I’m reading about the changes in values of currencies at the moment, and I struggle to understand:
How are the values of currencies determined in relation to one another (e.g. EUR to GBP or GBP to USD), and why are some “stronger” than others?
I don’t understand why the GBP would be the strongest (or so it seems to me), followed by the EUR (although it’s recently been supplanted by the USD), and then the USD? With USA being the top economy in the world, and things like oil and gas traded in USD, why isn’t the USD the highest valued currency?
In: 3
Currencies are traded. When you go to a foreign country you exchange your currency for the local currency. This is because local businesses only accept local currencies. Companies and governments also do this. It is not travel but a car company will acquire dollars from selling in America and then exchange them for the local currency to pay their workers.
The exchange rate depends on how many people want to exchange currencies. If more people want dollars than pounds then the dollar will go up in value relative to the pound. If a currency is being inflated then it will lose value relative to others that are not.
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