Finance, Forex and Investments

How do people figure out the currency exchange rate?

Seriously? How do they figure this out? I calculated the currency exchange for a bag of chips in India which were for 10 rupees, and that was like 21 cents in the USA. Let me just say that the potato chips bag was medium sized.

Public Comments

1. There are three ways to figure it out. 1. using converter on-line to calculate the market rate. Today, 10 Rupee = 0.2198 USD.You're correct. 2.using parity purchasing power(PPP). The converter from CIA fact book is 2.974. So 10 rupee in PPP is 2.974 x 0.2198=0.6538USD 3.using Mccurrencies. Sadly, no report concerning the Rupee.
2. Most people use a currency converter, like this one: http://finance.yahoo.com/currency-converter/#from=INR;to=USD;amt=10 Yahoo says Rs.10 = $0.2233 Other people look up the spot rate for, say, Indian rupees in US dollars. The ask rate is e.g. what you have to pay in dollars if you want to buy rupees; the bid rate is what someone else will pay in rupees to buy US dollars. Right now, the spot rate for USD/INR is 44.950 (bid) / 45.000 (ask). 10 Rs. (1 $ / 45.000 Rs.) = 0.2222 $ (The CIA Factbook is good for many things, but not as a source of real-time FOREX data.) http://www.forexpros.com/currencies/usd-inr-forward-rates u
3. Like many other things in economics, supply and demand of the foreign currency will determine the exchange rate in the foreign exchange market (or the equilibrium, aka the spot exchange rate). Supply and demand are constantly fluctuating which is why the spot exchange rate (equilibrium in the ForEx market) is always fluctuating. So, it's not people that figure out the exchange rate, it's the foreign exchange market :)