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What are the factors to ascertain value of currency of any country?

 
 
Tiwari
 
Sat 8 Nov, 2008 12:50 am
I want to understand that what is the basis of value of any currency for example 1 USD = 50 INR, why 1 USD = 50 INR? what is the reason or what is the basis to determine this exchange value?
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Robert Gentel
 
  1  
Tue 11 Nov, 2008 02:06 pm
@Tiwari,
It depends on the currency. Sometimes currency exchange rates are "pegged" to another currency, for example a central bank declares that 1 peso = 1 dollar and that's that.

Not that's not real value, real value is based on what people are actually willing to pay for it. Most major currencies are "floating" currencies, and the market determines the exchange rate based on what people are willing to pay for it.

So at the heart of the system what determines it is people. For example, I live in Costa Rica. I primarily use dollars but also use the Costa Rican Colon. If the dollar is too high, I would not buy dollars as much. When it's low I'll buy more.

The differences in volume for these trades are the fundamental basis of determining the exchange rate. The market behavior is motivated by a variety of things, but the collective result of the behavior is the exchange rate.
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sandra15
 
  1  
Wed 19 Nov, 2008 11:42 pm
@Tiwari,
Hi there,

That depends on number of factors like:
1. demand and supply
2. Market situation
3. balance of payment
4. World economy
5. Government policy
6. Interest rate
etc.....
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Tiwari
 
  1  
Sat 20 Dec, 2008 12:13 am
Thanks for your kind reply.
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Fountofwisdom
 
  1  
Mon 22 Dec, 2008 03:44 pm
The value of anything is determined by how much someone will pay for it. Basically with a currency you are betting on how likely the country is to go haywire: Confederate dollars arent worth much.
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