how is one currency more powerful than another? If you exchange $100 to 102 francs don’t you still have $100 but in francs?


how is one currency more powerful than another? If you exchange $100 to 102 francs don’t you still have $100 but in francs?

In: 53

You are correct.

However a burger might cost 25 francs in Switzerland but the same burger costs 5$ in the USA.

You can buy more burgers with USD than with Francs.

No, you have 102 francs. Assuming the exchange rate is symmetric (it often isn’t, because banks & money changers charge a transaction fee for the convenience of exchanging currency), you can turn those 102 francs back into $100. However, there’s no guarantee that relationship will hold in the future. The dollar might appreciate vs. the franc, in which case you might only be able to exchange those 102 francs for $90. Or it might depreciate, and you might be able to exchange them for $150. The former situation is colloquially termed “the currency becoming more powerful”, because you can exchange $100 for 113 francs and get more for your dollars.

Its basically just a “how many people currently want to buy a currency” vs “how many people want to sell it”
The Dollar is strong at the moment because the FED made it possible to get secure interest in dollar while you have to pay interest at the moment to HOLD euros. The EZB is always behind the FED in these changes so probably in some months the Euro will rise again due to being again interesting to be held because of the interest you can gain with it.

Quite simply, exchange rates change. When you exchange your $100US for $102FR, you no longer have any US currency. It’s all Francs. So in six months, when the exchange rate is no longer 1.02 FR/US, but instead it’s 1.10 FR/US, if you exchange those Francs back into US Dollars, you will have only ~$95US.

The momentary rate of exchange matters very little (like going on vacation). To people who exchange large amounts of currency, or who hold it for long periods of time, actual and expected trends in currency exchange rates very much matter.

A country’s economy determines prices for goods and services. Unless specific vendors will alter their price to receive funds in a preferred currency, goods and services cost you the same amount of monetary value, regardless of denomination held. In fact, relative economic performance between currency bearing nations is a big factor which helps set the rate of exchange between their currencies. Buying its currency is wise if you believe a nation has betters years ahead.

Look up the “Big Mac Index”.

what you can buy with the same amount of money is different.

$5 US may buy you one big mac in the US. but it might buy you 1.7 Big Macs in Peru.