Why are prices in EUR for consumer items often the same number as original USD price, but the GBP price applies the actual exchange rate?
"The simplest answer would be: Because they can. Why charge less for something if people will pay more? One example are Apple products. While there the price number is not exactly the same in EUR and USD, they are so close that, effectively, the EUR product is more expensive. Many things go into a price. There might be reasons for products in the EU being more expensive to produce or distribute. Or people in the EU might be in general more willing to pay more for a certain product. In that case, a company would forgo profits when they offered it cheaper. Also, prices are relative. Is the USD price the ""correct"" one and the exchange rate should dictate what the EUR price is? Or vice versa?" It's mostly VAT (value added tax or sales tax). For example an US IPad is $499 without tax, and a German IPad is EUR 499 including 17% VAT. The base price is actually only EUR 417.  In addition to that, cost of business is a little higher in Europe because of tax structures and because smaller countries cause higher overheads. In the EU prices on consumer-focussed sites* are quoted inclusive of VAT. In the USA prices are  quoted exclusive of sales tax. Consumer pricing is usually driven at least partly by psychological concerns. Some pricepoints are more appealing to certain types of buyers than others.  The Euro vs dollar exchange rate has fluctuated a bit over the years but it's generally averaged somewhere around 1.2 dollars per Euro over the last decade. VAT has varied around 15%-20% in most cases. Put these things together and the same headline price points are generally appropriate in both the USA and the Eurozone. OTOH the Brisith pound has been worth substantially more than the dollar or the Euro. So it makes sense to have a lower headline price in the UK. * B2B focussed sites often quote prices exclusive of VAT, you need to be aware of this when comparing prices.
You can calculate your exposure intuitively, by calculating your 'fx sensitivity'. Take your total USD assets, let's assume $50k. Convert to EUR at the current rate, let's assume 1 EUR : 1.1 USD, resulting in 45.5k EUR . If the USD strengthens by 1%, this moves to a rate of ~1.09, resulting in 46k EUR value for the same 50k of USD investments. From this you can see that for every 1% the USD strengthens, you gain 500 EUR. For every 1% the USD weakens, you lose 500 EUR. The simplest way to reduce your exchange rate risk exposure, is to simply eliminate your foreign currency investments. ie: if you do not want to be exposed to fluctuations in the USD, invest in EUR only. This will align your assets with the currency of your future expenses [assuming you intend to continue living in Europe].This is not possible of course, if you would like to maintain investments in US assets.  One relatively simple method available to invest in the US, without gaining an exposure to the USD, is to invest in USD assets only with money borrowed in USD. ie: if you borrow $50k USD, and invest $50k in the US stock market, then your new investments will be in the same currency as your debt. Therefore if the USD strengthens, your assets increase in relative EUR value, and your debt becomes more expensive. These two impacts wash out, leaving you with no net exposure to the value of the USD. There is a risk to this option - you are investing with a higher 'financial leverage' ratio. Using borrowed money to invest increases your risk; if your investments fall in value, you still need to make the periodic interest payments. Many people view this increased risk as a reason to never invest with borrowed money. You are compensated for that risk, by increased returns [because you have the ability to earn investment income without contributing any additional money of your own]. Whether the risk is worth it to you will depend on many factors - you should search this site and others on the topic to learn more about what those risks mean. FYI...prices don't always go up.  Inflation is a monetary phenomenon.  I'm simplifying greatly here: if more money is printed (or the money supply increases through fractional reserve banking) and it is chasing the same amount of goods then prices will go up.  Conversely, if money is held constant and the economy becomes more productive, producing more goods, then a constant amount of money is chasing an increasing amount of goods and prices go down. After the Civil War the greenback went back to being on a gold standard in 1879.  After 1879 greenbacks could be redeemed for gold.  Gold restricts money growth since it is difficult to obtain. Here are the price and wage indexes from 1869 - 1889 (from here):  Notice from 1879 to 1889 that wholesale and consumer prices fall but wages start to increase.  Imagine your salary staying the same (or even increasing) but the prices of items falling. Still don't think inflation is a monetary phenomenon?  Here is a CPI chart from 1800 to 2007:  Notice how the curve starts to go drastically up around 1970.  What happen then?  The US dollar went off the gold-exchange standard and the US dollar became a purely fiat currency backed by nothing but government decree which allows the Federal Reserve to print money ad nauseum. "Seriously, have you ever actually done any research on the CPI before making such silly claims?  &gt;This is also kind of glossing over the fact that the CPI essentially makes the bold argument that energy and transportation prices never affect inflation.  From the CPI website -  http://www.bls.gov/cpi/cpifaq.htm#Question_9   &gt;Which index is the ""Official CPI"" reported in the media? Our broadest and most comprehensive CPI is called the All Items Consumer Price Index for All Urban Consumers (CPI-U) for the U.S. City Average, 1982-84 = 100.  &gt;In addition to the All Items CPI, BLS publishes thousands of other consumer price indexes. One such index is called ""All items less food and energy"". Some users of CPI data use this index because food and energy prices are relatively volatile, and these users want to focus on what they perceive to be the ""core"" or ""underlying"" rate of inflation.  &gt;Again, while we publish many indexes, our broadest measure of inflation includes all items consumers purchase, including food and energy. In addition, when CPI data are reported, these data can be reported on a not seasonally adjusted basis as well as a seasonally adjusted basis. Often, the media will report some, or all, of the following:" Currency hedge means that you are somewhat protected from movements in currency as your investment is in gold not currency. So this then becomes less speculative and concentrates more on your intended investment.  EDIT The purpose of the GBSE ETF is aimed for investors living in Europe wanting to invest in USD Gold and not be effected by movements in the EUR/USD. The GBSE ETF aims to hedge against the effects of the currency movements in the EUR/USD and more closely track the USD Gold price. The 3 charts below demonstrate this over the past 5 years.    So as is demonstrated the performance of the GBSE ETF closely matches the performance of the USD Gold price rather than the EUR Gold price, meaning someone in Europe can invest in the fund and get the appropriate similar performance as investing directly into the USD Gold without being affected by currency exchange when changing back to EUR. This is by no way speculative as the OP suggests but is in fact serving the purpose as per the ETF details. You can use a service like Transferwise to send money. The trick is that they allow sending money to yourself, from a GBP account to an EUR account, effectively making it an exchange shop. Their rates are usually very good, with the transfers happening on the same day most of the time. I'm not an economics expert or anything, but what seems strange to me is the randomising part. Everything else looks fine but why does it randomly select the next item for price increase, wouldn't this depend on supply/demand and the players in the game? "If there is a very sudden and large collapse in the exchange rate then because algorithmic trades will operate very fast it is possible to determine “x” immediately after the change in exchange rate. All you need to know is the order book. You also need to assume that the algorithmic bot operates faster than all other market participants so that the order book doesn’t change except for those trades executed by the bot. The temporarily cheaper price in the weakened currency market will rise and the temporarily dearer price in the strengthened currency market will fall until the prices are related by the new exchange rate. This price is determined by the condition that the total volume of buys in the cheaper market is equal to the total volume of sells in the dearer market.   Suppose initially gold is worth $1200 on NYSE or £720 on LSE. Then suppose the exchange rate falls from r=0.6 £/$ to s=0.4 £/$.  To illustrate the answer lets assume that before the currency collapse the order book for gold on the LSE and NYSE looks like: GOLD-NYSE   Sell (100 @ $1310) Sell (100 @ $1300) <——— Sell (100 @ $1280) Sell (200 @ $1260) Sell (300 @ $1220) Sell (100 @ $1200) ————————— buy (100 @ $1190) buy (100 @ $1180)   GOLD-LSE Sell (100 @ £750) Sell (100 @ £740) ————————— buy (200 @ £720) buy (200 @ £700) buy (100 @ £600) buy (100 @ £550) buy (100 @ £530) buy (100 @ £520) <——— buy (100 @ £500)   From this hypothetical example, the automatic traders will buy up the NYSE gold and sell the LSE gold in equal volume until the price ratio ""s"" is attained. By summing up the sell volumes on the NYSE and the buy volumes on the LSE, we see that the conditions are met when the price is $1300 and £520. Note 800 units were bought and sold.   So “x” depends on the available orders in the order book. Immediately after this, however, the price of the asset will be subject to the new changes of preference by the market participants. However, the price calculated above must be the initial price, since otherwise an arbitrage opportunity would exist." "There isn't a single rate that works in both directions.  There are two rates, one for each direction.  So if $1 = 64.23 INR, you may find that 100 INR = $1.55.   In fact, it's even worse than that.  The ""rates"" are just the average values at which transactions occur.  What happens in the real world is that someone (presumably your bank in this instance) offers to sell 100 INR for some amount, perhaps $1.56.  Other traders may either accept this price or refuse to trade.  If they refuse to trade, the bank may accept one of their offers, perhaps $1.55.   Anyway, the answer to your question is that whomever does the actual conversion keeps the ""difference"".  Of course, they may then lose that money if the value falls before they sell.  More confusingly, either your bank or your friend's bank could do the conversion itself.  Either or both could hold balances in various currencies so that they don't have to rely on the vagaries of the exchange market.  This is called a money market account, and banks let their customers invest in them.   It is a bit more likely to be your bank that gets the money than your friend's bank.  Your friend's bank doesn't actually need to know that your account is in USD.  They just transfer the amount in INR.  It's your bank that has to convert that into USD to deposit in your account."