How do you create an exchange rate?

Question

What are the relevant factors when coming up with an exchange rate? Does it have anything to do with supply and demand? What factors matter?

Answer 1

Supply and demand is the only real thing that matters.

Now, lots of things affect supply and demand, and that's the real issue.  The factors involved there have to do with the economic health of the country, its balance of trade, its perceived stablity, etc.

And importantly, it's all guess work.  Information is imperfect.