Currency..?

(I am assuming people here are Indian)


How do you determine the difference in Currency. Is it that forty rupees in india could get you the same from india as one dollar can in america.|||There are various means with which the currency can be compared. The most common method is to peg the currency against the US dollar. Whichever currency can buy more of the dollar is the stronger one. But there are many exceptions to this rule. E.g. Currencies of some gulf states look stronger than the US dollar if they are directly compared. But they lack the global acceptability of the US dollar.


-Another technique to compare currencies is to check the amount of gold that can be purchased with one unit of the currency.


-Contemporary economists have come up with modern theories such as the Big Mac Index or Latte Index. The Big Mac Index assumes that McDonalds has operations in both the countries. The Big Mac Index is a measure of the number of units of a currency required to purchase a Big Mac burger in that particular country.|||No No No, Cost of products are dependent on other factors such as demand, availibility of raw material, substitutes etc,





Just incase you are looking for exchange rates, visit www.xe.com|||All different currencies were created in different times and different places and under different circumstances, so no there is no reason to expect different countries' currencies to have the same unit value, or to have the same relative value compared with products in each country.|||Definitely not! Every country has its own currency. Its intrinsic value depends on the national product. The value in international market depends upon its credit and debt position.|||every country has a different currency and the rupee value of that currency changes as per the market condition. Please refer the Economic Times in this regard.|||Dear Friend, of the many theories which explain the difference in exchange rates of currency are 1) Purchasing power parity theory and 2) Interest rate parity theory.





As per purchasing power parity theory, the exchange rate between any two country or countries always settles to that rate at which the buyer is indifferent towards buying from either of the two countries. Example if a tennis racket is available for $100 in united states and the same is available for Rs. 4000 then the exchange rate will be $1= Rs 40. Now suppose a buyer wants to buy the racket from U.S.A, he will have to buy 100 dollar currency at Rs.4000 which is also the price at which the racket is available in India. Thus not taking into consideration the quality of the American tennis racket , the buyer is indifferent to buying it from U.S.A or INDIA.








Similarly, There is the theory of Interest rate parity whereby the exchange rate depends upon the difference in interests on the investment in the respective countries. This keeps the investor, indifferent towards investing in either of the countries in question.








Thus , if we reconcile the two theories, we gain to understand that the aim of exchange rate is to keep the investors and buyers of the respective countries, indifferent towards investing or buying in either of the respective countries. This helps to boost the economic development within the respective countries. All the best.