How are Currencies Valued?

Q & A from TNT (where else?):

Tony I'm puzzled , how can a currency that is at a value, like Iraqi Dinar, of 1166 for $1 get to be $3.58 per Dinar? Is there a formula they go by or is it PFA (plucked from air).  Is it the same for all the other currencies? Thanks

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Please do some research, the IQD was 3+ for many, many decades prior to UN Santions and the US involvment.

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(My favorite.)

They picked a value based on the previous value before the currency was devalued during the war.  The pick something they think the economy and international confidence will sustain based on economic research...  Kind of like appraising a house based on what other houses in the area are worth.  They they determine a number and release it to the open market.  After some turmoil and fluctuation, the market will then refine the value of the Dinar.

Of course everyone always fails to take into account the number of dinar in circulation before the war.  I believe it was around 30 billion.  Now the estimate are from a low of 30 trillion to 80 trillion.  If a currency with 30 billion in circulation was $3, what does increasing the number in circulation by a factor of 1000, do to the value?