# Exchange rates – how do they work?

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So hypothetically, if an exchange rate is 1:1, then \$1 = €1, right? But if the value of the Euro increases, then it would (hypothetically) be 1:2, so \$1 = €2, give or take.

So if that’s the case, then would a currency value *lowering* mean it would be converted for more money? IE: if the dollar drops suddenly, potentially with inflation, and is worth a tenth of the euro, then does \$1 = €10?

In: 2 >So if that’s the case, then would a currency value lowering mean it would be converted for more money? IE: if the dollar drops suddenly, potentially with inflation, and is worth a tenth of the euro, then does \$1 = €10?

It’s the opposite. In this scenario 1 Euro would be worth \$10 USD. if the value of the currency goes down it can be converted into less of another currency. No, you’ve got it the wrong way around.

If the dollar and euro are worth the same, 1:1, \$1 buys €1.

If the value of the dollar dropped, and \$1 is worth a tenth of a euro, then \$1=€0.10. the dollar dropped in value, so you need less euros to get dollars.

If the value of the euro increases, it wouldn’t be \$1=€2. It would be \$1=€0.50. you would be able to buy less euros with a single dollar. I think in that last bit you mean \$1 = €.10, or ten cents(pents? Not sure if they call it by another name or not).

If you take the 1:1 ratio then increase the value of the euro, each single 1 is worth more than the other, so if the euro is worth two times the dollar, it would be \$1=€.50 or €1=\$2

Doing the tenfold either inflation or reduction works the same.

1:10

\$1=€.10 or €1=\$10

I suck at math, someone double check me. Currencies and economies are … complicated. To put it in very simple terms, a unit of money represents buying power. Let’s go with buying a commodity. A unit of wheat.

You can buy one wheat for \$1. You can buy one wheat for €1. \$1 = €1.

The € gets stronger. You need less € to buy the same amount of wheat. You can buy one wheat for 0.50€. \$1 = 0.50€ since that’s how much you need to use to buy one wheat..

The dollar gets weaker, say thanks to inflation. It now takes \$3 to buy one wheat. \$3 = 0.50€.