How are exchange rates determined and who enforces them? How does a country buy its own currency and what does that mean?
In: Economics
Rates are determined on the foreign exchange markets by entities needing currencies. If I’m a BMW dealer taking delivery of a shipment of cars, at some point along the way, the dollars spend to pay for the inventory has to be converted into Euros to pay the German factory workers and parts suppliers. Conversely, the Dutch bakers need for American flour means at some point a grain importer needs to convert the Euros the baker pays for that flour into dollars to pay the American farmers who grew the wheat. Depending on demand and supply one way or the other, currency values fluctuate.
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