Why do different currencies have different values, like why is the AUD different to the USD?

Question

Why do different currencies have different values, like why is the AUD different to the USD?

In: Economics

Answer 1

Currency is sold just like stock or cupcakes. From US traveling in AU, use a charge card. The credit card company has to scrounge up $150AU to pay the vendor so it has to buy it on the market. Let’s say it costs them $100USD on the market. Then the exchange rate is 150AUD for 100USD. The exchange rate is 150 AUD to 100USD.

Governments, major banks, etc buy and sell currency all the time. For example: A major bank in the US has people turning in Euros from a trip for USD all the time (thing Citi, WellsFargo, BofA, …). Some go for the next days credit card purchases, may be some don’t. At some point over time the bank acquires a bunch of Euros and sells them for USD (or something else). There are people in banks that do that all day, look up the word arbitrage.