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Understanding Auto ISO on the Fuji X100

The Auto ISO setting on the Fuji X100 had me confused the first time I used it. Initially my reaction was, this can't be right. Since, I have read many forum posts asking for a better explanation on how it works and why it does what it does, but I failed to locate a clear explanation. After much thought, I finally figured out the logic behind Auto ISO used by the X100. I assume the X100S works similarly.