I want to know how exactly the amounts for exchange rates are determined and I have been searching in google but I still don’t get it. For example how do they set that US $1 = 57 Philippine peso?
In: Economics
People are going to exchange currencies for any number of reasons. A huge one is travel, but another one will be global trade where the terms of the exchange will include dollar amounts in one specific currency. Either a foreign company has to buy your local currency to make the trade, or you accept a foreign currency, and then you have to buy local currency with it to pay your employees.
The exchanges facilitating this actually need the currencies in stock to be able to do this. If they’re selling Filipino Pesos too fast, they’ll make them more expensive. This conversely makes it cheaper to buy other currencies with Filipino Pesos.
All the behavior around travel and trade will balance itself around the exchange rate. People will spend more money traveling if their dollar goes further, and companies will do more business if they’re getting a good deal based on the exchange rate.
In a stable economy, everything will balance out at large scales and in sufficient times, and the exchange rate really only makes fluctuations based on the very small point in time when the exchange is happening. Major events, including elections, trade agreements, and things like Brexit, can have longer lasting major impacts on exchange rates.
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