How is an exchange rate determined?

zbeckabee

As this article mentions...it would take a book to answer that question...However, part of the short answer is: ...we think it is important to take into consideration the fact that trade in goods and services accounts for less than 10% of total international capital flows, with investment accounting for the remaining 90+%. So, even if purchasing power parity exists between the US and the EMU this could only bring approximately 10% of total capital flows into balance. What happens with the remaining 90% will be determined by the expectations of investors regarding future 'real' returns on dollar-denominated investments relative to euro-denominated investments. http://www.gold-eagle.com/editorials_03/milhouse053103.html Jul 18 06, 3:06 PM

Brinjal

Gosh that is far too complicated. Here in Zimbabwe we have a much simpler formula. What ever number you first think of in the morning is the exchange rate. Today it is Zim$450000.00 to one US. If after lunch the number 6 comes into your head it will change to 600000.00 Depends on who is buying and who is selling. Mulitply by 1.8 to get the sterling. Quite simple. Jul 19 06, 10:18 AM

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