Even though I trade currencies every day I still lack a basic understanding about how the value of currencies is made up. Please help me to understand the underlying principles of a fair evaluation of currencies.
First of all the value of payment medium holds true due to a vast majority of people accepting this circumstance.
My first naive approach would be to say that the value of a currency should reflect the goods and services provided by a country. But with all the central bank interventions, the toying around with interest rates and billions of dollars being injected into the market while inflation rates behave arbitrarily, this does not seem to be the valid truth.
Supply and demand might be the answer to everything but by taking a closer look at the exact definable regions of small economic zones like Hong Kong, or Singapore in particular, I fail to see how these principles apply. I can not imagine that the flow of money from inside and outside of the region isn't tilted heavily in one direction. How can the exchange rates still remain somehow stable?
First of all the value of payment medium holds true due to a vast majority of people accepting this circumstance.
My first naive approach would be to say that the value of a currency should reflect the goods and services provided by a country. But with all the central bank interventions, the toying around with interest rates and billions of dollars being injected into the market while inflation rates behave arbitrarily, this does not seem to be the valid truth.
Supply and demand might be the answer to everything but by taking a closer look at the exact definable regions of small economic zones like Hong Kong, or Singapore in particular, I fail to see how these principles apply. I can not imagine that the flow of money from inside and outside of the region isn't tilted heavily in one direction. How can the exchange rates still remain somehow stable?