how global exchange rates are determined


by teodorakis
Tags: currency, determined, economy, exchange, exchange rate, global, rates
teodorakis
teodorakis is offline
#1
Sep20-13, 05:19 PM
P: 72
Hi,
I would like to ask about how the exchange rates are determined. I understood the concept of supply and demand, but my question is more technical than conceptual, i mean where is the information of the rates are coming from? Is there any center that keeps the track of, for example every single dollar in the world or any other currency? I hope i can explain myself, i know my question is ridicilious but i can't seem to find it on the net and can't find a palce to ask:)
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Solcielo L
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#2
Sep21-13, 03:29 AM
P: 25
I thought currency was traded on the global market so that's how exchange rates are set. It doesn't make sense to me that you'd trade money to make money.
MrAnchovy
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#3
Sep21-13, 04:36 AM
P: 388
The information comes from traders who publish the rates at which they are willing to buy and sell currency. There is no reporting of actual currency trades (unlike for example quoted shares) or any other centralised tracking of currency movements in general.

phyzguy
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#4
Sep21-13, 07:27 AM
P: 2,078

how global exchange rates are determined


Exchange rates are set the same way as the price of any commodity is determined, i.e. by the marketplace. How is the price of corn, wheat, or oil determined? By what people are willing to pay for it. People are constantly buying and selling dollars in exchange for euros, yen in exchange for dollars, etc. This constant stream of trades is what sets the exchange rates.
AlephZero
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#5
Sep21-13, 11:53 AM
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Quote Quote by phyzguy View Post
People are constantly buying and selling dollars in exchange for euros, yen in exchange for dollars, etc. This constant stream of trades is what sets the exchange rates.
And in practice, if there are N currencies, there are only N independent "exchange rates", not N-squared rates between every separate pair of currencies, because if you could make "dollars from nothing" by simultaneously buying (for example) yen with dollars, pounds with yen, and dollars with pounds, somebody would do that until the rates moved into line with each other.

There was a nice story from the Gorbachev era in the USSR, when they were trying to understand western capitalism. They sent an official delegation to the UK to learn how things worked. One of the first questions they asked was, "who is responsible for setting the price of bread in London?". They had a hard time getting their heads around the answers "nobody", or "everybody".
wigglywoogly
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#6
Jan6-14, 12:20 PM
P: 7
Quote Quote by AlephZero View Post
One of the first questions they asked was, "who is responsible for setting the price of bread in London?". They had a hard time getting their heads around the answers "nobody", or "everybody".
Unless there exists a degree of monopoly power in the market for bread, in which case you can say 'that group of people over there is mostly responsible for setting the price of bread'

Off topic, I know.
Romulo Binuya
Romulo Binuya is offline
#7
Mar18-14, 04:10 AM
P: 64
Being aware of the forces that affects the global exchange rate is important especially if you are working in the c-suite and hence responsible for all the employees down the line i.e. their employment. http://www.investopedia.com/ask/answ...-rates-set.asp

Thousands of miles away Thailand defended their currency the Baht which subsequently triggered international currency crunch.. and I lost my employment when our company went belly-up as a consequence. http://en.wikipedia.org/wiki/1997_As...nancial_crisis

Our company didn't survived the crisis not due to lack of knowledge of what's going but due to error in judgement. http://intl.econ.cuhk.edu.hk/exchang...ndex.php?cid=2


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