question: How do world currencies affect each other? What determines if they go up and down in value?
comment: The value of money goes up or down based on how much supply there is and confidence in the money. Let's say you took over a country that has printed $100 worth of currency, and it is currently worth the US Dollar. And let's say in your country, there's an earthquake, and you need $20 to fix the damage. If you taxed everyone and collected $20 dollars, that'd be one way to pay for it. A second way to pay would be to printed 20 more dollars. However, you haven't created any more wealth, so really, someone with $40 used to have 40% of the currency, but now that person has 33% of the currency, and has become poorer, relatively. So by printing more money, you diminish the value of the dollar (inflation, which is accepted by economists as good at low percentages, overall). Second scenario: You're president of this country, and a group of terrorists take you hostage, shut down the government, and want to create their own government. Now, no one wants the money of your country, because they don't believe that country will be worth anything to people if the terrorists new government doesn't accept it. People aren't confident that you'll take back your country, and continue to use $1 as a currency so people want different currencies as they're recognized by other businesses, and more stable governments. Now, you $1 isnt worht 1 USD, instead its worth 10 cents because people don't want it as they're less confident. So the major two factors that affect currency are confidence (in the government, economy, etc) and inflation (or deflation).
passages: In the foreign exchange market, commodity currencies generally refer to the Australian dollar, Canadian dollar, New Zealand dollar, Norwegian krone, South African rand, Brazilian real, Russian ruble and the Chilean peso.
  
  Section::::Effects.
  
  Due to the nature of commodity currencies being tied to commodities, being tied to any one good can be beneficial as well as problematic for the country. While falling or rising exports will lead to deflation or inflation respectively in any country, the impacts are more severe in countries with commodity currencies, as their currencies are so heavily tied to a set few commodities.
  
  Section::::Effects.:Positive.
   Internal, regional, and international political conditions and events can have a profound effect on currency markets.
   Section::::Background.
  
  In the absence of intervention in the foreign exchange market by national government authorities, the exchange rate of a country's currency is determined, in general, by market forces of supply and demand at a point in time. Government authorities may intervene in the market from time to time to achieve specific policy objectives, such as maintaining its balance of trade or to give its exporters a competitive advantage in international trade.
  
  Section::::Background.:Reasons for intentional devaluation.
   Currency markets typically move in long-term cycles around competitive fair value. The competitive fair value between two currencies itself changes over time, according to the relative productivity and inflation differentials between the two economies/currencies. Currencies rarely stay at competitive fair value, due to the interaction of the economic cycles existing in each economy, and typically move between periods of overvaluation and undervaluation as a result.
   None of the models developed so far succeed to explain exchange rates and volatility in the longer time frames. For shorter time frames (less than a few days), algorithms can be devised to predict prices. It is understood from the above models that many macroeconomic factors affect the exchange rates and in the end currency prices are a result of dual forces of demand and supply. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange.
   Section::::Need for adjustments to GDP.
  
  The exchange rate reflects transaction values for traded goods "between" countries in contrast to non-traded goods, that is, goods produced for home-country use. Also, currencies are traded for purposes other than trade in goods and services, "e.g.", to buy capital assets whose prices vary more than those of physical goods. Also, different interest rates, speculation, hedging or interventions by central banks can influence the foreign-exchange market.
   Currency risk is the risk that foreign exchange rates or the implied volatility will change, which affects, for example, the value of an asset held in that currency. Currency fluctuations in the marketplace can have a drastic impact on an international firm's value because of the price effect on domestic and foreign goods, as well as the value of foreign currency denominate assets and liabilities. When a currency appreciates or depreciates, a firm can be at risk depending on where they are operating and what currency denominations they are holding. The fluctuation in currency markets can have effects on both the imports and exports of an international firm. For example, if the euro depreciates against the dollar, the U.S. exporters take a loss while the U.S. importers gain. This is because it takes less dollars to buy a euro and vice versa, meaning the U.S. wants to buy goods and the EU is willing to sell them; it's to expensive for the EU to import from U.S. at this time.
   Section::::Background.:Mechanism for devaluation.
   The interbank market is unregulated and decentralized. There is no specific location or exchange where these currency transactions take place. However, foreign currency options are regulated in a number of countries and trade on a number of different derivatives exchanges. Central bank in many countries publish closing spot prices on a daily basis. The central banks of many economies implement their monetary policy by manipulating instruments that allow them to achieve a certain value for an operational objective. Instruments are defined as the variables directly controlled by a central bank, such as the cash ratio, the interest rate paid on funds borrowed from the central bank, and the structure of the balance sheet.
   Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions and market psychology.
  
  Section::::Determinants of exchange rates.:Economic factors.
  
  These include: (a) economic policy, disseminated by government agencies and central banks, (b) economic conditions, generally revealed through economic reports, and other economic indicators.
   A market-based exchange rate will change whenever the values of either of the two component currencies change. A currency becomes more valuable whenever demand for it is greater than the available supply. It will become less valuable whenever demand is less than available supply (this does not mean people no longer want money, it just means they prefer holding their wealth in some other form, possibly another currency).
   BULLET::::- Inflation levels and trends: Typically a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise short-term interest rates to combat rising inflation.
   BULLET::::6. Government market intervention: When exchange rate fluctuations in the foreign exchange market adversely affect a country’s economy, trade, or the government needs to achieve certain policy goals through exchange rate adjustments, monetary authorities can participate in currency trading, buying or selling local or foreign currencies in large quantities in the market. The foreign exchange supply and demand has caused the exchange rate to change.
   BULLET::::3. Asset market model: views currencies as an important asset class for constructing investment portfolios. Asset prices are influenced mostly by people's willingness to hold the existing quantities of assets, which in turn depends on their expectations on the future worth of these assets. The asset market model of exchange rate determination states that “the exchange rate between two currencies represents the price that just balances the relative supplies of, and demand for, assets denominated in those currencies.”
   Other factors contribute to currency exchange rates and these include forex transactions made by smaller banks, hedge funds, companies, forex brokers and traders. Companies are involved in forex transaction due to their need to pay for products and services supplied from other countries which use a different currency. Forex traders on the other hand use forex transaction, of a much smaller volume with comparison to banks, to benefit from anticipated currency movements by buying cheap and selling at a higher price or vice versa. This is done through forex brokers who act as a mediator between a pool of traders and also between themselves and banks. 
   The eight most traded currencies (in no specific order) are: the U.S. dollar (USD), the Canadian dollar (CAD), the euro (EUR), the British pound (GBP), the Swiss franc (CHF), the New Zealand dollar (NZD), the Australian dollar (AUD) and the Japanese yen (JPY).
  
  Currencies are traded in pairs. The above-mentioned eight currencies can generate 28 different currency pairs that can be traded. However, not all of them are quoted by forex market makers. Depending on the liquidity of currencies, there are 18 currency pairs which are quoted by forex market makers. These pairs are:
   Nontradables are primarily services and the output of the construction industry. Nontradables also lead to deviations in PPP because the prices of nontradables are not linked internationally. The prices are determined by domestic supply and demand, and shifts in those curves lead to changes in the market basket of some goods relative to the foreign price of the same basket. If the prices of nontradables rise, the purchasing power of any given currency will fall in that country.
  
  Section::::Difficulties.:Departures from free competition.
   Both the 1930s episode and the outbreak of competitive devaluation that began in 2009 occurred during global economic downturns. An important difference with the 2010s period is that international traders are much better able to hedge their exposures to exchange rate volatility due to more sophisticated financial markets. A second difference is that during the later period devaluations have invariably been effected by nations expanding their money supplies—either by creating money to buy foreign currency, in the case of direct interventions, or by creating money to inject into their domestic economies, with quantitative easing. If all nations try to devalue at once, the net effect on exchange rates could cancel out leaving them largely unchanged, but the expansionary effect of the interventions would remain. So while there has been no collaborative intent, some economists such as Berkeley's Barry Eichengreen and Goldman Sachs's Dominic Wilson have suggested the net effect will be similar to semi-coordinated monetary expansion which will help the global economy.
   In the process of circulation, production, distribution, and consumption, value metamorphoses from one form to another. Different forms of value – currencies, commodities and capitals – all trade for each other, where buyers and sellers convert money into goods, and goods into money, or convert one type of capital asset into another type of capital asset, in markets where prices fluctuate all the time.
   Other currencies (the "Minors") are generally quoted against USD. Quotes against currencies other than USD are referred to as currency crosses, or simply crosses. The most common crosses are EUR, JPY, and GBP crosses, but may be against any other currency. The rates are almost universally derived, however, by taking the first currency's rate against the USD and multiplying/dividing by the second currency's rate against the USD.
   In January 2019 Asgardia by voting chose the basket of currencies. Using the results of this voting, the Ministry of Finance and its counterpart, the parliamentary Finance Committee, will analyse and examine how the Solar may be freely exchanged against those currencies in open markets and at what future exchange rates.
  
  The following 12 currencies have been selected: US Dollar; Euro; British Pound; Japanese Yen; Canadian Dollar; Swiss Franc; Hong Kong Dollar; Mexican Peso; Australian Dollar; Singapore Dollar; Norwegian Krone; Swedish Krona.
  
  Section::::Economy.:Economic Forum.
   BULLET::::1. External positions: this refers not only to current account flows, but also the net foreign assets of countries (which, if changes in the prices of those assets and liabilities are zero, then it is the accumulated sum of past net current account flows).
  
  BULLET::::2. Systemically important economies: these are the economic blocks running the imbalances, that are relevant to the world market operations, e.g. China, the Euro area or the United States.
   A change in exchange rates can be a cause of loss (or gain) in international trade. For example, now, we suppose that the euro to U.S. dollar exchange rate is 1.00 (€1.00 buys one dollar). In addition, we suppose that an importer of U.S. buys goods for €1000 from a European exporter and the U.S. importer will pay the money 1 month later. If the euro to U.S. dollar exchange rate is 2.00 one month later, the U.S. importer must prepare €1000 with $2000 in the foreign exchange market for the payment. On the other hand, If the euro to U.S. dollar exchange rate is 0.50 one month later, the U.S. importer is able to prepare €1000 with $500 for the payment.
   Central banks and governments who let markets know what they consider ranges of "appropriate" values for its currency has impacts on the trading of the currency, even if intervention never occurs. Central banks can buy or sell various securities if the currency value falls outside its desired range.
  
  Section::::Impure moral suasion.:Interaction with other policy instruments.:Information provision.
   A currency (from , "in circulation", from ), in the most specific sense is money in any form when in use or circulation as a medium of exchange, especially circulating banknotes and coins. A more general definition is that a currency is a "system of money" (monetary units) in common use, especially for people in a nation. Under this definition, US dollars (US$), pounds sterling (£), Australian dollars (A$), European euros (€), Russian rubles (₽) and Indian Rupees (₹) are examples of currencies. These various currencies are recognized as stores of value and are traded between nations in foreign exchange markets, which determine the relative values of the different currencies. Currencies in this sense are defined by governments, and each type has limited boundaries of acceptance.
  