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?
In: 12
Techncially there isn’t a single source and formula. Every company that publishes FX data (Bloomberg, Financial Times etc…) collects data from hundreds of sources such as banks, brokers etc… to come to a conclusion which is usually around the same ballpark due to similar methodology (especially considering that an FX rate can go into many digits after the decimal point). And generally everyone in the market will sell for around the same rate, with any “exceptions” being accounted for and excluded by the methodology. If someone were to sell/buy a large amount of a currency at a rate that deviates from the general FX rate, then it is likely that that currency trade would change the FX rate for the entire market.
The central banks also publish their own FX rates, but whether they themselves consider the rates to be “authoritive” differs from country to country.
Another authoritive source may be interbank exchange rates that are established by banks when they want to trade with each other – it is this rate that Google publishes and usually everyday retail FX rates are more expensive.
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