Eg. US dollar is more powerful than that of Indian rupee.
2) Similarly how we are calculating the equivalence between two countries money.
Eg. $1 (US) = Rupees 43 (Indian)
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TammyBabyI think it depends on the policy and economy development of each country. The money of one country is stronger than another if the former's economy is stronger. For example, USD is very strong 'cos US economy is strong. But in some case, it depends on the policy. For example, China wanna get its currency rate down to get their products' price down in order to sell more and more Chinese products. There are many factilities effect on the currency rate, I have to learn more and more to understand it clearly...Just saying strong economy is vague. The currency value of any country will mainly depend on
* Inflation: More inflation, less value
*Demand/Supply: If currenly demand is fulfilled by printing more money, then the value of that currency will reduce
*People Perception: Based on past experience and other influencing factors
These factors affect if the market is free that is no external influence. Government can interfere in following way,
*Fix the value of currency -- an example of China (not common)
*Make available more currency in demand: For example if there is more demand for dollar in indian market, then Reserve bank of India can supply more dollars from it's storage. So if the supply exceed demand, then the value of dollar will be lowered.
During bilateral trade there are two terms one is export and other is import.
The currency is evaluated on the basis of this transection.
If the country is exporting more to another country than getting import from that country.
Then currency of this country will be stronger than other country,
AnonymousMost probably it happens on the basis of the bilateral trades between two counteries.This is not true. Does not make any sense !
Just consider three countries A,B, and C. A exports to B, B to C and C to A. According to you- A's currency is stronger than B's, B's is stronger than C's, and C's is stronger than A's.... a puzzle :-)
See my previous post for my explanation.