the elimination of exchange-transaction costs all contribute to an increase in trade across borders of all the Euroland countries.

Increased cross-border employment - With a single currency, it is less cumbersome for people to cross into the next country to work, because their salary is paid in the same currency they use in their own country. For more information on exchange rates and related topics, check out the links on the next page. Lots More Information Related HowStuffWorks Articles How Currency Works How Banks Work How the Euro Works How the Fed Works How Recessions Work How Stocks and the Stock Market Work More Great Links Universal Currency Converter Official U.S.Dept.

Of Treasury Exchange Rates Rubicon International: World Exchange Rates Bank of Canada Exchange Rates (includes ten-year historical rates) Yahoo! Finance: Currency Conversion Sources: money.howstuffworks.com/exchange-rate.ht... .

It dpends on what country's currency is under discussion. Countries employ three basic strategies (called regimes): Floating exchange rate. Major countries such as the US, the UK and the PRC allow their currencies to float, more or less freely--central banks may get involved, but mostly to smooth short term fluctuations.

en.wikipedia.org/wiki/Floating_exchange_... Pegged float. This is where the currency is allowed to fluctuate within a predetermined range of movement. en.wikipedia.org/wiki/Exchange_rate_regime Fixed exchange rate.

This system is most an anachronistic throw back to another era. en.wikipedia.org/wiki/Fixed_exchange_rate On the major complaints about floating exchange rates is that converting currency values from one into another is a major pain in the behind. Not any more, thanks to the Internet and the PC.

There are lots and lots of web sites that offer the facilities to make the conversions. x-rates.com/calculator.html# xe.com/ucc/ http://www.oanda.com/convert/classic Sources: cited above Snow_Leopard's Recommendations The Economics of Exchange Rates Amazon List Price: $45.00 Used from: $37.00 Average Customer Rating: 5.0 out of 5 (based on 2 reviews) The Rules of the Game: International Money and Exchange Rates Amazon List Price: $85.00 Used from: $6.51 Average Customer Rating: 3.0 out of 5 (based on 1 reviews) On Exchange Rates Amazon List Price: $75.00 Used from: $5.00 .

How exchange rates are set Most currencies are pegged against other currencies. Others float in value depending on demand for the currency. For example, the US dollar gains more value when there is greater demand for it as a reserve currency.

Likewise, the dollar loses value when there is less demand for it. Other factor that affect its velocity are central or Federal Reserve bank rates. Sources: opinion .

I cant really gove you an answer,but what I can give you is a way to a solution, that is you have to find the anglde that you relate to or peaks your interest. A good paper is one that people get drawn into because it reaches them ln some way.As for me WW11 to me, I think of the holocaust and the effect it had on the survivors, their families and those who stood by and did nothing until it was too late.