Please explain how one nations currency's value is determined ageist another ?

Can someone please explain to me how one nations currency's value is determined ageist another ?
I once herd some where that there is a list of 7 or so world currencies that are used in some way to determine the value of world currencies value and there relation to one another , assuming thats correct thats the extent of what I know on the matter .
I am hopping that some of you may be able to shed some light on this matter , thanks .

I'm not sure how all the currencies started out or how they got to the value levels they are now, but I could give an example of the chinese yuan being pegged to the US dollar.

About 8.25 yuan would be $1 US dollar. Now since that was a peg it means the Yuan would be valued to other currencies depending on how the dollar was valued against them. If $1 = 1 Euro then 1 Euro would also be 8.25 Yuan.
Now that it's unpegged it has gained somewhat in value against the dollar.
What changes the value of a currency can be many things. The monetary policy of the government, the fiscal policy and of course the economy.
If the Federal Reserve injects a lot of money into the markets like it has been doing lately it's increasing the money supply, which decreases the overall value of each dollar.

In third world countries their currencies are not worth much because of the political instability there. If I was to invest $10 million usd into argentina I would have to convert it into Argentinian Pesos, which would drive the demand for that money up, thus slightly increasing the value thereof.
This would also cause some deflation and prices to be stabilized. Now if the president was assasinated and there was a war going on, I would say that it's too risky to invest in there, so I pull my money out. So I would bring my pesos to the banks and say I want USD or some other currency for these pesos. If everyone does this the currency falls and the country goes into inflation. The banks might even run out of foreign money reserves to do the exchange so they would automatically drop the price of the peso to be able to exchange enough into other currencies.

That's at least what I know about it.

Cheers

Zebra

reply to post by LOLZebra


Thanks for sharing that bit of info ! I hope that some others will also be able to offer up some info on the matter

Gee can no one help shed some light on this matter ?
Or is it something that not many know about ?

Basically if your economy is strong, more people would want to buy your currency thus making it stronger. If it's bad the opposite happens.

Governments do have the option of not allowing their currencies to be determined by this market system but that would send a bad signal to investors. This would not be a problem, however, if you don't need to trade with other countries. But we all know no country can be totally self-sufficient (unless all of its citizens live like the Amish. )

i think its somehow tied together with a countrys ability (and desire) to repay.


Russia, with all its natural resources would normally have a top rated currency, but because of political positions their 'word' or promise is not held in high regard... so the world community rates their currency
in the middle-average area,

just like Venezeula, oil & mining ore rich, but prone to 'nationalize' foreign industries on their soil... therefore their currency is in the 'don't take it' category.
at least that's my take, a scholar could give you a better explaination

thanks