How can the currency exchange rates be calculated?
How can the currency exchange rates be calculated? and on which parameters does it depend?
For example, Kwaiti Dinar has the highest currency value (1 Kuwaiti Dinar = 3.79176 U.S. Dollars), does that mean Kwait's economy is stronger than the U.S.? or the exchange rates are measured upon factors other than economy?!
Don't let the numerical exchange rates confuse you. The exchange rate and what you can purchase with that currency are different things. Its call "Purchasing Power Parity".
What you want to find out is what is the PPP between the USD and DInar. That will determine if your rich or poor compared to a Kuwaiti. Research the BigMac index..
http://www.economist.com/daily/chartgallery/displaystory.cfm?story_id=9433804
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Don't let the numerical exchange rates confuse you. The exchange rate and what you can purchase with that currency are different things. Its call "Purchasing Power Parity".
What you want to find out is what is the PPP between the USD and DInar. That will determine if your rich or poor compared to a Kuwaiti. Research the BigMac index..
http://www.economist.com/daily/chartgallery/displaystory.cfm?story_id=9433804
References :
NO
currency exchage just means how much a unit of currency can be exchanged for. It is not much different then what you do every day
i.e. 1 dollar = 100 cents or 1 dollar bill = 100 pennies
The difference is currency markets change and the change is affected by many factors including strength of economy. However, you can not say that 1dinar=3dollar means Kuwait is economically 3x stronger than the US.
You can only look at changes in the exchange to compare changes in economies. If the value of the dinar goes up relative to the dollar then it probably means Kuwait economy is growing faster than the US economy.
References :