I understand that for currencies that are not fixed to each other, their exchange rate reflects the supply and demand, or exports and imports, that the two currencies are involved in.
I want to know who, what machine, what algorithm ultimately adjusts the exchange rate I see on google if I do a “1 usd to jpy” search.
Is there an international organization out there that collects all the data involving two currencies, and automatically runs an algorithm that calculates the rate and informs of the current rate to everyone else?
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There’s no central place where currencies are traded.
Instead, large banks advertise an interbank rate that they will trade at – they do that by sending information to all the other banks through a wide range of e-trading platforms – including Bloomberg and platforms run by other banks like State Street, Deutsche etc.
There is a huge volume of transactions happening every minute – so prices tend to harmonise very quickly. Banks set their prices based on their internal supply and demand. If a bank is offering a good price, other banks will deal with them until they have exhausted that bank’s offer. If a bank offers a bad price, no-one will trade with them until they raise their offer.
Information services like Bloomberg, MorningStar and many other capture that information and make it publicly available – normally on a slight delay to the general public.
Many governments also require banks to report to them on fx rates in parallel to the above.
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