How Does Google Finance Calculate the Exchange Rates?

currencies-1Yesterday we at doitinvest.com tried to cross-refference several exchange rates from Eastern Europe as shown in the Google Finance and Yahoo Finance graphs.

Shocking news coming in. First of all, neither of those sites, who have the famous interactive charting features, offered the same exchange rates as calculated by the national banks. For your curiosity, you can visit the National Bank of Poland or the National Bank of the Czech Republic to compare the Polish Zlotyi or the Czech Koruna rates. It is tryue, the national banks of the countries calculate average rates based on the national inter-banking forex market. But ultimately, these national banks offer for the majority of the companies the trading rates, not some spot sophisticated graphs.
You can imagine our disappointment here at doitinvest.com when we saw this. The differences between the google finance graph and the national banks currencies ranged from -5% to + 5%. As a source, google quoted dryly the Citibank N.A. (North America?). No details if the exchange rates were bid, ask or at what moment in time were they collected. So much about relying on internet forex quotations to do your macroeconomical forecast. If you want to try this at home, please be my guest: go to finance.google.com and plot there EURCZK or EURPLN, then compare it with the above mentioned sites. No link between these two quotations, which should be the same. Why? Simply because google is a search engine, not a money market maker to determine exchange rates by itself!
Well, this is not all my friends. Because Yahoo Finance uses for the calculation of the exchange rates different sources (not clear which of Thomson Reuters or the other 5 companies mentioned in the bottom disclaimer), the rates are different. From anything else, of course. And Yahoo Finance specifically mentions that they don’t check any data – actually they don’t give a cent on the validity of that data! So you cannot rely actually on nothing outside the EURUSD pair – and even there I would have some serious reserves.
And sometimes not even for technical analysis you cannot use Yahoo Finance or Google Finance. I found on the google EURRON charts changing points where the currency turned (in the national bank’s statistics) in a different direction than the one mentioned there. Funny, isn’t it?
So then what for can you use the nice graphs from google or yahoo finance? Well, for determining the long term trends (more than 3 months) of the respective pair of currencies, through eye plotting. It is actually a pitty – those search engines have such wonderful graph and forecasting capability which has some poor data behind. Or to quote an classical analyst – garbage in, garbage out.


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